Recent visits to Africa by U.S. Ambassador to the U.N. Linda Thomas-Greenfield and U.S. Treasury Secretary Janet Yellen came as a new study found China's overseas investments in the COVID-19 era are at a 13-year low. China has invested heavily in Africa through its Belt and Road Initiative and the U.S. has also recently pledged investments, with analysts saying Washington is trying to compete with China for influence on the continent.
The report by Boston University's Global Development Policy Center found loan commitments from China's two policy banks (China Development Bank and the Export-Import Bank of China) totaled $3.7 billion in 2021. In contrast, from 2008 to 2021 that amount was $498 billion, an average of $35.6 billion a year.
China has struggled to recoup its money from several African countries and now has to participate in complicated debt restructuring negotiations. Currently, debt talks are happening in Zambia.
Asked if Beijing had been chastened by these experiences, causing the drop in loan commitments, senior academic researcher Rebecca Ray, who co-authored the paper, said that while China has stopped offering new loans to some countries that have been unable to pay existing debt, like Venezuela, it has also been finalizing negotiations on large future loans to another indebted nation, Pakistan.
"While China may be hesitating to 'send good money after bad,' in some cases of borrowers who are simply unable to repay, high existing debt levels don't seem to be a complete deterrence for them," she noted.
US critiques and pledges
In Africa, Thomas-Greenfield blamed China for indebting African countries. She also noted that while Qin Gang, China's new foreign minister, was also on the continent recently, "what I heard from ... people and leaders when I was there very clearly was that America is in their hearts, and they are extraordinarily appreciative of the African Leaders Summit that we just hosted and the efforts that we are making to engage more proactively on the continent of Africa."
Washington pledged to invest $55 billion in Africa at the U.S.-Africa Summit in December.
Yellen also noted in her January 17-28 visit to Africa that Washington has many programs "that are oriented to help efforts to build infrastructure, and when we do that, we want to make sure that we don't create the same problems that Chinese investment has sometimes created here."
She also said Beijing was "a barrier" to global efforts to restructure Zambia's massive debt.
Yellen’s comments drew a swift and cutting rebuke from China’s embassy in Zambia, which pointed to America’s own substantial debt, and an opinion article in state media Xinhua that read, “The airports where the U.S. officials landed and the roads and bridges their convoys passed during their Africa visits were likely built in cooperation with Chinese companies.”
Transforming money spent
Chinese President Xi Jinping's landmark Belt and Road initiative to bring infrastructure to developing countries is not gone altogether, the authors of the Boston University study said; it's just transforming the way money is spent.
"This trend is emblematic of the 'small is beautiful' approach to Chinese economic engagement in recent years, which prioritizes smaller and more targeted projects," the study said.
And that’s not necessarily bad news, said Ray, pointing out that a “small is beautiful” approach presents “lower risks to sensitive ecosystems and Indigenous communities.”
China has moved away from concentrating its lending on the extractions and pipelines sector, said the study, which found that since 2018 more money has gone to the transportation sector.
Still, the fact that "conditions in China and in host countries are less conducive to large amounts of development finance than they were a decade ago … is concerning, as the need for development finance is at an all-time high due to the polycrisis of financial instability, climate change and pandemic," noted co-author Kevin P. Gallagher.
However, Harry Verhoeven, a senior research scholar at the Center on Global Energy Policy of Columbia University, who also has written on Chinese loans and debt, said, "I think it's too early to tell whether China is really ready to switch full-scale to a 'small is beautiful' approach. ... Especially in the African context this would require some major changes in the patterns of engagement that Beijing has prioritized since the late 1990s."
He noted that "there is no question that the combination of the COVID-19 pandemic, China's domestic financial woes and disillusionment with growing difficulties of African sovereigns to service their debts to Chinese lenders has led to a downscaling of new Chinese loans. ... But questions can be raised regarding the administrative capacity and willingness of Chinese policy banks and other government institutions to manage a much broader (and more detailed) portfolio of smaller loans."
Asked about the study’s main finding that Chinese development finance was at a 13-year low, the Mission of the People's Republic of China to the African Union instead sought to emphasize the country’s direct investments in Africa, which it said had in fact increased by 16.3 percent in 2021.
“China's outward foreign direct investment in 2021 reached US $178.82 billion,” the mission told VOA, noting that last year China's “nonfinancial outward foreign direct investment” was also up by 7.2%, and the number of new signed contracts overseas worth over $50 million had also grown.
But Ray said the mission’s figures and the figures from her study were not comparable because foreign direct investment, where China takes an ownership stake in a particular development project, is different from sovereign finance, where China loans money to a government.
"It’s not surprising that equity would rise as finance falls, because rising global debt and interest rates make equity more attractive and additional debt less attractive,” she added.
The Chinese Mission to the AU told VOA that it rejected the West’s “debt-trap” narrative and said in fact World Bank figures showed multilateral financial institutions and commercial creditors hold nearly three-quarters of Africa's total external debt – more than China.
The mission added that China neither sees itself in competition with the West in Africa, nor is it disengaging with the continent.
“China will do more to upgrade and elevate China-Africa cooperation … continue to expand China’s trade with Africa, promote high-quality development of China-Africa financing and investment cooperation, and boost the new dynamics in health, green development, the digital economy and other sectors to give more support to Africa’s economic and social development,” the mission said.
Signs of Chinese economic rebound
There are signs that large-scale development lending could rebound. Since China reversed its zero-COVID-19 policy and reopened this year, its manufacturing, services and construction sectors expanded for the first time in four months.
While economists had expected slow growth in China this year, investment banks like Goldman Sachs and Morgan Stanley have since upgraded their forecasts. The International Monetary Fund also raised its economic growth outlook for China this week, saying it expects the economy to grow by 5.2% in 2023.
But Ray told VOA she didn't foresee that making much difference.
"We have already seen the availability of capital for China rebounding, so I doubt that the increased economic growth will change much. The Chinese government still has significant incentives to be supporting the liquidity of its domestic financial system," she said.
China's economy is trying to recover after the lengthy lockdowns during the zero-COVID-19 policy and wave of infections following the policy's reversal.
As for influence overseas and in Africa, Ray said, "It is noteworthy that Yellen did not sign any major new agreements or announce any major new projects while in Africa. If the U.S. does step into the infrastructure finance gap left by China's declining development finance, it may be more likely to emerge through multilateral fora."