China, Africa and resource-backed infrastructure loans

How exactly do Chinese loans to African countries work?

[China’s] current experiment in Africa mixes a hard-nosed but clear-eyed self-interest with the lessons of China’s own successful development and of decades of its failed aid projects in Africa.

The first prong of Beijing’s efforts is to offer African states resource-backed development loans, an initiative inspired by its experience at home. In the late 1970s, eager for modern technology and infrastructure but with almost no foreign exchange, China leveraged its natural resources — ample supplies of oil, coal, and other minerals — to attract a market-rate $10 billion loan from Japan. China was to get new infrastructure and technology from Japan and repay it with shipments of oil and coal. In 1980, Japan began to finance six major railway, port, and hydropower projects, the first of many projects that used Japanese firms to help build China’s transport corridors, coal mines, and power grids.

Since 2004, China has concluded similar deals in at least seven resource-rich countries in Africa, for a total of nearly $14 billion. Reconstruction in war-battered Angola, for example, has been helped by three oil-backed loans from Beijing, under which Chinese companies have built roads, railways, hospitals, schools, and water systems. Nigeria took out two similar loans to finance projects that use gas to generate electricity. Chinese teams are building one hydropower project in the Republic of the Congo (to be repaid in oil) and another in Ghana (to be repaid in cocoa beans).

That is Deborah Brautigam of American University writing in Foreign Affairs. (When I was thinking of researching informal trade among the Igbo – which is what my PhD is partly about – I read an article she published in 2003, on Chinese business networks as catalysts for the movement of Igbo entrepreneurs from trading in auto spare parts to manufacturing them in Nnewi, southeastern Nigeria).

The concluding paragraph of the Foreign Affairs article:

While the West supports microfinance for the poor in Africa, China is setting up a $5 billion equity fund to foster investment there. The West advocates trade liberalization to open African markets; China constructs special economic zones to draw Chinese firms to the continent. Westerners support government and democracy; the Chinese build roads and dams. In so doing, China may wind up supporting some dictatorial and corrupt regimes, but — and this is an inconvenient truth — the West also supports such regimes when it advances its interests. And given the limits of the West’s success in promoting development in Africa so far, perhaps Westerners should be less judgmental and more open-minded in assessing China’s initiatives there.

The whole article is here.