Why China is seeking greater presence in Africa – the strategy behind its financial deals

China’s relationship with Africa is set to deepen. At a summit in Beijing in early September, China’s president, Xi Jinping, pledged^[1] to deliver US$51 billion (£39 billion) in loans, investment and aid to the continent over the next three years, as well as upgrading diplomatic ties.

Beijing’s close engagement with Africa is not new. Since 1950, the first overseas trip of the year for Chinese foreign ministers has almost always been to one or more African countries^[2]. But Xi’s commitments are still sure to raise concerns in the US and other western countries, which are competing with China for global influence.

They may well also bring back fears of China using “debt-trap diplomacy” to push African countries into default and thereby gain leverage over them. Such is the strength of this narrative that South Africa’s president, Cyril Ramaphosa, felt compelled to deny it^[3] at the summit.

The notion of Chinese debt traps, particularly the infamous case of Sri Lanka’s port of Hambantota^[4] that, in 2017, was leased by the Sri Lankan government to a Chinese company to raise liquidity, has been debunked^[5] several times^[6].

But with African populations and economies growing, and China’s engagement with them continuing to deepen, it is important to understand what China hopes to achieve with its diplomacy.

China’s engagement with Africa is strategic as well as economic. Whether it’s gaining votes at the UN, better access to resources, or increasing the international use of its currency, China’s diplomatic relations with Africa play into its ambitions of being a major player in a multipolar world.

From a purely economic perspective, Africa is a potentially lucrative market for China. With its under-served market and booming population, the scope for expansion into Africa offers huge potential for Chinese firms.

This is particularly true now that the African Continental Free Trade Area^[8] (which was established in 2018) opens up the possibility of cross-border value chains developing in Africa.

Most of the goods that China imports from Africa are natural resources. Many of these resources have strategic relevance, for example, in manufacturing batteries. In return, Chinese companies export a wide range of goods to Africa, including manufactured products, industrial and agricultural machinery, and vehicles.

In terms of foreign direct investment, Chinese companies are still only the fifth-largest investors^[9] in Africa after their Dutch, French, US and UK counterparts. But their ascent has been relatively quick, and while western companies^[10] are focused on resources and the financial sector, Chinese ones also invest heavily in construction and manufacturing.

Chinese companies are major players in Africa’s construction sector, often working on projects funded by loans from Chinese banks to African governments. In 2019, for example, Chinese contractors accounted for about 60% of the total value^[11] of construction work in Africa.

Some of the infrastructure financed by China has done little to improve^[12] trade or economic development in Africa. And it has, admittedly, also contributed to the increased debt burden of several African countries.

The costly expressways that connect Nairobi in Kenya and Kampala in Uganda to the respective international airports, for instance, have made life easier for city elites and international travellers. But they have not led to economic growth.

So, China has moved to recalibrate its infrastructure finance in recent years. In 2021, Xi introduced the concept of “small and beautiful” projects better targeted at the partner country’s needs – a concept he repeated^[13] at the recent summit.

It is this alignment with the requests of African leaders that differentiates China’s engagement with Africa from that of the west. A key request of many African leaders is for investment in manufacturing value chains and imports of African processed goods^[14] rather than just raw resources.

Xi’s keynote speech addressed these two concerns. He promised more investment in key sectors and to allow more African goods to enter China without duties.

China’s support to African nations is political as well as economic. Its policy of non-interference^[16] in Africa’s internal affairs have been well received by African leaders – a sharp contrast^[17] to western nations who have often tied their support to the respect of certain social or economic conditions^[18].

This has, in turn, bolstered China’s diplomatic influence on the continent. A good indicator of this influence is how many countries maintain diplomatic relations with Taiwan, which the Chinese government sees as part of China’s territory. In Africa, only Eswatini has full relations^[19] with Taiwan and just a handful of other countries have representative offices.

Another Chinese goal is to expand the global reach of its currency, the renminbi. Its motive here is to challenge the dominance of the US dollar, which gives America control over transactions anywhere in the world.

Since the late 2000s, the People’s Bank of China has signed bilateral swap agreements^[20] with Morocco, Egypt, Nigeria and South Africa to conduct transactions in renminbi. And China is aiming to increase the use^[21] of renminbi in official lending, both through domestic banks such as the China Development Bank and regional institutions such as the New Development Bank.

Much like Africa’s western partners, China pursues both political and economic interests in its dealings with the continent. But, with western leaders paying little attention to Africa, China doesn’t need to pursue debt-trap diplomacy to increase its influence there. It just needs to put forward a better partnership offer to gain ground.

References

1. ^{^} pledged (apnews.com)
2. ^{^} one or more African countries (www.chathamhouse.org)
3. ^{^} compelled to deny it (www.reuters.com)
4. ^{^} port of Hambantota (www.chathamhouse.org)
5. ^{^} debunked (www.theatlantic.com)
6. ^{^} times (www.bbc.com)
7. ^{^} Ken Ishii / Pool / EPA (epaimages.com)
8. ^{^} African Continental Free Trade Area (au.int)
9. ^{^} fifth-largest investors (unctad.org)
10. ^{^} western companies (www.dusselpeters.com)
11. ^{^} 60% of the total value (www.econstor.eu)
12. ^{^} little to improve (odi.org)
13. ^{^} repeated (english.www.gov.cn)
14. ^{^} imports of African processed goods (www.theeastafrican.co.ke)
15. ^{^} Daniel Irungu / EPA (epaimages.com)
16. ^{^} non-interference (blogs.lse.ac.uk)
17. ^{^} sharp contrast (www.tandfonline.com)
18. ^{^} social or economic conditions (eba.se)
19. ^{^} has full relations (www.tandfonline.com)
20. ^{^} bilateral swap agreements (onlinelibrary.wiley.com)
21. ^{^} increase the use (carnegieendowment.org)