To understand a country’s ability to meet it loan obligations, it is necessary to examine lending terms. However, unlike most multilateral and bilateral lenders, the state-affiliated China Development Bank and China Exim Bank “do not disclose their loan terms”. This makes it difficult to accurately assess their loans’ fiscal burden on borrowing countries. This lack of transparency makes China’s true lending intentions subject to speculation.
Second, China has been accused of using development finance to access untapped natural resources in developing countries. In sub-Saharan Africa, for example, some scholars submit that “most Chinese government funded projects are aimed at securing a flow of natural resources for export to China”.
Beijing routinely dismisses such accusations. In China’s defence, however, are scientific research, CIA intelligence reports and the World Food Programme, which have failed to find robust evidence to support the view that Chinese aid is strongly linked to natural resource endowments.
These accusations have been fuelled by China’s strategy of acquiring strategic assets of debtor countries that default on their loan obligations. For instance, Sri Lanka was recently forced to concede its strategic Hambantota port to China on a 99-year lease after it failed to service its Chinese debt.
Sri Lanka owes China nearly $13bn; its domestic tax revenue forecast for 2018 is just $14bn. Similarly, there has been persistent talk about Zambia’s supposed deal with China to take over Zambia's international airport, its national broadcaster and power utility. Zambia has denied these allegations.
Although common in real estate finance practice, where properties of delinquent mortgagors are foreclosed to meet obligations to lenders, annexation of strategic assets of sovereigns is unprecedented. This raises the important question: is China pursuing a rogue strategy in its dealings with developing countries?
The Centre for Global Development, upon analysing movement in countries’ overall public debt-to-GDP ratio and concentration of that debt with China as creditor, has concluded that the One Belt, One Road initiative could make at least eight countries in Africa and Asia vulnerable to debt sustainability problems.
Another area of concern is China’s “look the other way” policy. This is unlike most “donors”, particularly the US, which has insisted on good governance as a precondition for its development assistance. Data shows that China has made large resource-related investments in countries with weak governance infrastructure, such as the Democratic Republic of Congo (DRC) and Sudan.
In the DRC, China is rivalled by Canadian firms, which on aggregate held $4.5bn in mining-related investments by 2009. Nevertheless, research appears to confirm that Chinese outward direct investment in developing countries is indeed indifferent to the governance environment in recipient countries.
Suspicions about China’s intentions have also been heightened by its international agricultural sector interventions. In its 2006 Africa policy white paper, China pledged to strengthen agricultural co-operation and improve African countries’ capacity for food security.
Critics, however, aver that “agricultural aid and knowledge transfer centres in developing countries are China’s entry points for large-scale efforts to secure enough land somewhere to feed a fully industrialised China in the longer term”. The Chinese government denies this accusation.
That’s not all. China’s debt financing is commonly tied to the use of labour from China. In Africa alone, estimates put the number of Chinese migrants at above 1-million by 2013.
Although data on the exact number of Chinese migrants to Africa is unreliable, recent studies in Ethiopia and Ghana show that Chinese migrants are involved in running restaurants, retail food outlets and small farms. This increases competition in the small business sector and therefore limits employment and business opportunities for locals.
But the red flag over China’s development co-operation has probably been the accusation of its involvement in corruption in developing countries. For instance, Ann-Sofie Isakssona and Andreas Kotsadam recently provide strong empirical evidence suggesting that Chinese aid fuels local corruption but does not stimulate local economic activity. On the contrary, the study finds that “World Bank aid projects stimulate local economic activity without any consistent evidence of it fuelling local corruption”.
Consistently, an earlier study finds that Chinese development funds may have “captured” leaders of recipient countries. However, the study documents contrary findings on corruption. Other commentators argue that the negative focus on China is driven by the West’s colonial era anxiety.
With such a conflicting discourse, China’s contribution — or lack thereof — to the development of poorer countries will need more research and might take much longer to appreciate. My personal view is that developing countries must carefully scrutinise every word in any capital project funded by China.
• Kodongo is associate professor in finance at Wits University.