Sino-African Relations and Chinese Lending: An Interview with Kevin Acker

Kevin Acker is the Research Manager at the China Africa Research Initiative at Johns Hopkins School of Advanced International Studies. His research focuses on China’s overseas lending and debt relief. He is a 2019 M.A. graduate of China studies and Economics at Johns Hopkins SAIS, having spent the first year of this program at the Hopkins-Nanjing Center. He previously worked in international education and consulting. He holds a B.A. in Economics and China Studies from Binghamton University.

Just to start off, could you just share a little bit about your background and the work that you do at the China Africa Research Initiative?

I graduated from the Johns Hopkins University School of Advanced International Studies in 2019. There I spent a year at the Hopkins-Nanjing Center in China with most of the coursework in Chinese. When I returned to D.C. to finish my master’s, I started part-time at the China Africa Research Initiative (CARI) as a research assistant.

I’ve been full-time at CARI as the research manager since January 2019, and my research has focused on our main project, which is a database of Chinese loans to Africa, as well as other issues surrounding debt in Africa, especially debt relief. 

I’ll just explain a little bit about what our loans database is, why we put it together, and how we put it together. Essentially, there’s no one place you can go on any Chinese government website to get the data on their overseas loans. Our director, Dr. Deborah Brautigam, who has been researching China-Africa relations and Chinese loans to Africa since the 1980s, decided to take this on herself using a variety of sources to put together a database of each individual loan from mainland Chinese financiers to African governments and state-owned enterprises. The China-Africa Research has since identified US$ 153 billion worth of loan commitments from mainland Chinese financiers to African governments and state-owned enterprises.  

There’s a few things to keep in mind when we’re looking at this data. One is that our data does not show debt statistics. It’s only loan commitments, so it records the loan commitment when it’s made in a given year. Then that loan commitment gets turned into debt over the following years as the project is implemented. It’s important not to conflate those numbers because the debt is often much lower than the value of loan commitments that we report in a given year, due to both repayment and the slow progress of disbursing loans.

Another thing is that our data includes no foreign direct investment. Investment and lending are often conflated, but foreign direct investment does not include the kind of infrastructure loans that our data includes. It includes things like the purchase of business assets by a Chinese company in Africa, as well as things like Greenfield investments in manufacturing or establishing subsidiaries in Africa by a Chinese company. 

At CARI, what we do with this data is analyze how it’s changed over the years and what the makeup is. For example, about 80% of Chinese finance to Africa goes to infrastructure. 60% of the finance goes to just two sectors: transport, things like roads, railways, airports; and the power sector, things like hydropower projects and electricity transmission and distribution networks. Most of our data comes from open source research, some comes from field work of our research fellows, and some comes from interviews with people familiar with different cases. The best sources that we use are African government ministry of finance and public debt documents. We also use a lot of Chinese sources like the Chinese ministry of commerce and embassy websites. Then we also fill in the holes with media sources

You talked about infrastructure, transportation, and electricity, but in addition to these projects, what other kinds of projects and agreements have been established between China and African countries? How did China-Africa relations get to where they are today?

China-African relations in the modern era can be traced back to the ’50s and ’60s. Some of the relations were spurred by the Sino-Soviet split and the struggle for influence between the Soviet Union and China in Africa. The Zimbabwe case shows that Robert Mugabe had close ties with China after a falling out with the Soviet Union. Then relations with Africa became an important part of Chinese strategy to get countries to recognize Beijing as the seat of the official Chinese government, as opposed to Taiwan. Now almost every African country recognizes Beijing as the seat of the Chinese government, with the exception of Eswatini. Burkina Faso was the most recent country to change their recognition in 2018.

In the late ’90s, Chinese construction contractors started to look for contracts overseas, and this was partly a way for the Chinese government to encourage contractors to gain experience internationally and gain experience with international standards. In the 2000s, it also became a way for these large Chinese construction companies to find more business as they faced the issue of oversupply in the construction sector within China.

Chinese companies make a lot of money in Africa on contracts, only a small portion of which are actually financed by Chinese loans. You can find the contract data by region on the Chinese National Bureau of Statistics websites, and recently there has been about $40 to $60 billion worth of construction contracts signed every year by Chinese companies, and only an average of about $10 billion per year of Chinese finance, of which only 80% goes to infrastructure. So you can see that Chinese contractors are hugely involved in Africa. Chinese loans facilitate that to a certain extent. 

Then there’s the political side of things, which has to do with China’s desire to gain favor, essentially, in African countries. Part of that is through the overseas loans program. This helps China in platforms like at the United Nations where very few African countries are willing to sign on to statements against China’s human rights abuses in places like Xinjiang and Hong Kong because they don’t want to jeopardize their relationship with China and their access to Chinese finance and other benefits of their relationship with China. And of course this also includes the Taiwan issue. 

There’s a lot of debate in Western media about what exactly it is that China means to do on the continent. What would you say are the biggest misconceptions about China’s motivations and actions on the continent?

So, I think, one of the biggest misconceptions, which I think we hear about often in terms of China-Africa relations, is the idea that China pursues debt trap diplomacy, and their lending program is meant to set a trap so that when a country can’t pay their loans back, it allows China to step in and seize assets, or in some cases, as we’ve even heard from media sources, to annex territory. Most recently in the case of Montenegro, we’ve heard this kind of language. Historically, there’s no evidence for this.

One of the biggest cases has been the case of the Hambantota Port. Experts who have done field work in the region and who know the details of the case can tell you that it was not the case of an asset seizure in response to a default on a loan. It was a case of a debt management crisis and a balance of payments crisis within Sri Lanka including debt payments due to a number of creditors in addition to China, most notably to foreign currency bondholders. Part of their strategy to deal with that was to generate foreign exchange by selling a stake in the port to what was a Chinese company. But there was no asset seizure involved. There was no lawsuit involved.

I think one of the assumptions that underlies this is that China somehow uses its political muscle to force African countries to take on infrastructure projects. I think that’s a fundamental misunderstanding of why African countries are borrowing from China for infrastructure projects. One of the statistics that illustrates this is that the African Development Bank estimates that there’s an infrastructure funding gap of $70 to $100 billion per year. So there’s a huge demand in Africa for infrastructure and for infrastructure finance. In many cases, a lot of the projects that China finances have been on the wishlist, so to speak, or part of development programs in African countries for many, many years. Most loans are applied for by African countries. Now there’s interesting research to be done about the role of contractors and the incentives for contractors to lobby for projects to be taken on. But that’s kind of separate from a high level bilateral relationship between China and African countries.

We’ve done a lot of research between 2000 to 2019 on cases where countries have had trouble repaying their loans and what China does in response. In no cases have we found any lawsuits or any asset seizures. What often happens is, when a country has trouble paying back its loan, China will halt disbursements to projects and say, “Hey, we’re not going to pay out any more money from these loans until we resolve the issues surrounding the missed payments on this one loan.” When this kind of restructuring happens, it jeopardizes any new loans. 

There was a recent study that came out called How China Lends, which is really interesting, by a group of researchers from AidData and elsewhere that analyzed about 100 Chinese loan contracts. There’s two buckets of things in the loan contracts. There’s things that are unique to or that are more likely to show up in the Chinese contracts that are interesting and things that are boilerplate, they’re in the template, so to speak. You’re going to find them in all overseas lending contracts.

One of these issues that is common in all overseas loan contracts is the waiver of sovereign immunity. This is a part of these contracts that is often misunderstood. When a country takes on a loan, it has to waive sovereign immunity. Sovereign immunity is essentially the idea that a sovereign government cannot be sued in courts. In order to take on a loan, you have to agree that, if you do not repay this loan, you can be sued in a court. 

We see again and again the fundamental misunderstanding of this clause. In Nigeria, it was essentially taken to mean that Nigeria had waived its sovereignty and China was going to be able to exercise undue influence over Nigeria’s sovereignty. But this is a misreading of the sovereign immunity clause, which just says that “we can be sued in court.” That’s also part of the story coming out about Montenegro right now, where people have basically said they’re waiving their sovereignty, which means that China can annex territory. That’s also a misunderstanding of the sovereign immunity clause, and we have seen that loan contract. 

Going back, then, to the politics of Sino-African relations, if debt trap diplomacy isn’t a motivation for China in Africa, do you think that they are trying to buy their influence in Africa through the African Union or the United Nations, particularly in the case of Taiwan or human rights issues in Hong Kong and Xinjiang?

Certainly recognition of Beijing over Taiwan is a fundamental prerequisite for receiving any loan finance from China. Lending is certainly a part of  the strategy to build political relationships and political capital with countries to do things like not sign on to statements against China in the UN, et cetera.

What kinds of trends have Chinese loans and development projects in Africa gone through? What kinds of impacts have emerged due to COVID-19 on investment and trade between Africa and China? 

So China’s loan finance to Africa specifically has actually been decreasing for a few years now. It was going down already between 2018 and 2019. Our 2020 data is not out yet, but we’re expecting to see a large drop in 2020, in large part due to the pandemic.

In the pandemic, projects have been delayed due to obstacles to the flow of people overseas and the import and export of equipment. This is mostly just a temporary issue. The larger issue and the more long-term issue is with the lasting economic impacts of the crisis, including the exacerbation of what in some countries had already been debt issues.

Zambia is onea high-profile case of this, where they have adopted policies to limit the contracting of new debt. Zambia has historically been a large borrower from China, and they won’t be borrowing much, if any, from China over the next few years. Recently, they’ve defaulted on a foreign currency bond that they had borrowed from overseas investors on the bond market.

Other countries had already been seeing debt issues, and that has certainly come to a head in the COVID-19 crisis. This includes Angola, which has recently negotiated some debt restructuring with China and has also agreed to limit the contracting of new debt.

In terms of the long-term impacts, I think that Chinese contractors are still eager for business overseas in places like Africa. There’s certainly still a demand for infrastructure on the African side. I think it’s up in the air as to what’s going to happen in the long term. but I think the fundamental drivers of the core of the Chinese lending program, much of which supports this overseas infrastructure contracting, are still intact.

Obviously, the COVID-19 pandemic has exacerbated existing issues around the world, and in recognition of this, the World Bank, the IMF, and the G20 came together in April 2020 to establish the Debt Service Suspension Initiative to provide temporary debt relief to eligible countries. What has China’s role been in providing debt relief in Africa, both through this suspension initiative and also on their own through the government and even through individual companies and contracts?

This is the first time that China has signed on to any kind of multilateral debt relief initiative. China is not part of the Paris Club, which is the western group of countries which were the historically large creditors to developing countries. 

The Debt Services Suspension Initiative (DSSI) has a fixed set of terms for debt service suspension that all creditors are supposed to implement. The Export-Import Bank of China is the participating creditor from the Chinese side. The initiative also provides a “common framework” for coordination among creditors for debt relief beyond the DSSI, including the Paris Club creditors and China. Over half of China’s lending between 2000 and 2019 comes from the Export-Import Bank of China, which is China’s official export credit agency. It also provides concessional loans at interest rates of 2%, which are subsidized through the Chinese state budget. The Export-Import Bank of China is labeled by China as a bilateral official creditor, which is the criteria for participation in the Debt Services Suspension Initiative.

This was a little bit controversial at the time because this excludes China Development Bank from participating in the Debt Services Suspension Initiative. China Development Bank is responsible for just under 30% of China’s lending to Africa between 2000 and 2019. Almost all of China Development Bank’s lending to Africa is to Angola, and they actually have reached a debt restructuring deal in Angola that’s similar to the terms of the Debt Services Suspension Initiative. But because they did not join, it gave more flexibility for the terms of the deal, which ended up looking slightly different than the terms of the DSSI. 

So just the Export-Import Bank of China is participating in the DSSI. As far as we know, they’re implementing it for every country that is eligible and that asks for it. Sometimes these negotiations are slow, and some countries seem to have gotten this right at the beginning. Some countries seem to have gotten it later. Some countries only decided to join in later. But these are all things that are kind of coming to light as time goes on, and it’s going to be interesting to hopefully learn more about exactly how those negotiations happened. 

Bringing the United States into the discussion, under recent administrations, African policy has been centered around countering Chinese influence and competing with China in the context of Africa. The Biden administration recently revealed his Western alternative to the Belt and Road Initiative, the Build Back Better World. How do you think African countries will respond to initiatives like these by the United States to not just counter China but to engage in Africa in a deeper and more constructive manner?

When we look at what the African Development Bank has proposed as the infrastructure gap in Africa, it’s not being filled, and it needs everything it can get. The ADB estimates that Africa’s infrastructure needs amount to $130 and $170 billion per year, but they suffer from a financing gap between $68 billion and $108 billion per year. If China provides $10 billion per year and the B3 initiative can also provide $10 billion per year, then we’re $20 billion closer to bridging the infrastructure gap. So I think it’s really important not to see it as an alternative, but in addition. 

I think another positive outcome would be introducing competition. If the B3 initiative is done right, it can show how overseas projects can be done in a way that is better for the borrowers. If the B3 initiative can offer lower interest rates and longer maturities, that’s better for borrowers. 

Another is the idea of local content. Local content is the percentage of the contract value that is reserved for local contractors. Even if a loan is tied to a Chinese contractor, an African government can still negotiate that. In Angola, for example, some of the contracts are negotiated at a 70-30 split, where 30% of the contract value is reserved for local contractors. So I think the maximization of local content is really something that the B3 initiative could do to be a more appealing alternative. If they can say, “Listen, if you have the local contractors that can do this work, we want to give the contracts to these companies that maximizes local job creation, and maximizes local revenues,” I think that would be very appealing.

Now the Build Back Better World is a so-called values driven, high-standard and transparent infrastructure partnership. Not all African governments are interested in those things. Transparency is not just an issue of the lenders. Not all borrowers want to be transparent about their borrowing. Not all African governments share American values. So I think there’s going to be a little bit of a line to walk for the initiative because China is willing to, for example, ignore democratic backsliding or issues of corruption, this makes it an appealing partner for some countries. So I think there’s a risk that the Build Back Better World could pigeonhole itself into the countries that are already cooperating with the US and other partners on issues like democracy and governance. But I think that, if the packages can be appealing enough, it can be great. The more finance, the better, and the more competition the better. If the Build Back Better World is offering these really attractive packages, maybe Chinese financiers will be incentivized to try to meet those same terms to keep their contractors competitive.

U.S.-China relations are at a very low point, probably the lowest that they’ve been in decades, but despite those rising tensions, do you think that there are areas in Africa that can provide avenues for collaboration or cooperation, either in the form of lending and loans or beyond in soft power initiatives?

This might sound kind of crazy, but it’s totally possible that a U.S. loan could finance a project taken on by a Chinese contractor. Chinese contractors are very frequently contracted to World Bank projects. They’re construction companies that adhere to international standards, especially when the standards are enforced by the World Bank or other institutions. So I think that that would be a very productive area of cooperation, especially if the US can provide things like oversight and some capacity building.

We also see other countries collaborating with China, for example French-Chinese conglomerates are doing more and more projects. There’s a large commercial aspect, and on that front there’s an opportunity for cooperation with companies from other countries. 

But I think the one area where there’s not a lot of shared common interest is in the areas of democracy and governance. China is not interested in helping African countries improve their democratic processes. However,  I think they share security interests: both China and the US are certainly interested in the security issues in places like the Sahel and in the Horn of Africa, and they want to help countries improve security to allow both Chinese and American companies to be involved and allow for more cooperation.

Then, of course, there’s climate. I think this is a common interest, and I think this is a place where there’d also be opportunities for the U.S. to support African governments to make sure that the infrastructure projects are as sustainable and as environmentally friendly as possible. I think that that’s a way that the U.S. can maybe help African countries balance the way that they implement projects that are coming from China. But for now, it looks now like there’s going to be two different initiatives, and there’s not going to be a lot of cooperation.

This interview has been edited lightly for clarity and brevity.

Author

  • Kristina Honour is a senior at Mount Holyoke College studying International Relations, Economics, and Chinese. At Mount Holyoke, she rides on the varsity equestrian team and works as an Admissions Ambassador. Previous to interning for The Carter Center, Kristina interned for Vertite, an Amherst based independent non-profit that works with the largest corporations in the world to illuminate labor rights violations in their global supply chains. During her internship, she assisted the China Worker Empowerment Project.