Despite China’s clear economic troubles and already huge debt overhang, Beijing has decided to step up its Belt and Road initiative (BRI) in Africa. For a while, it looked as though both Beijing and its BRI clients were stepping away from the arrangements. But earlier this month, Xi told the Africans the China will extend an additional 360 billion yuan ($51 billion) in credits and other aid available to its BNI partners over the next three years. He promised also to step up the number of infrastructure projects to employ a million more workers. The commitment will put additional strain on already stretched Chinese finance. Evidently, Xi and his colleagues in the Forbidden City see the additional burdens as worth it, and they may be right. China, if not Africa, will benefit.
Xi sounded fulsome at this gathering, as he always does in such settings. Some 210 billion yuan would come in the form of new credit lines to already heavily indebted African partners. The balance would come from a bit from military aid but mostly from fresh investments by Chinese companies, almost all state-owned. Xi spoke of BRI arrangements as “a shared future in a new era.” He bound his listeners saying: “China and Africa account for one-third of the world’s population. Without our modernization, there will be no global modernization.” This promise is a major step up for China. At the last such summit in Dakar in 2021, Beijing promised only $20 billion in new credit lines and direct investment.
Beijing’s new largess is especially striking when set against the background of China’s poor economic performance of late. The property crisis, which began in 2021, has depressed real estate values and accordingly reduced household net worth and consumer spending across the country. It has created a backlog of questionable debt and held back rates of capital investment by private Chinese businesses. The collapse of real estate has impaired local government finances so thoroughly that many now face unsupportable debt obligations of their own. Chinese economic growth has accordingly proceeded at its slowest pace in decades. Efforts to recapture the nation’s economic momentum have generally failed and added to the debt overhang now besetting Chinese finance and economics. Beijing’s decision to step up its commitment to Africa speaks to the importance of the BRI scheme to Beijing and to Xi.
In recent years, the BRI scheme has suffered setbacks. The problem has been that most of the Chinese support depends on loans to recipient countries that they simply have been unable to support. Sri Lanka, Chad, Ethiopia, and Zambia have all had to renegotiate their arrangements with the BRI. Pakistan, an early and major participant in the program, has fallen so far behind on its financial obligations under the program that it has had to apply to the International Monetary Fund (IMF) to get funds to meet its BRI debt obligations. The National Bureau of Economic Research (NBER) has estimated that some 60 percent of BRI participant counties suffer financial distress. It is then little wonder that Xi has had to promise more to hold the program together.
In many ways, the structure of the BNI scheme made this distress inevitable. Indeed, it seems designed to put client states into a dependent and indebted position opposite China. Here is the way the BRI works: Beijing approaches a developing country that has raw materials that China needs or is strategic from a geopolitical perspective. It offers loans from Chinese state-owned banks to finance impressive infrastructure projects of China’s choosing – roads, rail links, bridges, port facilities, and the like. Because these projects are something the recipient country could never afford on its own and very likely could not get credit from elsewhere to pursue, that nation’s leadership naturally sees the offer as a boon.
Other aspects of the scheme are hardly beneficial to the developing country. While the developing country gets its project, it also gets a debt obligation that makes it beholden to China and accordingly subject to political pressure from Beijing. Beijing insists on Chinese contractors for the construction and subsequent management of the projects. Beijing, in other words, has all but complete control indefinitely. If the recipient country fails in its obligations on the loan, ownership devolves to China. Beijing also insists on trade ties and currency arrangements as part of the deal. Meanwhile, China secures the products – mostly raw materials — it needs. It also makes a trained native workforce as loyal to China as to their native leadership. Because these projects often take a longer time to pay out than the debt demands, they are all but guaranteed to fail as support for the loan. These failures may burden China financially, but they enhance the extent to which the recipient country remains under Beijing’s sway.
In recent years, the counties in the BRI began to wake up to the disadvantages implicit in the scheme. Italy, a prize for Beijing because it is in the G-7 group of fully developed economies, dropped out of the arrangements. Other nations began to turn down China’s offers. Chinese loans in Africa, for instance, fell 86 percent from the peak of almost a $30 billion equivalent in 2016 to less than $5 billion in 2023, the most recent period for which data are available. If the program were not going to die for lack of interest on the part of the developing world, Xi had to make a gesture, and he has. He is ready to burden China’s economics and finance in order to continue to gain the clear material, political, and diplomatic advantages of BRI. Given how the structure ultimately burdens the recipient countries, he will have to make still more such commitments and promises in the future. It may be expensive, but it is less expensive than a military alternative.