South African President Cyril Ramaphosa and Alibaba Chairman Jack Ma
The Forum on China-Africa Cooperation (FOCAC) concluded its third summit meeting in Beijing on September 7th. Chinese President Xi Jinping has announced a $60 billion package of aid, investment and loans to Africa, against a backdrop of growing concern about rising debt distress on the continent.
Package renewed
As is usually the case, the headlines coming out of FOCAC mostly centered on dollar signs. Xi Jinping’s announced $60 billion in new financing for Africa, but as Deborah Brautigam pointed out for the China-Africa Research Initiative Blog, the Chinese government is only actually putting up $50 billion — $10 billion less than pledged in 2015, at the previous FOCAC summit. The difference is supposed to come from private Chinese investments. The government-supplied total includes $20 billion in new loans and $15 billion in foreign aid, plus an additional $15 billion in two “special funds.” Brautigam notes that this marks a decrease in interest-bearing loans offered to Africa relative to 2015, while foreign aid (“grants, interest-free loans, and concessional loans”) comes in at “$5 billion per year, the highest level ever” offered to Africa from China.
Chinese investment in Africa remains small
The new commitment to boost Chinese investment to Africa inadvertently reveals an inconvenient truth in China’s economic engagement in Africa. Despite all the enthusiasm about China investing more in Africa, the actual volume of Chinese investment in African remains small, both in absolute terms and in comparison with other regions. In 2017, China’s foreign direct investment toward Africa was $3.1 billion, 2.5 percent of China’s global foreign direct investment that year, the smallest among all continents. In comparison, Chinese companies’ acquisition in Latin America in 2017 alone was $18 billion. In terms of investment stock, Chinese investment in Latin America has surpassed $200 billion by the end of 2017, twice that of Chinese investment in Africa, which surpassed $100 billion by the end of 2017.
The composition of Chinese financing also reveals another, perhaps deeper, inconvenient truth. Given that China pronounces that it has fulfilled its pledged $60 billion of financing to Africa under the 2015 FOCAC commitment, (including $5 billion for grants and zero-interest loans), and given the Chinese foreign direct investment to Africa in 2016 ($3.3 billion) and in 2017 ($3.1 billion) totaled $6.4 billion, what the numbers do manifest is that: The overwhelming majority of Chinese financing to Africa are neither grants nor investment, but loans of various forms. China may not be the biggest creditor of Africa, but this serves to substantiate the wide-spread conviction that China is creating more debt for Africa (although the Chinese counterargument has been that the long-term economic capacity building effect of the Chinese loans significantly outweighs their downsides).