“Debt-trap diplomacy” has become a popular term that some on the international stage have attributed to China in its investment and aid to Africa in recent years. They accuse China’s investment and aid of creating a debt trap, claiming that China ignores the debt status and solvency of the countries where projects are located. Instead, they accuse China of increasing the debt burden of the countries in question through large-scale investment and aid for certain projects, until they are unable to repay the debt, thus enabling China to gain control over the project or the entire sector, thereby further influencing the foreign policy of the country. This kind of accusation not only reflects anxiety with regard to China’s investment and aid in Africa, but also reveals lack of in-depth understanding of the current debt situation of African countries.

In order to demonstrate the actual situation of China’s aid and investment in Africa, dispel the outside world’s misunderstanding of China’s normal economic cooperation with African countries, and refute the baseless accusations arising from such misconceptions, this article intends to review and analyze the viewpoints of Western observers who accuse China of conducting “debt-trap diplomacy” and summarize their core arguments. Through a brief analysis of the characteristics and causes of the debt crisis currently facing African countries and based on the facts and figures for China’s aid and investment in Africa, the article will refute each of the above accusations in turn. At the same time, this article will put forward policy suggestions for improving China’s aid and investment in Africa.

China’s So-Called “Debt-Trap Diplomacy”

Since the start of the twenty-first century, Chinese investment in African countries has developed rapidly. In particular, after the Belt and Road Initiative was put forward in 2013, China further increased its investment and aid to African countries and established the Asian Infrastructure Investment Bank (hereinafter “AIIB”). Although the above-mentioned multilateral and regional economic development initiatives have been welcomed and positively evaluated by many relevant countries, they have also aroused anxiety and concern among some Western politicians and analysts. They believe that these measures of the Chinese government have strengthened China’s influence on the economies of African countries and led to the rapid growth in Chinese aid and investment in Africa as well as the foreign debts of African countries. For example, from 2006 to 2009, Africa’s existing external debt increased by an average of 7.8% per year, and from 2011 to 2013 by an annual average of 10.2%. Since 2013, the number of African countries at high risk of default has doubled, currently standing at 18. On this basis, they blame China’s investment and aid for causing the continuous rise in the foreign debts of African countries and believe that China is practicing “debt-trap diplomacy” in Africa and promoting a new imperialism—”creditor imperialism.” Such accusations mainly reflect the following lines of argument:

(i) The Chinese government’s aid and loans increase the sovereign debt risk of African countries

Sovereign debt generally refers to the repayment obligations incurred by a sovereign nation when borrowing from abroad, where the country uses its sovereignty as collateral, to supplement public expenditures such as national defense, infrastructure construction, and education. The creditors can be other countries, or international organizations or agencies. Statistics show that, as the sovereign debt of African countries expands, the loans and aid from the Chinese government to Africa rise as well. Based on this correlation, some Western politicians and analysts believe that it is the Chinese government’s loans and aid to Africa that have caused the rapid growth in the sovereign debts of African countries. And the Belt and Road Initiative proposed by China in 2013 and the subsequent establishment of the AIIB have particularly triggered their panic. Citing Djibouti, Mombasa, Kenya, and other maritime ports that China has assisted in construction or acquisition in recent years, Brahma Chellaney of the New Delhi–based Center for Policy Research linked China’s Belt and Road Initiative with a “debt trap”, and holds that China is using the Belt and Road Initiative and large-scale loans and aid to lure many countries into debt traps. In order to avoid defaulting on their debts, these countries are forced to transfer part of their sovereignty and resources to China. Therefore, Chellaney believes that China’s Belt and Road Initiative is part of China’s imperialist plan. In short, Chellaney’s view is that China uses sovereign debt to force other countries to “submit.” Since the sharp rise in the debt of African countries in recent years has been basically concurrent with the Chinese government’s large-scale loans and aid to Africa, this seems to be “ironclad proof” that China is promoting “creditor imperialism” in Africa.

As soon as Chellaney proposed this so-called “creditor imperialism” argument, it was echoed by some Western media. Certain media reports expressed serious concerns about the impact of the “Belt and Road Initiative” as well as China’s loans and aid to Africa on Africa’s debt sustainability. Some analysts have even assessed the potential debt problems of the 68 countries identified as Belt and Road Initiative borrowers. Their main concern was that large-scale loan and aid programs will further reduce public investment and economic growth in these already heavily indebted countries. Some people are also concerned that debt problems will make debtor countries dependent, to varying degrees, on China, which acts as the creditor. In particular, China was accused of carrying out “debt-trap diplomacy” in sub-Saharan Africa in 2017. On his visit to Africa in 2018, former U.S. Secretary of State Rex Tillerson mentioned the rising debt of African countries at almost every stop. He accused China of using corruption and predatory loans to undermine African governments and forcing African countries into a quagmire of debt.

Generally speaking, the core argument of the above accusations is that the Chinese government, through initiatives or organizations such as the Belt and Road Initiative and the Asian Infrastructure Investment Bank, has been deliberately providing large-scale loans or aid to some major projects and key industries or fields in African countries, without regard to the actual debt situation of African countries. This increased the debt burden of African countries and escalated debt risks, thereby forcing these countries to cede to China some of their national sovereignty in important industries, such as ports, mineral resources, and telecommunications, in order to avoid sovereign debt default.

(ii) The Chinese government controls the business operations of state-owned enterprises

The second accusation made by Western politicians and analysts against China regarding the “debt trap” in Africa is that, although the main investing entities in Africa are enterprises, most of them are controlled or guided by the Chinese government, especially large state-owned enterprises. These state-owned enterprises, funded or controlled by the Chinese government, can defeat competitors in market competition more easily and gain a dominant position, and may even monopolize a country’s market. This means that, although it seems that it is enterprises engaging in economic activities in the African market, in actuality, it is the Chinese government that dominates or controls the markets of African countries.

As early as 2013, the U.S. RAND Corporation published a report assessing the scale, trends, and composition of Chinese aid and government-funded investment activities in Africa, the Middle East, and Central Asia. This report concluded that, prior to 2004, many of China’s aid and investment programs in Africa focused on forms classified as “Other”(such as debt cancellation and humanitarian assistance). Since then, and especially after the Forum on China–Africa Cooperation in 2003 and 2006, the fields receiving Chinese aid and investment have shifted to natural resource development projects(such as petroleum, gold, and uranium) and infrastructure construction, including hydropower, road, and railway projects. In the field of natural resource development, such as petroleum resources, the main investors are state-owned enterprises controlled by the government, such as PetroChina, CNOOC, and Sinopec. Much of the Chinese government’s aid to Africa comes in the form of financial and technical support from these state-owned enterprises. Loans, especially concessional loans, are a key means of securing needed resources and providing credit to major Chinese construction enterprises. Based on this, some politicians and analysts believe that the Chinese government is using these state-owned enterprises to make large-scale investments in economic sectors or projects that are important to African countries, in order to plunder African resources.

In an article in June 2018, The New York Times directly accused Chinese enterprises of having political intentions in their investment activities in Africa and warned Chinese enterprises not to operate road, rail, and sea transportation in Africa in a way that might hamper competition from American enterprises. It argued that, while these infrastructures are neutral, their operation has political implications. When Chinese enterprises build ports in African countries, this may not seem to be a problem in itself, but when the host countries are forced to hand over operation rights to Chinese parties, national security concerns arise. They also believe that the construction of telecommunications infrastructure in Africa by Chinese enterprises is the same as the construction of other infrastructure such as ports, roads, and railways, with Chinese enterprises occupying a dominant position in all these sectors, posing a great danger to host countries. Telecom enterprises such as ZTE and Huawei are very active in Africa, which raises concerns that the Chinese government may have access to mobile phone networks and data, because most of these large telecom enterprises are considered to be more or less funded or controlled by the Chinese government.

These accusations do not recognize the market autonomy of Chinese enterprises in their economic activities in Africa. The people who level these accusations believe that the economic activities of these enterprises in Africa are actually managed and controlled by the Chinese government. They worry that Western enterprises will lose out in competition with Chinese enterprises, leaving Chinese-funded enterprises in a dominant position in certain fields and projects. In other words, the investment of these Chinese enterprises in African host countries is essentially an investment made by the Chinese state, and the funds borrowed by host countries from these enterprises are actually loans from the Chinese government. When a host country is forced to hand over a project or business to a Chinese enterprise due to climbing debt and inability to meet its obligations, it is actually handing the project or business over to the Chinese government. On this basis, they believe that Chinese enterprises, by making large-scale investments in Africa and especially in key industries and sectors, are actually creating “debt traps” for African countries. It is worth mentioning that the above two accusations are aimed at different entities. The former points more to the government, while the latter points to the enterprises. However, there is also some degree of overlap between them. Specifically, the government, as a political entity, cannot directly participate in the economic activities of foreign markets. Its participation in foreign market activities, whether in the form of loans or aid, generally relies on enterprises. Therefore, the economic activities of these enterprises in African countries are essentially under government control.

To sum up, the core point of these accusations is that the Chinese government, disregarding the existing debt burdens of African countries, has significantly increased the sovereign debt risk of African countries through large-scale loans, aid, and investment by Chinese enterprises in certain key projects or industries. When the sovereign debt of African countries accumulates to a certain level so that they are unable to repay and are therefore forced to hand over these key projects or businesses to Chinese enterprises, the Chinese government may gain control over these key projects or businesses and use them to influence the domestic and foreign affairs of the country.

Judging from the current debt situation of African countries, a considerable portion of countries are in a moderate- or high-level debt crisis, which is very worrying. China’s role in this emerging debt crisis has drawn much attention, with accusations claiming that it is conducting “debt-trap diplomacy” in Africa. However, this accusation has never been convincingly demonstrated. Some analysts have criticized this line of argument, holding that such accusations ignore the actual situation of China’s aid and investment in Africa, and are nothing more than suppositions and assumptions about future issues. The rationale behind these accusations seems to be that China is maximizing its own economic or geostrategic interests while the partners, the receiver of Chinese aid and investment, are caught in a quagmire. Is this really the case? To answer this question, we must investigate and analyze the characteristics and causes of the external debt of African countries.

General Characteristics and Causes of the Present External Debt of African Countries

After World War II, one after another, many African countries carried out large-scale economic construction after gaining independence, and their debts gradually accumulated as the international environment and domestic economic conditions changed. There was a sharp increase in debt between 1970 and 1999. The external debt crisis of African countries began in the late 1970s and early 1980s. At that time, the debts of one African country after another came due, just as they encountered difficulties in their economic development. This made it difficult for them to repay their debts on schedule, which caused them to be further entangled in chains of debt. According to World Bank statistics, in 1970, the total external debt of Africa was only 7 billion U.S. dollars, and in 1980 it was only $48 billion. However, by 1989, the size of Africa’s external debt had soared to $253 billion U.S. dollars. In terms of the debt-to-equity ratio, the proportion of public debt of African countries relative to their Gross Domestic Product(GDP) rose sharply from 30% in 1980 to 83% in 1987, and then continued to rise until it reached 103% in 2000. Looking at their debt service coverage ratios, the debt burden of these countries has completely exceeded the amount that they could bear. Since then, the economic development of African countries has been weighed down by their heavy load of debt, and the accumulated weight is hard to escape. Since the beginning of the twenty-first century, the scale of Africa’s external debt first declined and then increased, causing the debt crisis to reemerge. The reasons for its phenomenon are relatively complicated, involving both causes internal to debtor countries and external causes related to the international environment.

(i) The size of Africa’s external debt

During the period from 2000 to 2008, African countries experienced strong national economic growth, exchange rate appreciation, and fiscal balance improvement. These trends, along with the “Heavily Indebted Poor Countries Initiative” (HIPC)and the Multilateral Debt Relief Initiative (MDRI)proposed by international institutions, have significantly reduced the debt burden of many African countries. Among these countries, the debt levels of seven countries including Ghana, Mozambique, and Zambia dropped rapidly after debt relief, and the proportion of their national external debt compared to their GDP fell from an average of 75% before debt relief to 26%. From 2006 to 2007, the average debt of African countries fell by about 18% of GDP, and their current account deficits accounted for 4.8% of GDP on average. However, the external debt stock of some countries remained very high, and in just a few years, they returned to the debt level they had before the implementation of the “HIPC”. Although the implementation of these debt relief programs continued, in general, African countries remained in debt, with the external debt of sub-Saharan African countries alone reaching $234.7 billion U.S. dollars in 2005(See Figure 1).

Starting in 2008, with the outbreak and spread of the global financial crisis, the existing external debt of African countries increased rapidly (See Figure 1). According to World Bank statistics, the total external debt of sub-Saharan African countries alone reached $555 billion U.S. dollars in 2017, an increase of 15% over 2016. Concerns about continued debt growth have not slowed debt accumulation in African countries, and the combined external debt stock of the 30 sub-Saharan African countries benefiting from the HIPC and MDRI increased by 11% in 2017, compared with an increase of only 7% in 2016. Their external debt stocks have doubled since 2010. The increase in the external debt stocks of African countries has outpaced economic growth, which has serious implications for debt repayment. As of the end of 2017, the average external debt-to-GNI ratio of Sub-Saharan African countries was 34.2%, up slightly from 32% in the previous year, but 50% higher than that in 2010. Between 2010 and 2017, GNI in sub-Saharan African countries grew by an average of 23%, while their external debt stocks increased by 90% over the same period. In 2017, the ratio of external debt to export earnings was 138%, nearly double the 2010 ratio of 70%,  among which the ratio of external debt to export earnings exceeds 150% in half of sub-Saharan African countries. In 2018, the total external debt of sub-Saharan Africa continued to climb, reaching $585 billion U.S. dollars. There is no doubt that the burden of external debt on African countries has become increasingly heavy.

Figure 1 External Debt Size of Sub-Saharan Africa from 2000 to 2018

(ii) Composition of Africa’s external debt

Compared with previous crises, this round of debt crisis has shown different characteristics, with the composition of debt undergoing major changes. First, although the proportion of financing from traditional bilateral or multilateral creditors has declined, they are still an important source of financing for most African countries. The share of traditional bilateral or multilateral debt in total long-term external debt fell from 44% in 2010 to 34% at the end of 2017. The share of long-term external debt obtained from bilateral creditor countries that are members of the Paris Club dropped significantly. By the end of 2017, Paris Club creditor countries accounted for only 5% of the stock of long-term public and publicly guaranteed external debt of sub-Saharan African countries, only one-fourth compared to the number at the end of 2010. Second, the proportion of concessional debt (loans with an original grant of 25% or more) relative to total external debt fell. Among the 33 most heavily indebted poor countries in Africa, only seven countries achieved a less than 50% ratio between concessional debt and total external debt from 2011 to 2013, but this number had increased to 16 countries by the end of December 2015. Overall, the weighted ratio of Africa’s concessional debt to total external debt fell from 42.4% in 2006–2009 to 36.8% in 2011–2013. Third, financing from private creditors increased significantly, and non-concessional debt experienced a massive rise. After the outbreak of the global financial crisis in 2008, African countries diversified their sources of financing and were increasingly inclined to use international investors as an additional source other than sovereign debts. Before 2009, few African countries issued sovereign bonds. From 2010 to 2012, bond issuance increased moderately, with annual bond issuance totaling $1.5 billion to $2.5 billion. By 2014, bonds issued by African countries had increased to $6.25 billion. The total stock of international sovereign bonds increased from $1 billion in 2008 to more than $18 billion in 2014. At least 14 countries have issued international sovereign bonds with an average quota of $1 billion, an average maturity of 10 years, and an average interest rate of 5% to 10%. Finally, the diversification of international financing channels was accompanied by the diversification of the currency composition of African countries’ external debt. African countries hold debts denominated in dollars, euros, Swiss francs, pounds sterling, yen, and special drawing rights, as well as debt involving a range of multi-currency and other currency compositions. From 2011 to 2013, many African countries including Botswana, South Africa, and Mali held multi-currency foreign debts that accounted for more than 40% of their total foreign debts.

(iii) Reasons for the accumulation of Africa’s external debt

As in other developing countries, Africa’s external debt problem is the result of both internal and external factors. Looking at internal factors, the increase in external debt is deeply shaped by the countries’ domestic economic development and debt management. In terms of economic development, on the one hand, Africa’s economic growth has been strong since 2000. During this period, many countries chose highly expansionary fiscal policies and economic development programs. Government fiscal expenditures continued to expand, with the increase in expenditures exceeding the increase in tax revenue. As a result, the amount of foreign debt accumulated continuously. On the other hand, the commodities exported by the African continent are still bulk commodities such as ores and other primary products. The product structure lacks flexibility and is extremely vulnerable to the influence of the international trade environment. After the 2008 global financial crisis, bulk commodity prices experienced a major slump. In 2009, the trade deficit in goods of the African continent was $17.73 billion. Between 2013 to 2016, Africa’s merchandise exports continued to experience negative growth, and its foreign trade deficit in goods expanded. In 2016, the deficit reached $145.36 billion. As a consequence, the debt of African countries soared.

In terms of debt management, African countries are moving towards market-driven debt. Although increased financing from the international financial market offers huge potential benefits for African countries, such as supplementing insufficient domestic savings, further diversifying the composition of investors, and extending the maturity of debts about to come due,  the large-scale issuance of national bonds for external investors still significantly increases the foreign exchange risk of African countries, plaguing these countries with the risk of future currency depreciation and hence soaring debt servicing costs. Albert Zeufack, the World Bank’s Africa Region Chief Economist, said that changes in their debt structure have exposed African countries to new types of risks. This is a very complex market-driven risk for which countries “lack sufficient management capacity.” In 2014, the sharp depreciation of the currencies of Ghana and Nigeria provided proof for his view. Although the issuance of long-term national sovereign bonds by African countries to the international community can help them reduce their short-term repayment burden, it also poses a challenge to the ability of these countries to manage long-term debts. In fact, these African countries do not yet have sufficient debt management capabilities.

As far as external factors are concerned, the size of external debt and solvency of African countries have also been deeply affected by the deterioration of the global economic situation, the decrease of inbound capital inflows, and the changes in the exchange rates of major currencies. After the 2008 financial crisis, the outlook for the global economy was bleak. Countries in the Eurozone pursued fiscal austerity policies and had a weak recovery; China changed its mode of economic growth, focusing on stimulating domestic demand, and its economic growth slowed; and weak global manufacturing and trade growth dampened global demand and investment, leading to a plunge in commodity prices. These factors have negatively impacted Africa’s economic development prospects and national debt status. The slowdown in global economic growth was accompanied by a decline in foreign direct investment in Africa. In 2011, Africa’s foreign direct investment amounted to $38.84 billion. Except for an increase from 2014 to 2015, it showed a downward trend year by year. By 2017, foreign direct investment was only U.S. $15.722 billion, only 40.5% of the amount in 2011. The reduction in capital inflows forced African countries to obtain financing from other financing channels and raising funds through foreign debt became their predominant option. Changes in the currency composition of their foreign debts and shifts in exchange rates of major currencies have had a major impact on Africa’s debt crisis. The more debt a country holds in a specific foreign currency, the more vulnerable the country is to potential exchange rate, macroeconomic, and political shocks in the currency-issuing country. Sudden increases in debt interest payments resulting from the depreciation of domestic currencies relative to foreign currencies have raised the cost of debt servicing for African countries and weakened their ability to repay their debts. As of the end of 2017, the maturing international debt of African countries and rising global interest rates appeared to drive the rise in Africa’s foreign debt-to-export ratio, exacerbating concerns about debt sustainability. In addition, within the structure of foreign debt, the decline in the proportion of long-term debt and the increase in the proportion of short-term debt have shortened the debt repayment period and placed higher requirements on the solvency of African countries. Moreover, market-driven debt accumulation may have coincided with the short-term domestic economic situation, amplifying the risk of refinancing, leading to a sudden reduction in public spending with devastating consequences for development.

In summary, compared with previous crises, this round of debt crisis presents different characteristics. Under the shock of the 2008 financial crisis, the combined impact of internal factors in African countries and external factors resulted in a substantial increase in the debt levels of African countries. As China’s large-scale investment in Africa in recent years has basically coincided with the rapid increase in African countries’ debts, some politicians and analysts believe that China’s investment in African countries is creating a debt trap and accuse China of conducting “debt trap diplomacy” in Africa. The two events seem to be synchronous, but their internal logic and facts show otherwise.

China’s Financial Cooperation with Africa Did Not Create the So-Called “Debt Trap”

As mentioned above, the huge amounts of external debts facing African countries are mainly the result of internal and external impacts, and the composition of debts has also changed compared to the past. According to statistics, of the nearly $600 billion external debt of the entire African region, 38% of the debt is loans from commercial banks, 36% is loans from international financial institutions such as the International Monetary Fund (IMF) and the World Bank, and the remaining 26% are loans from bilateral channels or other governments. China’s loans to Africa account for only a portion of this 26%. The total amount of Chinese loans is $4.5 billion, of which grants account for 30%. Obviously, China does not account for a large share of the total external debt of African countries. The reports and opinions of some Western media that blame China for Africa’s debt problem are full of prejudice and inconsistent with the facts.

(i) China did not exacerbate sovereign debt risks in African countries

Among the aforementioned accusations, some Western politicians and analysts believe that, through its Belt and Road Initiative and aid, the Chinese government has caused the debt of African countries to surge, exacerbating their sovereign debt risks. In fact, whether in terms of the amount, quantity, sector of investment, or in terms of the consequence of debtor countries defaulting on their debts, this accusation is not consistent with the facts.

First, the amount of China’s aid and investment in Africa has been exaggerated. In terms of the amount of aid, at the Forum on China–Africa Cooperation held in Beijing in 2000, China made roughly the same commitment as the HIPC, which was reducing or canceling the debt of Africa’s least developed countries and most heavily indebted poor countries. Subsequently, China took the opportunity to cancel the government debt of heavily indebted poor countries that had come due but could not be repaid. Unlike other countries, the Chinese government usually provides aid to African countries in the form of loans. When publicly announcing the amount of loans, a period of three years or longer is often applied. In contrast, aid from OECD countries, the World Bank, or the International Monetary Fund is usually calculated on an annual basis. This inevitably produces misunderstandings when foreign media are interpreting China’s foreign aid. They may view the total amount of Chinese loans over several years as the amount for one year, thereby exaggerating China’s aid and loans to African countries. In addition, China’s currency is the renminbi (RMB), while the international community’s common currency is the U.S. dollar. As a result, the media often takes the amount expressed in renminbi (RMB) as the U.S. dollar amount, which obviously exaggerates China’s amount of aid to African countries.

In terms of investment volume, the European Union (EU) and the United States are still the main sources of direct investment to sub-Saharan African countries. In 2012, the EU and the United States accounted for 26% and 9% respectively of the total foreign direct investment inflows to the region, while China’s foreign direct investment accounted for only 1.5% of the GDP of sub-Saharan African countries in 2012. In 2013, the volume of Chinese direct investment to sub-Saharan African countries reached $3.1 billion, accounting for 7% of global investment in the region. Overall, Western Europe is still the largest source of capital investment in Africa, with an investment of $30.1 billion in 2015, accounting for 45% of the African market share. The United States is the largest source of foreign direct investment projects in Africa, and its stock of direct investment in Africa far exceeds that of China. In fact, in 2016, China’s direct investment stock in Africa was $40 billion, ranking behind the United States ($57 billion), the U.K. ($55 billion), and France ($49 billion), only the fourth largest investor in the world. Moreover, the total stock of direct investment in Africa of the top three countries, the United States, the U.K., and France ($161 billion), exceeds the total stock of direct investment in Africa from the fourth-place to tenth-place countries and regions ($144 billion). By 2017, the Chinese stock of direct investment in Africa was $43 billion, dropping to fifth place. France, the Netherlands, the United States, and the U.K. occupy the top four places, and their combined total stock of direct investment in Africa reached $223 billion, while the total of the fifth- to tenth-ranked countries and regions was only $146 billion. This shows that, compared with the EU and the United States, China’s share of foreign direct investment in Africa is very small.

Second, when the opportunity presents itself, China has chosen to restructure Africa’s debt or cancel the loans, rather than seizing the assets of African countries. It is true that China has increased its aid loans to Africa in the past decade. In some African countries, such as Angola, Ethiopia, Kenya, and Sudan, China also accounts for a relatively high proportion of foreign debts. As a result, some analysts worry that the Chinese government will take advantage of these debts to implement “debt-trap diplomacy.” An example they often cite is that, because the Sri Lankan government was unable to repay its sovereign debt to China, it had no choice but to sign a 99-year lease with the Chinese government, leasing Hambantota Port to China and thereby losing control of the port. They worry that China will restructure its debts in Africa in a similar manner and gain control of a certain project or sector.

However, the above-mentioned accusations ignored the 84 cases over the past decade in which China restructured debts or forgave loans without taking possession of assets, including its third restructuring of Ethiopian debts. At the same time, they also ignore the case of Venezuela. When Venezuela’s economy collapsed and it defaulted on its debts, China did not take over its state-owned assets.

Third, China’s aid is concentrated in sectors such as infrastructure construction, agriculture, and food production. With regard to the African countries and sectors aided by China, many analysts have accused China of being motivated by its own energy needs when providing investment and aid, rather than by its consideration of the host country’s social and economic development needs. But the facts show otherwise. First, the funds from China’s aid to Africa are used for a wide range of purposes and are not focused on a specific project or field. China’s aid mainly focuses on infrastructure construction (such as bridges, roads, and railways), agriculture and food production, healthcare and sanitation, education, and human resource development. Among Chinese aid to Africa from 2000 to 2013, social infrastructure, economic infrastructure, productive sectors, and government fiscal support accounted for 10.0%, 48.9%, 12.2%, and 28.9% respectively. By the end of 2016, construction, manufacturing, finance, and scientific research and technology services accounted for 66.0% of total Chinese investment in Africa. Second, the Chinese government’s loans and aid to resource-intensive countries are not significantly larger than those to countries with scarce resources. In 2006, the proportion of Chinese investment in African countries without oil or mineral resources was 38.6%, which rose to 58.4% in 2016, and the proportion of investment in resource-poor countries increased from 19.6% to 31.4%. The Chinese government’s lending and aid to African countries are mainly based on the actual needs of the specific country, and its reasoning for providing aid is strictly based on social, economic, and political benefits the investment may bring, rather than a country’s abundant reserve of resources. In terms of the destination of loan funds, China’s policy banks generally only provide the funds for the loan. As for which projects these loans are used for, it is up to the debtor countries themselves to decide. For example, China provided assistance to a public housing project in Botswana and a drainage project in Mauritius according to the needs of the African side. Much of China’s lending has focused on Africa’s infrastructure and power sectors, which are essential to Africa’s long-term industrialization and economic growth. For most developing countries that receive aid, aid for the infrastructure sector can attract more foreign direct investment, acting as a lever for unlocking more investment, which promotes a virtuous circle of national savings and investment. In fact, China’s loans and aid to African countries have promoted the economic growth of these countries.

This shows that, whether in terms of the amount of the Chinese government’s aid or loans to African countries, the sector in which China invests, or the consequence of debtor countries’ failure to repay their debts, the reality belies the accusation from certain Western observers: that the Chinese government has been providing large-scale aid and loans to some key projects or sectors in African countries, and when the host country is unable to repay its debts, it will force the debtor country to hand over control of these key projects or sectors to China. On the contrary, China’s loans to Africa only account for a small part of Africa’s total debt, and China’s aid, loans, and investment are not concentrated in certain specific countries and specific sectors, but are widely scattered. From this, it can be seen that these accusations are baseless.

(ii) China’s investment in Africa is mainly driven by business activities

In their second accusation, some Western politicians and analysts argue that most of the Chinese-funded enterprises investing in Africa, especially large enterprises, are state-owned enterprises controlled or managed by the Chinese government. These subsidized state-owned enterprises enjoy an advantageous position when engaging in market competition in Africa, and thus may easily obtain dominant positions in certain projects or sectors. Since most of these enterprises are managed or controlled by the Chinese government, when the host country obtains financing from these enterprises, it is actually receiving financing from the Chinese government, and the acquisitions by Chinese enterprises actually become acquisitions by the Chinese government. In fact, such an accusation ignores the changes in the investments of Chinese enterprises in Africa over the past ten years. Whether in terms of the nature of Chinese-funded enterprises or the improvement of their competitiveness, the above accusations are unfounded.

First, private enterprises are the main source of Chinese investment in Africa. In terms of the nature of the enterprises, the Chinese enterprises investing in Africa are mainly private enterprises. Since 2004, the Chinese government has adopted a series of measures aimed at promoting private Chinese enterprises to invest overseas, and in the face of climbing labor costs at home, many private enterprises have gradually relocated to countries with lower wages, including many countries in sub-Saharan Africa. In the process of “Going Global” (走出去) of private Chinese enterprises, fueled by factors such as production costs and market potential, private Chinese enterprises’ investment in Africa has been growing rapidly. In 2002, among the 21 direct investment projects of Chinese enterprises in Africa, only four belonged to private enterprises. By 2013, 1217 of the 2282 projects were private projects, accounting for 53% of the total. Even at the height of the global financial crisis in 2009, 66 of the roughly 70 manufacturing projects of Chinese enterprises in Africa were privately owned. Private investment accounts for about 45% of China’s total foreign direct investment. In 2017, McKinsey conducted a survey in eight African countries and found more than 10000 Chinese-funded enterprises in these countries, 90% of which were private enterprises. In Nigeria, the proportion of private enterprises was 95%. Even in Angola, an important source of oil for China, the proportion of private enterprises was 75%. According to statistics from the Ministry of Commerce of China, by the end of 2017, there were 3413 Chinese enterprises investing in Africa, including more than 2000 private enterprises. Although the above statistics come from different sources, and there might be slight differences in the number of non-private Chinese enterprises, it is an indisputable fact that private enterprises, rather than state-owned enterprises, represent the main source of China’s investment in Africa.

Second, for Chinese enterprises with overseas investment, their competitiveness is endogenous to them, rather than mainly derived from the support of the Chinese government. The increased competitiveness of Chinese enterprises is not due to preferential loans or export credit subsidies alone, but to the combined influence of a variety of factors. As far as external factors are concerned, on the one hand, the new changes in the world economic environment since 2008 have not only posed challenges to the overseas investments by Chinese enterprises, but also presented opportunities. Under the impact of the economic crisis, foreign direct investment from developed countries has decreased, and, one after another, they have changed their development strategies to focus on their domestic markets. This has expanded the window of opportunity for Chinese enterprises to invest directly in Africa and enhanced the competitiveness of Chinese enterprises. On the other hand, the Chinese government has adopted a number of reform measures in recent years, including streamlining the approval procedures for foreign investment and relaxing foreign exchange restrictions on foreign investment. These measures have made the domestic environment more favorable to Chinese enterprises’ foreign direct investment and reduced the cost of Chinese enterprises to “Go Global.” Moreover, the high domestic savings rate in China affords these enterprises with relatively low domestic financing costs, equipping them with strong financing capabilities and opportunities. Looking at internal factors, on the one hand, as China continues to integrate deeply into economic globalization, Chinese enterprises themselves are constantly improving and reforming their modern enterprise system, and their personnel training, brand strategy, and management levels have greatly improved. Chinese enterprises are placing more emphasis on the development of global core competitiveness than ever before. On the other hand, Chinese enterprises entered the African market and began to conduct business cooperation a long time ago. Many of them have been dealing with the African market for 20 to 30 years. They are very familiar with local African markets and customs. Therefore, they have a clear understanding of the needs of African people in the project bidding process, so it is easier for them to win the bidding.

In summary, over the past ten years, the nature and competitiveness of Chinese enterprises investing in Africa have undergone great changes. Among the Chinese enterprises investing in Africa, state-owned enterprises do not occupy a dominant position. These enterprises are mainly private, and the proportion of private enterprises is still growing. The increase in the investment competitiveness of Chinese enterprises in Africa is not mainly due to the support of the Chinese government. The government has only provided a good environment to help enterprises expand their investment in Africa, but enterprises are the main entities and implementers who are developing the African market, and their own capacity-building has played a fundamental role. Therefore, Chinese enterprises have obtained business opportunities in the African market not only due to the government’s advocacy and facilitation, but also thanks to a combination of internal and external factors such as changes in the African investment market and Chinese enterprises’ internal reforms.

As mentioned above, some Western media have given exaggerated descriptions of China’s “debt trap” for Africa and concocted a story of China’s holding countries hostage by debt.  In fact, this reflects their uncertainty, anxiety, and fear with regard to China’s significantly increased influence in Africa. But such accusations are just conjectures, not facts. In the words of the African Development Bank President Akinwumi Adesina: “China is not trying to ensnare African countries into a ‘debt trap’, but is rather providing vital investment along with other countries.”

Suggestions for China to Respond Rationally to the So-Called “Debt-Trap Diplomacy”

In order to address the argument that China is conducting “debt-trap diplomacy” toward Africa, it is necessary to locate the reasons for the accumulation of Africa’s foreign debt. The current heavy external debt burden on African countries is not only due to long-term accumulation and historical causes, but also shaped by other factors such as economic growth rates, debt management capabilities, and changes in the international economic environment. There is no doubt that China’s investment in and development cooperation with Africa will not exacerbate the debt burden of African countries and will not drag Africa into a “debt trap.” Some Western media’s accusation that China is carrying out “debt-trap diplomacy” in Africa, has ignored the real story of China’s aid and investment in Africa. Therefore, this is an invalid accusation against China. To address such an accusation, China must respond rationally, focusing on two aspects.

First, we must take a more in-depth reexamination of China’s aid and investment activities in Africa and explore ways to optimize aid and investment in Africa, especially by broadening and deepening cooperation with African countries across multiple fields. Since the beginning of the twenty-first century, at both the official and non-governmental levels, exchanges and interactions between China and Africa have become increasingly frequent, further enhancing the willingness of Chinese enterprises to invest in Africa and deepen cooperation. Although the fields of Chinese investment in Africa are widely distributed across various industries, covering construction, transportation, manufacturing, mining, finance, business services, agriculture, and other fields, the construction, mining, and manufacturing industries are still the sectors where China has the highest investment stock. This may lead Western media into tunnel vision, focusing only on the energy field and interpreting the implications of Chinese investment one-sidedly. Although this is a false accusation, it does point to the fact that China still needs to further diversify its investment fields and projects in Africa and deepen multi-level cooperation with African countries and enterprises.

At the enterprise level, Chinese enterprises should strengthen their ability to assess investment risks in host countries, such as debt risks and political risks, to dilute or avoid investment risks. For an individual enterprise, expanding its field of investment is an effective means to avoid risk. Taking a long-term perspective, Chinese enterprises need to develop diversified trade and investment channels and increase investment in fields not related to energy resources, such as fisheries, agriculture, food processing, manufacturing, and the electricity sector. Deepening multi-level cooperation and diversifying investment and aid across sectors and projects will not only help Chinese enterprises dilute the risks of investment or aid, but also help upgrade goods exported by African countries, transitioning them from primary processed products to products with added value. To a certain extent, this can also dispel the Western countries’ misunderstanding over China’s investment and aid in Africa.

At the government level, we should improve the effectiveness of aid to Africa, and rationalize aid distribution to matching sectors. As a large developing country, China also has a great demand for funds to fuel its own economic and social development, so we should also better manage and utilize the precious aid funds directed to Africa. The industrial sectors receiving aid should be selected based on the actual development needs of African countries and enhance the “blood generating” (造血, metaphorically the process of creating something new, alive, and dynamic) function in the development of African countries. Economic infrastructure sectors and productive industries relevant to the people’s livelihood should become the focus points and priority areas of China’s aid to Africa. First, China should increase its aid and cooperation in the agricultural field in Africa. China’s experience in agricultural development can be a useful reference for African countries. Vigorously developing agriculture is the key to lifting oneself from poverty, increasing income, and achieving economic growth for most low-income countries in Africa. Increasing aid to African countries for agriculture and food security will not only improve the people’s livelihood and enhance the ability of these countries to develop independently, but also allow them to lay the foundations for their industrial development. Second, China should continue to deepen its aid in economic infrastructure such as roads, ports, and industrial parks to help African countries improve conditions for economic development, enhance their ability to attract investment, increase their economic vitality, and improve their self-development capabilities. In fact, foreign direct investment and aid play an important role in the economic development and debt reduction of African countries. China should promote the sustainable development of African countries through aid and investment, so as to use the outstanding development performance of African countries to disperse the false accusations made by Western media concerning China’s so-called “neo-colonialism.”

Second, we should strengthen communication and external publicity efforts with African countries and Western media, thereby enhancing China’s soft power. We live in an era of information diversity, so false reporting is not uncommon. However, the deliberate spread of false or misleading information has sharply increased over the past few decades. The emergence of this situation is both the result of the progressive development of media technology (such as TV, Internet, radio, and news media) and, at the same time, the fact that those trying to deliberately mislead public opinion are using channels such as social media (自媒体) and relying on increasingly sophisticated technical means to spread erroneous information. Although the investment of Chinese enterprises in Africa has improved the level of infrastructure construction in African countries, played a positive role in the transformation of the industrial structure of African countries, and significantly promoted the economic development of African countries, some people in the media still ignore such facts and accuse China of creating a “debt trap” in Africa with its investment and aid, creating hype over China’s “debt trap diplomacy.” Whether such misleading accusations are spread unintentionally or with ulterior motives, they have not only distorted the image of the Chinese government, but also, to a certain extent, arouse the vigilance and hostility of other countries towards the overseas investments of Chinese enterprises. This has had a serious negative impact on Chinese enterprises’ endeavors to go abroad and explore overseas markets.

Misunderstandings and criticism are often the products of information asymmetries. To address this, it is necessary for China to further strengthen the building of soft power and spread information about its aid and investment in Africa through multiple channels. At the government level, on the one hand, China should focus on using the China International Development Cooperation Agency as the mainstay to further improve mechanism design for African aid work, and form a more complete chain of feasibility investigation and research before foreign aid decision-making, feedback on the aid implementation process, evaluation of aid recipient countries, and assessment of aid’s effects and impacts. We should also ensure the prompt release of foreign aid information reports, so as to alleviate or eliminate doubts from African countries and Western media. On the other hand, China can further strengthen cooperation with international organizations or other countries regarding aid to Africa, pursue more exchanges with them, enhance mutual understanding, increase trust and dispel doubts, and reduce their misunderstandings of China’s aid to Africa.

At the enterprise level, on the one hand, Chinese enterprises in Africa should further strengthen their research and understanding of the laws and social norms of host countries, abide by local laws, regulations, and customs, actively integrate themselves into the local environment, find areas where the interests of the enterprises and those of the host country meet, adjust business strategies according to local social conditions and public opinion, and provide products and services that local people truly need. On the other hand, Chinese enterprises should strengthen ties with NGOs and the media, increase the transparency of their business activities in host countries with data and facts, and effectively improve the credibility and effectiveness of information release, thereby alleviating or eliminating external suspicions, and preventing the spread of rumors or misinformation. Moreover, Chinese-funded enterprises should pay attention to fulfilling their corporate social responsibilities in host countries, be mindful of giving back to society in the process of production and operation, attach importance to the recruitment of local workers, provide them with good skills training, improve their competitiveness, and promote the improvement of their living standards, so as to build a corporate image featuring openness and mutually beneficial cooperation.