Chinese Hegemony in Africa

Back in 1970, at the UN General Assembly, African nations sided with the US and against China on an iconic decision with regards to the rightful representative of Taiwan; in retaliation, China left no stone unturned to engulf as much of African territory as is plausible. Predatory lending and astute quasi-commercial aid may not lead to loss of lives but a loss of livelihood; 70% of African debt is owed to China, which accounts for 60% of Africa’s bilateral debt. China is following the template to colonize countries of strategic importance. Their masterplan to nurture top tier political supremacy, control administrative positions, build massive infrastructure facilities, employ large scale financial dependence schemes, and offer unparalleled employment to locals, forms the backbone of the Chinese Hegemony in Africa. On the backdrop, the Chinese economy grew manifold in 3 decades from contributing 2% to the global output to becoming the 2nd largest economy of the world. As growth started plateauing, the Chinese President, Xi Jinping, announced the Belt and Road Initiative to chase outbound growth and investments in the infrastructure, minerals, and strategically critical domains. As per IMF estimates, the massive state-backed financial institutions encumbered African nations with debt wrapped schemes adding up to $153 billion from 2000 to 2019 and would usher another $258 billion to recoup Africa out of the pandemic dislocations.

Extravagant and favoured loans for infrastructure projects can backfire on the Chinese treasury. An attempt to undercut the global peers in funding initiatives without judicious appraisal of risk is burning taxpayers’ money for international diplomatic pursuits. As per IMF estimates, China is shedding 1% of its GDP on funds that are routed through Africa back into China. A reasonable middle ground to penalise underperformance and justify the use of public money is to open loan collateral assets to public auction at times when the private borrower isn’t able to meet the return benchmarks.

The debt-to-GDP ratio in fourth of African countries has doubled over the pandemic period. The debt distress coupled with the restrictive clauses embedded in the infrastructure and energy loans push the firms to resort to unfair means of business, such as Huawei’s spying activity at African Union Headquarter in Ethiopia, and make them highly vulnerable to commodity price fluctuations. We need a more conducive international architecture of sovereign debt. China’s inclusion in the Paris Club can add legitimacy to foreign lending. While the Paris Club caps international loans from Exim Bank at 12%, its Chinese counterpart has no limits.

While China has jeopardized the financial position of African nations by disproportionate debt disbursement, as per Jonathan Munemo in a CARI working paper, expanding access to private sector credit by just one percent leads to a 2.3 percent increase in new business. Chinese investments have promoted entrepreneurship and reduced infrastructural frictions, unleashing new opportunities for Africans. Technological enhancements have equipped businesses with low-cost solutions to compete in the international markets and compelled them to improve quality to withstand Chinese products.

China made inroads into Africa decades ago and has ever since broadened its spectrum of supremacy across trade, investment stock, technology, infrastructure financing and aid. Africa offers China twofold economic benefits: under-industrialised market for its products and ready source of raw material and cheap labour for its domestic industries. Though China has turbocharged growth and industrialisation in the overlooked state of Africa, its proliferating dominance can disintegrate national autonomy and spur neo-colonialism. After all, an African nation's support with China’s stance at the UN gets them an average of 1.7 infrastructure projects more, and a disagreement deprives them of 2.7 projects.