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Published On: Thu, Nov 5th, 2020

International credit: How China leveraged it and how Africa can

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By Fred Okechukwu

China’s broad cooperation with Africa which have provided huge support for the continent to overcome the existential bottlenecks of funding shortage, infrastructure deficit and inadequate manpower and which has now restored a critical takeoff in sustainable and inclusive economic growth is the object of vicious attack, from quarters that were unwilling to touch Africa with a long spoon in regards to investments, trade, loans and other such activities that could boast the aggregate growth of the economies of the region.
China herself is not a stranger to the use of concessional loans as a funding mechanism for her own economic modernisation.
At the outset of her modernisation programme in March 1978, China announced an ambitious 10-year plan that focused on 120 key modernisation projects, including 30 electric power stations, six trunk railroads, eight coal mines, 10 new steel plans, five harbours, nine non-ferrous metal complexes and 10 new oil and gas fields.
According to the account of Professor Deborah Brautigan, a sober and keen China watcher, “by the end of 1978, Chinese officials have signed 74 contracts with Japan to finance turn-key projects that would form the backbone of China’s modernisation; all would be repaid in oil and coal.”
China herself was a recipient of Japan’s generous loans though, Beijing viewed it as a mandatory reparations that Tokyo must make for its atrocious war crime against the Chinese, in the same manner, that post-war Germany was obligated to make reparations to the state of Israel on account of the Nazi violence that targeted the Jews.
With the signing of the treaty of friendship between China and Japan in 1978, Japan agreed to provide large five-year loan packages to China. The first yen loan package (1978-1983) totaled 330 billion Yen. The second tranche of the yen loan package between 1984 and 1989 amounted to 470 billion yen, with the third loan package between 1990 and 1995 totaling 800 billion Yen. Yet for all Japan’s loan assistance, the Chinese leadership maintained unassailable prerogative on its major policy decisions – domestic, foreign and even defence policies.
Apart from loans, trade and investments also between Beijing and Tokyo flourished in the period which coincided with the time of China’s intense modernisation drive that has borne the fruits of country’s contemporary national aggregates and global preeminence.
In fact, despite tension over domestic politics, security policy and history, economic interdependence between China and Japan remained a powerful force. Total trade between the two countries grew from $18.2 billion in 1990 to $66.2 billion in 1999 while Japanese foreign direct investment into China rose from $438 million in 1989 to $4.5 billion in 1995.
Against the foregoing, the hype about Chinese loans, investments and trade morphing to debt trap or surrender of sovereignty of African countries is a hogwash concocted and designed by its peddlers to starve countries in the continent, the veritable and indispensable financial oxygen that is necessary to generate sustainable economic growth and the wider socio-economic development and even political stability.
What the leadership of the various countries in Africa needs to do, is to harness loan and investment flows to critical and strategic national priority, build integrated national economic structures and work it up to the global value chains. The strategy of scare-mongering African countries with the hype of “Chinese debt trap” is essentially to prevent the rise of Africa, as such efforts, though, of different type was desperately deployed to prevent the rise of China.
From the earlier insinuations from the same quarter that China is a “hollow” power that has nothing tangible to offer to Africa except rhetoric, the tune has changed that China wants to compromise the sovereignty of Africa countries through debt trap.
But if China was not entrapped by Tokyo despite generous loans, investments and trade, how is Africa destined to become a vassal of Beijing because of loans, investment and trade, except only on the assumptions that Africa, her people and leadership are incapable of securing her own interests? This, in itself, reflects the unreformed bigotry of how Africa is viewed from the West.
In many instances, the reference of the Hambantota port in Sri Lanka leased to Chinese company, China Merchants Port Holdings for 99 years have been cited as typical of the “debt trap” and compromise of national sovereignty allegedly embedded in Beijing’s strategy. But a Despite the sustained hoopla about Chinese loans and the alleged debt trap, the London based Economist magazine said that these “investments funded by Chinese are not in China” and that the best Beijing can do in respect of government defaults on its loans is to reduce the amount of money that debtors have to pay, adding that “countries with longer records of lending to poor countries often do the same,” citing the example of the “Paris Club of creditors formed in 1956 to devise ways of reducing defaulters debt loans.”
If the media high priest of western liberal order has the above to say about the “myth of China’s debt trap” there is little to add except for Africa “to shine her eyes,” as it is used in local parlance to commend someone to a sober reflection.
It has been more than 40 years, when China embarked on crossing the river by feeling the stones, navigating through the untrod-ed path and uncharted waters that defied any known economic orthodoxy, to drive its iconic modernisation effort through reforms and opening up and consequently exploding on the world as the most enigmatic human experiment with the exponential returns of pulling more than 700 million people out of poverty in the shortest period in all human history.
Forty years of ceaseless exertions, relentless drive and uncommon focus, China’s governing party, the CPC in cooperation and coordination with other responsible social forces, leading the Chinese people have opened a fresh vista and bright prospect for human possibilities, putting to an end very firmly that history has drawn to a close to the power creative thinking and imaginative resources of the human community.
More than forty years into what some people called the China’s second Revolution, it is not only the country that has changed but even mankind faces a bright and new prospect of opportunities that can address the core concerns of humanity ranging from the existential material needs to peace and security.
The Chinese experience teaches that there is no ready-made model but in ceaseless and confident experimentation of crossing the river by feeling the stones with only the cautious and natural impulse of careful examinations of any particular step taken to either reduce or increase the pace but never standing still or turning back.
Forty years of relentless drive of China’s modernisation through reforms and opening up have proved that difficult but independent choices made, from understanding one’s real national condition, engaging it realistically and constant evaluations of contradictions, with its inbuilt mechanisms for fact checks can guarantee the steady flow of capabilities and capacities to drive sustainable and inclusive development.
The long trajectories of shared fate between China and Africa to raise answers about the questions of the course of action to address the existential needs of their respective brotherly peoples for better life has taken a life of its own, suggesting critical fundamentals that must be interrogated and that fact as it objectively exist today is the experience of China’s forty years of reforms and opening up.
With more than 40 of intense modernization efforts, consisting largely of persistent reforms and opening up, China is evidently restless, and far from resting on her oars.
Having plucked the low hanging fruits of reform, the country is even more poised for deeper reforms
Reform and opening have given China a sophisticated tool of global engagement and beyond her neighborhood; there is no other region in the world where the intensity and depth of Beijing profuse and comprehensive cooperation is more evident than in Africa.
The transformation of China in the past 40 years is epochal and the harvests of key indices in human development and national aggregates are too well known to be repeated here.
Infrastructure development remains a top priority for China’s government. In recent years, the government has used substantial infrastructure spending to hedge against flagging economic growth – in late 2012 it gave the green light to a raft of infrastructure projects valued at over £150bn. While the bulk of funding will come from state-owned banks and bond sales, there are also opportunities for foreign private and corporate investment. Furthermore, the stimulus will generate business for the infrastructure sector on a national and international level.
For instance the Chinese government has focused on internal development, in line with the country’s 12th Five Year Plan. Approved in November 2011, the Plan marks a turning point in the country’s development, with a focus on sustainable growth. To achieve this, the government must make more efficient use of the country’s resources, stimulate internal demand, speed up urbanisation, and modernise Chinese society. “The rapid growth in economic infrastructure to support the double digit annual GDP growth in the last decade is being balanced by a greater emphasis on quality of life for the general population and long term sustainable growth for the economy as a whole,
In recent years, China’s infrastructure development has also encompassed a seemingly endless stream of outbound activity, with investment increasing tenfold in the decade from 2001 to 2011, rising from approximately $7bn to $74bn. Although the main focus may now be on internal projects, this activity continues unabated. Indeed, outbound investment is a key policy of the Chinese government, explains
“One interesting trend is that in addition to focusing on infrastructure development inside China, in the last 12 months many Chinese companies, experienced in the Chinese infrastructure market, have been encouraged by the Chinese policy of ‘Going Outside’ to undertake increasing numbers of infrastructure projects in regions across Asia, the Middle East, Africa, South America, and even in developed countries such as the UK, parts of Europe, and in the US.” As China moves closer to becoming the world’s largest economy, growth and development will remain a key concern. To maintain future growth, enhancing infrastructure such as power, water, transport, communications, education and healthcare will prove essential. As well as proving economically lucrative, outbound investment exposes Chinese firms to high quality production facilities and business practices. It also gives firms the opportunity to examine new research and development techniques – particularly pertinent as these firms are keen to advance strategic thinking around product development and retirement cycles.
In September 2012, as part of the 12th Five Year Plan, the National Development and Reform Commission (NDRC) gave approval to 60 major infrastructure projects with a combined value of over $150bn. These included 10 environmental protection projects, of which nine were initiated in Western China; seven port construction and channel reconstruction projects, largely focused on the east of the country; 13 highway construction projects evenly dispersed throughout the country; and 25 rail transit and intercity railway projects, again with a main focus on the east. “Transport infrastructure – roads and railways in particular – is still the biggest area of investment due to the sheer scale of networks being enhanced in rural areas and the continued build-out of the expressway system, linking all major cities,” says Mr Ip. “High speed rail development is recovering following the Wenzhou rail accident in July 2011 and city metro projects are moving ahead nationwide. Water related projects – such as wastewater treatment, water recycling, desalination, and so on – are also key areas of focus given water scarcity issues in China.” The country also continues to develop non-fossil fuel energy generation capacity to counter its overreliance on coal and to reduce carbon dioxide emissions.
In regional terms, given that coastal cities such as Beijing, Shanghai and Shenzhen are reasonably well developed, and that certain inland cities are becoming increasingly developed, the Chinese government has begun to turn its focus toward cities in mid and western China. The government’s ‘Great Western Development Strategy’, for instance, focuses on the improvement of major western cities in the next five to 10 years. In addition, the interior provinces of Inner Mongolia, Shaanxi and Gansu, though rich in natural resources, require the transport links needed to exploit these resources, and environmental protections to counter the effects of their exploitation. Such projects are now being delivered.
Despite signing off the recent $150bn infrastructure plan, the Chinese government is aware that private sector involvement will deliver a much needed injection of additional cash. Current policy is to attract more domestic and foreign investors as local governments need to diversify their financing sources beyond land sales and bank borrowing.
The core lesson for Africa is that to break out on a sustainable economic modernization, huge investment must be on critical and core infrastructure like transport networks and foreign loans , grants and other forms of financing are inevitable in the long term investment in this foundational area of economic take off.
Fred Okechukwu is a Public Affairs Analyst.

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