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Africa and the Chinese Debt Trap

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Aman Sinha
Aman Sinha
Software Engineer by profession, Aman is highly politically opinionated with his thoughts belonging to centre-right part of the political graphs. Apart from being bashed by liberals for his political views, he is a music enthusiast. He belongs to the old school of rock and roll and his favourite band is Led Zeppelin. You can discuss music, politics and sports with him and you will never be disappointed.

Chinese corporations are all over Africa. In June 2017 a McKinsey & Company report estimated that there are more than 10,000 Chinese-owned firms operating in Africa. What are Chinese corporations doing in Africa?

The Chinese corporations are trying to turn Africa into another Chinese continent. They are squeezing Africa for everything it is worth.

Political alliances manifest themselves on the voting floor of the United Nations General Assembly in New York, New York. In this room, countries impose legislation that carries weight worldwide and so what happens in this room is the physical materialization of the world’s politics. 47 years ago, exactly that happened when one of the General Assembly’s most consequential votes occurred. China essentially had two governments. There’s the Republic of China which used to control the mainland and Taiwan but today only administers Taiwan and there’s the People’s Republic of China which controls the mainland. Both claim to be the rightful governments of all of the Chinese territory—both Taiwan and the mainland—and so back in 1971 the United Nations had to decide which government would represent China. Essentially, the question was which government was the rightful leader of the territory as there could only be one in the United Nations.

The US was the main superpower opposing the People’s Republic representing China as it had a strong political and military alliance with the Republic of China government and so the vote was essentially the US’ sphere of influence versus the world. Among the 35 countries that voted against the People’s Republic were much of Africa—the Central African Republic, Chad, Gabon, Liberia, Niger, South Africa, and plenty of others that sided with the US. Despite the US’s efforts, the resolution ended up passing and the representative government for China in the UN was switched to the People’s Republic of China but what’s interesting about this is not the result, it’s who voted against the People’s Republic.

Since that 1971 vote, something has changed. In 2007, the UN general assembly met once again to vote on whether to adopt a resolution condemning the human rights situation in North Korea. As one of North Korea’s strongest allies, this vote was China and its sphere of influence versus the world. In this vote, though, only Burundi, Equatorial Guinea, Eritrea, Ghana, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mauritania, and Tanzania voted against China. All the 43 other African countries either abstained or voted no along with China because, in the forty years between those votes, political ties changed. Africa no longer bows to the US. Much of the continent is now economically and politically aligned with the world’s fastest emerging superpower—China. The simple answer to why this is is because China has pumped huge amounts of money into the continent of Africa. They’re buying allies. For example, China built a $3.2 billion railway in Kenya trekking the 300 miles from Nairobi, the capitol, to Mombassa, the second-largest city and primary port, in 4 hours and 30 minutes. That’s faster than what the fastest train in the US, the Acela Express, takes to travel the equivalent distance from Philadelphia to Boston. China also built a $526 million dam in Guinea which helped push the country from having constant power shortages to making more energy than it needs and selling the extra capacity to its neighbours. China also built a $475 million light rail system in Addis Ababa, Ethiopia, the first of its kind in sub-Saharan Africa, designed as a way to combat the capital’s crippling traffic. These are only a sampling. There are literally hundreds of others of Chinese infrastructure projects in Africa each year. All across the continent, China is playing a part in projects both big and small that are transforming African economies. It’s important to note that these projects are not, though, free.

Africa was at the top of the Beijing economic agenda. It was an easy and convenient target. Chinese leaders sent business delegations to every capital in Africa year after year. These delegates secured infrastructure projects and proposed trade deals, converting Africa into a “second continent” for China. Metaphorically, that is. Each of the above-mentioned projects was financed by loans granted by China’s state-owned and controlled Export-Import bank and these loans do, of course, need to be paid back by the countries granted them. Large African infrastructure projects, though, would be viewed as risky by any traditional bank and would, therefore, struggle to get financed but China’s export-import bank doesn’t care.

Assuming cooperation between the Chinese and African countries’ governments, this bank will give low-interest or no-interest loans to African countries so they can build these trains or dams or other projects. These loans are therefore considered a form of foreign aid since China doesn’t expect to get all their money back, at least adjusted for inflation, since they’re not charging much interest and there’s a high risk of default. Of course, China isn’t just financing these projects out of kindness. For each of them, there’s a political goal behind it. You see, the country of China is running out of growth potential. Its era of the double-digit year over year GDP growth is over as it makes the shift from industrializing to industrialized. Africa, meanwhile, is one of the least developed areas of the world and a lack of development actually makes fast growth easy. The first step of economic development for many countries is natural resource exploitation. Nearly every country has some level of natural resources that they can use to kickstart growth but first, they need to have enough money to build the infrastructure and take the steps needed to gather these natural resources.

As everyone knows, it takes money to make money and China has money. By investing in African mining and farming, China can profit off of Africa’s growth and fuel the business back in China that require minerals and food, but in addition to it serving as a source of natural resources, Africa has another resource—labour. It might seem strange that China, the country that the world uses for low-cost manufacturing, is looking for a labour source elsewhere but that is exactly what it’s doing. China is a victim of its own success. The economic development that its manufacturing industry brought pushed a large segment of its population into the middle class which raised labour costs country-wide. It’s not bad news, China as a country has shifted from having a low-skilled to a medium-skilled workforce as their education level has improved, but for the lowest cost, lowest skilled manufacturing work, the country of China is no longer competitive. Therefore, Chinese manufacturing firms are setting up their own operations in Africa—one of the cheapest and lowest skilled labour markets in the world.

Today, China is now the largest trading partner with Africa as a whole. Despite China being a vastly larger country than the US in population, the US and China both trade a similar value of goods worldwide each year. In this case, though, whereas $48 billion worth off goods were exchanged between the US and Africa in 2016, China traded $128 billion worth of goods—nearly three times as much. Now, the whole idea of setting up a structure of power over other less developed states in order to gather resources and use their labour force might sound familiar because that’s largely what colonialism was. The motives behind European powers expanding their territory to less-developed nations in the 15th through 20th centuries were remarkably similar to the motivations behind China’s growing economic influence in the developing world today. Despite what some may say, there is empirical evidence that China has been using these infrastructure investments to affect worldwide politics. It’s been found that if an African country recognizes Taiwan as a country they receive, on average, 2.7 fewer Chinese infrastructure projects within their borders each year.

Conversely, if an African country votes overwhelmingly along with China in the United Nations General Assembly, they receive 1.8 more infrastructure projects per year. Considering that the General Assembly is an equal representative body where each country gets one vote no matter if they have a million residents or a billion, China’s getting a lot of influence for, in the grand scheme of things, not a lot of money. China touts the fact that their foreign investment and aid is “no strings attached.” Unlike other institutions that give low or no-interest loans to developing countries like the International Monetary Fund or World Bank, China give loans with no requirements on factors like respect of human rights or democratic elections. Of course, this data linking infrastructure investment with political leanings shows that there are indeed hidden strings that require benefit for China rather than benefit for the receiving country.

Western powers are understandably concerned about this shift in power dynamics towards a country with vastly different ideals. In 2017, China entered a select club as it opened a military base in Djibouti. While four other countries have bases in Djibouti—France, Italy, Japan, and the US—this base was unique as it was China’s first base abroad and those by themselves, military bases abroad, are unique. Only 15 of the world’s most developed and militarily powerful countries worldwide have them and now China is one of them. Although, western powers might be worried for the wrong reasons. The government of China is clearly putting a lot of focus and money into Africa but not as much as you’d think based off the result they’re getting—vast amounts of influence over a whole continent.

There are two key numbers to look at. In 2015, China loaned just $12 billion to African countries. In the same year, the country invested a mere $3 billion in the continent. That’s just not much but the reason China is gaining this enormous influence over the continent is that the Chinese government no longer has to force this phenomenon. Private Chinese industry is taking hold of Africa. Of the estimated 10,000 Chinese businesses in Africa, 90% of them are privately owned rather than one of the numerous Chinese state-run companies. The Chinese companies in Africa are actually making money—some substantially so.

The Chinese government certainly has provided a considerable push to the industrialization of Africa but now that that’s done, economic forces are moving the initiative further forward. Chinese small business is gripping the continent. Much of the western world is ignoring the prospects of the continent—ignoring that business in Africa can now be as profitable as a business in China was when its period of tremendous growth began. Right now, Africa is establishing itself as the source of labour and resources for China and so, until the west pays attention, Africa will continue to fall in the debt trap of China.

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Aman Sinha
Aman Sinha
Software Engineer by profession, Aman is highly politically opinionated with his thoughts belonging to centre-right part of the political graphs. Apart from being bashed by liberals for his political views, he is a music enthusiast. He belongs to the old school of rock and roll and his favourite band is Led Zeppelin. You can discuss music, politics and sports with him and you will never be disappointed.
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