ArrowArtboardCreated with Sketch.Title ChevronCrossEye IconIcon FacebookIcon LinkedinShapeCreated with Sketch.Icon Mail ContactPath LayerIcon MailMenu BurgerIcon Opinion QuotePositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
Belt and Road

Beijing insists its generosity over Belt and Road is genuine

President Xi points to international contribution as others call it 'debt trap'

At the Forum on China-Africa Cooperation, attended by leaders from 53 African nations, Chinese President Xi Jinping pledged to offer $60 billion in economic support to the continent over the next three years.   © Reuters

TOKYO -- Beijing seized the opportunity to show off its largesse by pledging another $60 billion to African countries at a forum ended Tuesday, as it tries to steer away from an image of a pillager at a time when its intentions over its expansive Belt and Road Initiative are increasingly questioned. 

The two-day summit was held in Beijing and attended by leaders from 53 African nations. African countries have leaned heavily on Chinese aid over the years but other Asian nations such as Sri Lanka and Pakistan are increasingly worried about unsustainable levels of debt offered by China.

But President Xi Jinping was keen to assuage such worries. "China's cooperation with Africa is clearly targeted at the major bottlenecks to development," he said before the summit opened. "Resources for our cooperation are not to be spent on any vanity projects but in places where they count the most."

African nations were the first recipients of Chinese aid after the formation of the People's Republic of China as part of international communist movements. The money was thought to have helped African nations win independence from colonial powers in the 1950s and 1960s.

As such, African nations have always counted on China. In return, African support was crucial in helping the mainland seal the U.N. resolution in October 1971 that made the People's Republic of China the sole representative of "China," kicking the Republic of China, or Taiwan, out of the body.  And China remains the biggest backer of infrastructure projects in Africa.

Africa is only a portion of Beijing's overseas assistance now spreading fast to the world. Its Belt and Road Initiative, Xi's vision of the Silk Road of the 21st century, is meant to cover about 70 countries in Asia through Europe.

Some are growingly skeptical about Chinese loans to emerging, small economies along the way, calling Chinese aid a "debt trap." In return for aid, recipient nations are expected to cede control, for example, of port operational rights in Sri Lanka and Pakistan.

In April, Christine Lagarde, managing director of the International Monetary Fund, said that the Belt and Road Initiative could provide much needed infrastructure financing to partner countries, but should not be considered a "free lunch" by those nations.

What is particularly raising concern is the lack of transparency, typical in Chinese practices, especially in the loans and grants offered that form the primary source of financing for Belt and Road projects.

The Organization for Economic Cooperation and Development compiles statistics of the official development assistance provided to developing countries by richer economies. But the data does not include aid offered by nonmembers of the body, like China. Beijing has not disclosed overall aid figures.

In the case of the African aid just announced, Beijing pledged a total of $60 billion including $35 billion in loans and grants, in addition to at least $10 billion in investments by Chinese companies. This was in line with similar promises made by China in 2015, most of which have now been fulfilled. 

An estimate by Waseda University Professor Naohiro Kitano that uses a gauge similar to OECD definitions of foreign assistance showed that China generally offered three types of aid. These are grants and noninterest loans; investments and loans through international organizations such as the Asian Development Bank and the China-led Asian Infrastructure Investment Bank; and low-interest loans including yuan-denominated preferential loans as well as preferential export buyer's credit in dollars.

Such aid to emerging economies, according to Kitano, totaled $15.9 billion in 2016, up eightfold over 10 years and close to $16.8 billion of assistance offered by Japan that was the fourth-largest spender among OECD member nations.

The estimate shows the size of Chinese aid to be on a par with that of other industrialized economies. But the key difference is that Chinese aid is intended to promote trade and investments with the recipient nations under so-called "reciprocal assistance."

Profits generated from these projects typically go to China. Low-interest loans account for 80% of China's assistance in total, but these contracts would mostly contain special clauses to restrict the selection of suppliers and contractors involved to the benefit of Chinese businesses.

Furthermore, Chinese aid comes with what Beijing calls foreign economic cooperation deals, which brings additional business for the country's companies including in design consulting, construction contracts and worker dispatch.

Such a scheme was criticized by Malaysian Prime Minister Mahathir Mohamad because it does not create any local jobs as Chinese companies bring in workers from their home country. According to China Statistical Yearbook, this additional business totaled some $210 billion in 2015, which equates to over 10 times the aid offered. 

Beijing has been trying to dispel this negative image. In it's the 13th five-year plan for economic and social development, adopted at the National People's Congress in March 2016, Beijing called for increasing Chinese foreign aid and improving the ways in which it is offered.

The State Council, China's cabinet, this April created the International Development Cooperation Agency to serve as a control center for foreign aid. By detaching the aid agency from the Ministry of Commerce, Beijing is trying to change the idea that it favors Chinese businesses, Kitano said.

However, the fact that Wang Xiaotao, the first head of the agency, is the person who formerly led the Belt and Road Initiative as deputy head of the National Development and Reform Commission also gives a hint that China's agenda remains the same.

China has said the Belt and Road Initiative is for the common good but many countries are scrutinizing its efforts to see how this development assistance sweeping through Asia is actually helping them or is in fact, ensnaring them in a new form of colonization.

You have {{numberReadArticles}} FREE ARTICLE{{numberReadArticles-plural}} left this month

Subscribe to get unlimited access to all articles.

Get unlimited access
NAR site on phone, device, tablet

{{sentenceStarter}} {{numberReadArticles}} free article{{numberReadArticles-plural}} this month

Stay ahead with our exclusives on Asia; the most dynamic market in the world.

Benefit from in-depth journalism from trusted experts within Asia itself.

Try 3 months for $9

Offer ends September 30th

Your trial period has expired

You need a subscription to...

See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

See all offers
NAR on print phone, device, and tablet media