In the aftermath of the global financial crisis of 2007 and 2008, China faced internal economic challenges that affected various sectors, particularly construction and infrastructure. This was due to a decrease in domestic demand for Chinese production, which left state-owned construction companies without projects and created a surplus in building materials. As a result, China redirected its investments both domestically and abroad, including to Africa, to channel its excess capacity and address declining exports, rising bankruptcies, unemployment, social unrest, and the diminishing value of foreign reserves.
In this context, Tim Zajontz analyzes Chinese investments in African infrastructure modernization and the challenges they face in his book The Chinese Political Economy of Infrastructure Development in Africa. Chinese banks, such as the Export-Import Bank of China (EXIM) and the China Development Bank, provided the necessary financial support for these investments. According to the Infrastructure Consortium for Africa (ICA), Chinese funding for African infrastructure amounted to around $100.8 billion in 2018. Additionally, between 2011 and 2017, Chinese contributions accounted for about a quarter of this amount, bringing the average annual Chinese-funded infrastructure projects in Africa to around $13 billion.
Consequences of the Financial Crisis
The global demand for Chinese exports dropped significantly following the 2007-2008 financial crisis, forcing the Chinese government to implement a massive stimulus package of approximately $586 billion for domestic infrastructure projects. However, this approach led to an increase in public debt and exacerbated surpluses in infrastructure, construction, and related industries—sectors already struggling even before the crisis. By the early 2000s, overcapacity in industries such as steel, iron, aluminum, glass, cement, and power generation exceeded 30%, while many state-owned companies in the infrastructure sector were grappling with low profits due to declining revenues.
Since 2013, under the leadership of Xi Jinping, China has adopted a new model under the “Belt and Road” initiative. This initiative introduced a global debt-investment stimulus package aimed at reducing China’s reliance on exports and domestic investments while boosting demand for Chinese infrastructure companies. The government used various financial tools, including concessional and commercial loans, export and supplier credits, sovereign guarantees, and insurance programs for both state-owned and private companies investing abroad. It also enhanced equity investments in infrastructure projects.
To facilitate foreign infrastructure projects, China established state-coordinated investment partnerships involving at least three key Chinese players: state diplomacy to negotiate projects with other governments, Chinese banks to provide loan financing, and Chinese companies to execute the projects. Moreover, China created new financial institutions such as the Silk Road Fund, the BRICS New Development Bank, and the Asian Infrastructure Investment Bank (founded in 2010) to raise more liquidity for Chinese infrastructure projects worldwide.
Sovereign Debt Crisis
The author highlights that, according to the Boston University Global Development Policy Center in 2022, Chinese loans to African countries totaled approximately $159.9 billion between 2000 and 2020, though accurate figures are hard to obtain due to China’s lack of transparency regarding its external lending.
In the past two decades, Chinese loans and financing have primarily been directed toward African infrastructure sectors, with transportation receiving the largest share ($48.8 billion) followed by energy ($40.5 billion). The author notes that China’s external debt investments helped Chinese companies secure a dominant market share in African infrastructure and construction sectors. By 2016, Chinese companies had built 41.9% of all infrastructure projects in East Africa, and their investment in South Africa alone reached 17.6%.
However, Chinese investments have faced increasing scrutiny, both within and outside Africa, due to the so-called “debt trap diplomacy” attributed to China. Several African countries, including Djibouti, Ethiopia, Kenya, and Zambia, have rapidly accumulated debt as a result of receiving Chinese loans under the banner of improving infrastructure.
As a result, the sustainability of these debts has become a major concern for the Chinese government, which has since imposed stricter lending policies on its banks. Consequently, China’s external lending has slowed dramatically in recent years. Reports indicate that loans from the Export-Import Bank of China and the China Development Bank dropped from $75 billion in 2016 to $4 billion in 2019. Similarly, new loan commitments to Africa fell by 93% between 2016 and 2020.
The Belt and Road Initiative
The Belt and Road Initiative (BRI) has played a key role in China’s efforts to direct infrastructure investments into Africa, aiming to create a development model focused on China in areas such as production, finance, and security. This involves exporting China’s excess economic capacity abroad by spatially expanding its accumulation system and recycling capital that lacks profitable outlets within its current capital circles.
The author notes that the total value of BRI-labeled projects reached approximately $838 billion by the end of 2021. Of the contractors implementing China-financed BRI projects, 88% were Chinese companies using Chinese materials, while only 7.6% were local companies from host countries, and 3.4% were foreign, non-Chinese firms.
Despite the sharp decline in Chinese infrastructure financing for Africa—from a peak of $25.7 billion in 2018 to $6.5 billion in 2020—due to concerns over debt sustainability, stricter lending practices, and a shift in BRI financial governance toward more balanced partnerships between China and African nations, the author emphasizes that Beijing remains Africa’s largest infrastructure financier.
Overcoming the Legacy of Colonialism:
African countries suffered from Western colonialism and its control over economic activities. In their struggle for independence, these nations sought to resist colonial dominance over infrastructure. One prominent example is the construction of the Tanzania-Zambia Railway, a project aimed at overcoming the lingering effects of colonialism and racial discrimination in economic and political structures.
The author notes that the infrastructure financing gap in Africa has opened opportunities for surplus Chinese investments, whether in capital, goods, or materials. As a result, some African nations that modernized their infrastructure post-independence adopted governmental strategies primarily focused on economic advancement. They viewed infrastructure improvement as an essential part of nation-building and implementing sustainable economic development plans.
However, this African approach has led to a sovereign debt crisis, adding another structural obstacle to African economies. The repeated acceptance of Chinese loans by African leaders, without considering the structural constraints created by debt dependency, has increased sovereign debt. This, in turn, has narrowed their strategic scope in the infrastructure sector and other political areas. For example, Zambia’s extensive borrowing from China and other creditors over the past decade has increasingly restricted government action, ultimately making the country dependent on various creditors for debt restructuring under the so-called Common Framework.
Moreover, growing doubts have emerged regarding the feasibility and credibility of some Chinese-funded infrastructure projects. The author highlights widespread allegations of corruption in loan deals aimed at improving African infrastructure, drawing attention to the role of political elites in negotiating these deals with Chinese banks and contractors. This has raised questions about who truly benefits. The author cites Chinese dealings in Tanzania, which have been consistently plagued by corruption and profit-seeking between local and Chinese agents, resulting in new challenges such as increased project costs and directing some initiatives to benefit ruling elites.
As a result, many African governments have significantly reduced foreign capital inflows following the COVID-19 pandemic, especially with rising debt and the ongoing need to borrow from Chinese banks. The author explains that some African countries have recently leaned towards privatization, particularly when their governments lack sufficient financial resources to build or renew infrastructure and when loan financing becomes too costly politically and economically, as seen with the privatization of Zambia’s road network. Consequently, current African governments view transforming public infrastructure into a commodity or privatizing it through public-private partnerships as often being a “last resort” strategy.
The China-Western Rivalry:
The author points to the increasing global politicization of infrastructure, especially with the competition between China and Western powers to gain shares in African infrastructure markets. He discusses the announcements by the European Union and the United States of the G7’s (Group of Seven) initiatives on “investing in global infrastructure” and “creating a global corridor.” These initiatives represent geopolitical and economic responses to China’s growing influence in the Global South.
In this context, senior G7 officials have explicitly promoted these initiatives, emphasizing that they are more socially, environmentally, and financially sustainable alternatives, as well as being transparent and of high quality compared to China’s Belt and Road Initiative. The author notes that the G7 initiatives pledge to invest tens of billions of dollars in transport, green energy, and information and communication technology infrastructure, with Africa playing a central role in both initiatives.
In conclusion, the author stresses that the strategic capacities of African governments and the contexts of international geopolitical competition pose challenges to China’s implementation of its cross-border infrastructure projects. He urges African nations to carefully consider the opportunities available to them for securing external loans and to assess the capabilities of African governments in determining whether they are prepared to shift towards relying on foreign capital or to strengthen their local capital and manage debt.
Source:
Tim Zajontz, The Political Economy of China’s Infrastructure Development in Africa (Capital, State Agency, Debt), International Political Economy Series, Palgrave Macmillan, 2023.
