China wants to be seen as an emerging nation, aligning itself with other countries that define themselves that way. It’s clearly reflected in its trade policies, including providing loans and grants to countries that are trying to build infrastructure and improve their economy. The Center for Strategic and International Studies examined how this self-definition has unfolded and the impact it is having during a Sept. 12 panel discussion held via Zoom.

Jude Blanchette, Freeman Chair in China Studies at CSIS, served as the moderator.

The Chinese experts who took part included Deborah Brautigam, director of China-Africa Research Initiative and Bernard L. Schwartz Professor of International Political Economy at Johns Hopkins University SAIS; Samantha Custer, director of policy analysis at AidData at the College of William & Mary; Anthea Mulakala, senior director for international development cooperation at The Asia Foundation, and Joseph Asunka, CEO of Afrobarometer.

Custer said she wanted to highlight three things.

“China, I think still today, is viewed in the Global South as the financier of first resort for big-ticket infrastructure projects. And that's both a fact and a perception,” she said. “We’ve seen China continuing to invest in a big way in the priority areas of local politicians. This includes physical structures like roads, ports, airports, electricity, water supply and digital telecoms. Now, there's been a little bit of a fallback of interest amid COVID, for sure, but these are still areas of continued interest for politicians.

“And the China does this at a scale and speed that's unmatched by traditional bilateral and multilateral donors,” Custer said. “And as a case in point, we've seen the number of mega projects financed with loans, each worth $500 million or more, tripling each year in the first five years of (Belt and Road Initiative) implementation. And these projects are designed to deliver more quickly without the extensive social and environmental safeguards that you typically think of with large multilaterals.”

AidData completed a survey of African leaders in 55 countries in August, she said.

“And, if you ask what leaders think about China as a development partner, nearly half of them said that China was their preferred partner even today when it came to energy, transport and telecommunications infrastructure,” Custer said.

But she said China structures its assistance, we're seeing increasingly as a high-risk, high-reward proposition that both China and bordering countries are needing to navigate.

“China is the single largest bilateral creditor to low- and middle-income countries. So that means ... it lends vast amounts of money in the form of loans to export credits to potentially risky markets to pursue development projects,” Custer said. “And the original expectation is that the majority of this financing will be repaid. But as research by Deborah and others have shown, China has a track record of restructuring and forgiving some of its debts.

“For borrowing countries, they still see this as an opportunity to access credit capital with minimal governance and conditions attached, and deliver economic development quickly and visibly,” she said. “But there are risks — the less-generous terms, loans, not grants, the lack of transparency of the deals from project evaluations to how projects are procured, create problems down the road, inflated costs, overly rosy projections on the financial returns of projects to offset borrowing and unsustainable borrowing that creates pressure on foreign exchange reserves.

China is dealing with multiple risks, which shaping some of the changes that we've seen in the last few years, Custer said.

“Financially, they're concerned about what happens if they don't get an economic return on some of those loans,” she said. “Politically, reputationally, fair or not fair, there's increasing exposure to these kind of debt trap diplomacy narratives that you see in the media when countries default. And China needs to continue to satiate unrest at home while projecting power abroad and kind of balancing debt forgiveness for other countries.”

Asunka focused on major megaprojects in Africa that have been hugely popular among the population, and on the evolving nature of Chinese loans.

“But just to think about this shift now, because as someone mentioned, these big Chinese lending to Africa in particular, tends to exacerbate the debt levels on the continent. And I'm thinking about the debt diplomacy that everybody talks about,” he said. “I do see some kind of a shift, especially following the Senegal Forum on China-Africa Cooperation, where China seems to be moving towards what they call ‘Small is Beautiful.’ And so going into this smaller project, and I think that is a major shift and if that happens, the risk of not being able to get back repayment of the huge loans and big-ticket project loans that Chinese banks are lending, I do think that stepping into the smaller ones, of course, reduces some kind of risk. And I can imagine that this shift is going to continue to be amplified going forward.”

Asunka said Afrobarometer surveys have found China has gained popular support because of the spectrum of programming it has supported across the continent, including big infrastructure projects or health care facilities.

“And these are the tangible things that people report on how we ask them about your experiences and views and evaluations of China's influence,” he said. “We often see this positive view, and that is because that is really playing a major role in their lives.”

Economics is probably the most important. China is particularly interested in shoring up future markets for Chinese goods, services and technologies, Custer said.

That's partly in response to an Achilles heel that it has from accumulating a “robust” foreign exchange reserve over $3 trillion. It has more financial capacity than it has absorption capacity for its state owned firms and financing at home. So it needs to push that money out to be able to continue to put it to productive use.

Beijing is directing most of its resources to countries and communities that represent attractive market opportunities for Chinese goods or capital, and that have large natural resource endowments and have large stocks of potential energy supplies, including natural gas pipelines or hydropower potential, she said.

“But then I also said that with economics, the more important a country becomes to your country's economy, that gives you a potential geostrategic leverage to advance political and security interests. And so that is also in play,” Custer said. “You see that in terms of getting access to natural resources and deepwater ports. You see that in terms of getting others to align with your foreign policy priorities, such as Burkina Faso, all of a sudden accepting the One China Policy to get access to Chinese aid. You know, getting the Philippines to turn a blind eye to China's maritime incursions in the South China Sea in response to beneficial lending.”

Asunka concurred.

“I would say that the best way to get into the nation's heart is probably is economic interventions, especially meeting the aspirations of its citizens,” he said. “And the idea of demand-driven development is probably one approach where China gets this chance from its investments abroad. I think in the case of Africa, whether you're talking about the GDI or other development programs that China has undertaken on the continent, the fact that these are being viewed very positively is because China has taken this strategic step to see these relationships as partnerships.”

Brautigam said it’s worth remembering that China's foreign aid budget is $3 billion a year.

“And so we're not talking about a huge effort. This is not a lot of money,” she said. “These are going to be small but beautiful. They're calling them small and smart projects.”

Brautigam said the COVID-19 pandemic had a definite impact on Chinese trade practices, as it did across the globe.

“What we're seeing in the data is that these, particularly the lending activities, have fallen tremendously during the pandemic,” she said. “And this reflects both supply and demand.”

But, Brautigam said, China will continue to provide financial aid to other nations.

“These have always been much more diplomatic in nature, much smaller scale, much more focused on the other side of this situation. So these activities will continue,” she said. “So, there's a lot of positive feedback that the Chinese get.”

The discussion also included an examination of the Global Development Initiative, announced in September 2021 by Chinese leader Xi Jinping at the UN General Assembly. It is seen as a follow-up to China’s Belt and Road Initiative.