China and global development: 12 things to read and watch in July

Bank of China street sign in Suzhou, China. Photo: Chris UK CC BY-NC-ND 2.0

Welcome to the July issue of my China and global development round-up for 2020. This month I focus on how the Covid-19 pandemic affects China’s role in the global economy, Chinese debt to developing countries, the Belt and Road Initiative (BRI), and Africa’s economic transformation.

Africa’s economic transformation and Chinese investment

Earlier this month we launched a report exploring the role Chinese investment plays in transforming the economies of African countries. The report, prepared by professor Tang Xiaoyang of Tsinghua University and myself, brings together evidence produced by the DFID-ESRC Growth Research Programme (DEGRP).

It shows that Chinese investment, trade and infrastructure projects in Africa contribute to job creation, capacity building and economic diversification. It also highlights weaknesses in China-Africa engagement in terms of building lasting business partnerships and promoting the competitiveness of African businesses.

China and the global economy during Covid-19

I very much enjoyed this webinar with Xiaolan Fu at the University of Oxford. Fu talks about China’s growth strategy, and what it means for the world. She touches on China’s transition from an ‘imitator’ of technology to an ‘innovator,’ and how changes in the country’s economic context – in particular the rebalancing towards domestic consumption – leave room for other developing countries to enter the manufacturing space. Finally, she highlights the role China will have in the post-Covid-19 recovery, helping the global economy through steady demand and outward investment, and stable supply chains.

In this article on China’s ‘Corona diplomacy’ in Africa, the European Centre for Development Policy Management's (ECDPM) Lidet Tadesse highlights why support from China has stood out. First, she argues, China provided the region with support in kind rather than in cash – important at a time when goods like Personal Protective Equipment (PPE) and other medical equipment are hard to source. Second, China’s support came from a place of ‘demonstrated experience’ in containing the virus, in contrast to the disappointing performance of the US and Europe.

However, Chinese aid has also faced some pushback, she highlights, and of course the main issue of the country’s debt remains outstanding.

Chinese debt in developing countries

Recent discussions on the debt of low- and middle-income countries have continued, shining a light on China’s role as a lender. I recently spoke to The Diplomat about this issue and its potential geopolitical implications.

Beyond the eight-month debt payment suspension that we discussed in the last issue, China also pledged $2 billion at the World Health Assembly held in May to help with the Covid-19 response. This piece by Brookings’ Yun Sun discusses these two initiatives and how they may overlap in scope between themselves and with other Chinese government’s initiatives, such as the pledges made at the Forum on China-Africa Cooperation.

Later in June, at the Extraordinary China-Africa Summit on Solidarity Against the Covid-19 Pandemic, Xi Jinping announced the cancellation of the zero-interest loans held by African countries that are due to mature at the end of 2020. The China-Africa Research Initiative published an excellent study (PDF) on China’s debt relief and restructuring in Africa.

Using an original dataset of past Chinese debt relief actions in Africa, they found that between 2000 and 2019, Chinese lenders cancelled $3.4 billion in loans, restructured approximately $7.5 billion, and refinanced another $7.5 billion. The study offers insightful recommendations for those involved in debt management.

However, there remain many unanswered questions on lending and debt relief. David Mihalyi at the Natural Resource Governance Institute (NRGI) looks at the implications of debt relief initiatives for resource-rich countries, and reflects on the future of resource-backed loans.

This blog by Ma Tianjie offers a glimpse into the Chinese discussions on the debt repayment crisis, showing that debates on debt issues have appeared in social media and beyond. Ma’s blog also reveals that some experts have suggested solutions and steps that are not yet discussed outside of China, such as denomination of the debt in renminbi.

Finally, for those who want to dig deeper into this topic, the China-Africa Research Initiative recently released a brand new dataset on Chinese loan commitments to African countries. The dataset is based on project-level information, and provides an incredible granularity on loan commitments. The study (PDF) accompanying the dataset includes useful analysis on the data.

Covid-19: the end of the BRI?

A few analysts speculate that the Covid-19 pandemic will put an end to the BRI. This article in The Economist talks about it being delayed due to health measures, and even of outright project cancellations. This piece by Chatham House’s Yu Jie states that the Chinese government is likely to shift its focus towards domestic issues and scale back on foreign engagement.

From my viewpoint, a U-turn on the BRI is unlikely. The economic and political drivers that prompted the BRI (domestic overcapacity, support to China’s western provinces, its relationship with neighbouring countries, among others) still stand. Moreover, new projects are being announced daily, from the construction of a dam in Pakistan to undersea fibre optic cables connecting Africa and the Middle East. The BRI may change its nature and refocus, but as I discussed in an earlier issue of this round-up, the initiative has always been in flux.

Moreover, emphasis on the importance of infrastructure remains strong in China, in particular pointing towards ‘new infrastructure’. This refers to 5G, Internet of Things, artificial intelligence, cloud computing, blockchain, data centres and so on, as explained in this article by Yang Hutao at the Chinese Academy of Social Sciences. China’s new infrastructure is seen as important as it not only promotes investment, but it also boosts consumption, contributing to the ‘high-quality’ development recently emphasised by the government.

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Authors

Research Fellow
Linda is a development economist. Her research interests include trade and regional integration, [...]