China is revising its belt and road playbook in Africa, as it moves its investment focus to agriculture, manufacturing, industrialisation and green energy, including critical metals.
The shift is part of Beijing's pivot towards "small but beautiful" projects in its African investment strategy. But while this could see fewer mega projects financed directly through Chinese bilateral lending, it does not mean Beijing will stop bankrolling major projects that it considers critical to growing China-Africa trade.
Nearly US$51 billion was allocated by China for lending and investment in Africa at the 2024 Forum on China-Africa Cooperation (FOCAC) summit held in Beijing last week. More than half that amount - 210 billion yuan (US$29.5 billion) - is a credit line.
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Beijing is also encouraging more Chinese companies to partner with African businesses and governments through public-private partnership (PPP) financing models, such as build-operate-transfer agreements.
It is a model that built the 27km Nairobi Expressway in 2022, which was funded and constructed by state-owned China Road and Bridge Corporation. The Chinese company will operate the expressway for three decades to recover its investment before transferring ownership to the Kenyan government. Similar financing models have been used in Uganda, Nigeria and Zambia.
At the FOCAC summit, Beijing also pledged to encourage Chinese financial institutions and companies to get involved in African infrastructure projects through different types of public-private partnerships "to create better conditions for industrialisation in Africa".
Kai Xue, a Beijing-based corporate lawyer who advises on foreign direct investment, outbound mergers and acquisitions, and cross-border financing at DeHeng Law Offices, said shifting towards the financial model made sense.
"PPPs with Chinese investors will be the best approach for any mega project," he said, such as the extension of Kenya's Standard Gauge Railway to the border with Uganda.
Xue also noted that two positive trading trends were African exports of agricultural products and higher-value minerals to China.
A Chinese expert shares his knowledge at the China-Aid Agriculture Technology Demonstration Centre in Brazzaville, Republic of Congo. China has promised to send 500 agricultural experts to Africa. Photo: Xinhua alt=A Chinese expert shares his knowledge at the China-Aid Agriculture Technology Demonstration Centre in Brazzaville, Republic of Congo. China has promised to send 500 agricultural experts to Africa. Photo: Xinhua>
There was huge growth last year in the export of avocados from Kenya and processed lithium carbonate from Zimbabwe to China, he added.
"We are seeing Chinese investors making multibillion-dollar investments across Africa," Xue said.
China is also now channelling more money through the continent's multilateral financial institutions such as the African Export-Import Bank (Afreximbank) and Africa Finance Corporation for trade finance promotion and on-lending to African SMEs.
It is a "risk mitigation strategy" where Beijing can outsource "the 'picking of winners' to African institutions with more in-depth knowledge of African markets," according to researchers at the Boston University Global Development Policy Centre.
The centre's data showed that of the US$4.61 billion loaned by China to African countries last year, more than half - or US$2.59 billion - was given to African multilateral banks as well as nationally owned banks in Egypt.
At the FOCAC summit, China agreed to encourage private sectors to work with the African Development Bank, Afreximbank, African subregional banks, the Asian Infrastructure Investment Bank and the New Development Bank to expand African infrastructure investment under the support of Chinese financial institutions, especially those involved in the belt and road plan.
China's Belt and Road Initiative is about more than just major infrastructure projects, according to international project finance lawyer Kanyi Lui, partner and China head at multinational law firm Pinsent Masons. It is also about improving global connectivity.
Lui said helping Global South governments build long overdue, essential infrastructure was why these mega projects dominated the first decade of the belt and road.
"Having these infrastructures in place then enables the government to attract foreign investments - and businesses to invest in the local economy," he said.
Chinese President Xi Jinping has pledged to encourage two-way investment between Chinese and African companies. Photo: AP alt=Chinese President Xi Jinping has pledged to encourage two-way investment between Chinese and African companies. Photo: AP>
As part of the natural progression of the initiative, Lui said he expected to see fewer large infrastructure projects, instead predicting an increase in investments in "energy transition and local agriculture, manufacturing and productive assets".
While addressing leaders at the FOCAC Summit, President Xi Jinping said China would build 100,000 mu (6,666 hectares) of standardised agriculture demonstration areas in Africa and send 500 agricultural experts to the continent.
"We will also encourage two-way investment for new business operations by Chinese and African companies, enable Africa to retain added value, and create at least one million jobs for Africa," Xi said.
Critical minerals are also in the spotlight, with Chinese companies recently making multibillion-dollar investments to secure reliable supplies.
Chinese companies have vast investments in the Democratic Republic of the Congo (DRC), which produces around 70 per cent of the world's cobalt. Other Chinese businesses have recently ramped up their acquisitions of African lithium projects, particularly in Zimbabwe, Namibia and Mali.
Chinese Premier Li Qiang told the FOCAC summit that in the next three years, China will work with Africa to maintain the stability of the mineral supply chain and promote value addition to the industry by developing smelting technology.
The aim is to "transform Africa's resource endowments into advantages of economic development".
To that end, China agreed to support the expansion of smelting, processing and other upstream and downstream mining sectors, as well as building infrastructure and exploring deep mining projects.
But of all China's activities in Africa, it is the investment in critical minerals that has attracted the attention of the United States and other Western nations.
According to Jason Tuvey, deputy chief emerging markets economist at Capital Economics, China's efforts to strengthen ties in Africa are facing resistance from the US and its allies as they fight for their slice of the continent's rich mineral deposits.
"Indeed, we've recently seen the US agree to finance a train line connecting Angola and the DRC as part of an effort to improve logistics networks for copper and cobalt mines," he said.
Likewise, Europe has been investing in African energy projects as it seeks to improve its own energy security, according to Tuvey. Energy projects in Mozambique and Tanzania are notable examples.
Meanwhile, it has been the US and EU which have been partly responsible for driving China to the African market, according to Lina Benabdallah, an associate professor in the politics and international affairs department at Wake Forest University in the US.
She said geopolitical tensions around green energy had seen the US and EU impose tariffs on Chinese electric vehicles, which had in turn seen a growing number of Chinese EV makers turn to alternative markets, including Africa.
"I expect that Beijing will be looking to increase its sales of electric vehicles and other products that are basically not selling in the US or Europe," Benabdallah said.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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