U.S. President Donald Trump said he had asked China to immediately remove all tariffs on U.S. agricultural products because trade talks were progressing well.
He also delayed plans to impose 25 percent tariffs on Chinese goods on Friday, as previously scheduled.
“I have asked China to immediately remove all Tariffs on our agricultural products (including beef, pork, etc.) based on the fact that we are moving along nicely with Trade discussions,” Trump said on Twitter, pointing out that he had not raised tariffs on Chinese goods to 25 per cent from 10 per cent on March 1 as planned.
“This is very important for our great farmers – and me!” Trump said.
Farmers are a key constituency for Trump’s Republican Party, and the U.S. president’s trade war with China has had a heavy impact on them. Beijing imposed tariffs last year on imports of soybeans, grain sorghum, pork and other items, slashing shipments of American farm products to China.
U.S. Agriculture Secretary Sonny Perdue said this week that U.S. trade negotiators had asked China to reduce tariffs on U.S. ethanol, but it was not immediately clear whether Beijing was willing to oblige.
Trump’s post on Twitter came several hours after the U.S. Trade Representative’s office said that it would delay the scheduled hike in tariffs on $200 billion worth of Chinese goods.
The notice, due to be published in the Federal Register next Tuesday, says it is “no longer appropriate” to raise the rates because of progress in negotiations since December 2018. The tariff would remain “at 10 percent until further notice.”
In a statement on Saturday, China said it welcomed the delay.
Speaking at a separate briefing in Beijing, a Chinese government official said both countries were working on the next steps, though he gave no details.
“China and the United States reaching a mutually-beneficial, win-win agreement as soon as possible is not only good for the two countries but is also good news for the world economy,” said Guo Weimin, spokesman for the high profile but largely ceremonial advisory body to China’s parliament.
A tariff increase to 25 percent from 10 percent was initially scheduled for Jan. 1, but after productive conversations with Chinese President Xi Jinping, the Trump administration issued a 90-day extension of that deadline.
Trump had said on Sunday he would again delay the increase because of progress in the talks.
President Donald Trump said on Friday there was "a very good chance" the United States would strike a deal with China to end their trade war and that he was inclined to extend his March 1 tariff deadline and meet soon with Chinese President Xi Jinping.
U.S. and Chinese negotiators had made progress and will extend this week's round of negotiations by two days through Sunday, Trump told reporters at the White House as he met with his top negotiators and their counterpart, Chinese Vice Premier Liu He.
"I think that we both feel there's a very good chance a deal will happen," Trump said.
Liu agreed there had been "great progress".
"From China, we believe that (it) is very likely that it will happen and we hope that ultimately we'll have a deal. And the Chinese side is ready to make our utmost effort," he said at the White House.
The Republican president said he probably would meet with Xi in March in Florida to decide on the most important terms of a trade deal.
Extending the deadline would put on hold Trump's threatened tariff increase to 25 percent from 10 percent on $200 billion (153 billion pounds) of Chinese imports into the United States. That would prevent a further escalation in a trade war that already has disrupted commerce in goods worth hundreds of billions of dollars, slowed global economic growth and roiled markets.
Optimism that the two sides will find a way to end the trade war lifted stocks, especially technology shares. The S&P 500 stock index reached its highest closing level since Nov. 8. Oil prices rose to their highest since mid-November, with Brent crude reaching a high of $67.73 a barrel.
Trump and Treasury Secretary Steven Mnuchin said the two sides had reached an agreement on currency. Trump declined to provide details, but U.S. officials long have expressed concerns that China's yuan is undervalued, giving China a trade advantage and partly offsetting U.S. tariffs.
Announcement of a pact aimed at limiting yuan depreciation was putting "the currency cart before the trade horse," but would likely be positive for Asian emerging market currencies, said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.
"How can you agree to avoid excessive Chinese yuan depreciation or volatility if you have not made an agreement on trade that could have huge FX implications?" Ruskin asked in a note to clients.
In a letter to Trump read aloud by an aide to Liu at the White House, Xi called on negotiators to work hard to strike a deal that benefits both country.
Trump said a deal with China may extend beyond trade to encompass Chinese telecommunications companies Huawei Technologies and ZTE Corp.
The Justice Department has accused Huawei of conspiring to violate U.S. sanctions on Iran and of stealing robotic technology from T-Mobile US Inc.
Chinese peer ZTE was last year prevented from buying essential components from U.S. firms after pleading guilty to similar charges, crippling its operations.
MEMORANDUMS NO MORE
Trump appeared at odds with his top negotiator, U.S. Trade Representative Robert Lighthizer, on the preliminary terms that his team is outlining in memorandums of understanding for a deal with China. Trump said he did not like MOUs because they are short term, and he wanted a long-term deal.
"I don't like MOUs because they don't mean anything," Trump said. "Either you are going to make a deal or you're not."
Lighthizer responded testily that MOUs were binding, but that he would never use the term again.
Reuters reported exclusively on Wednesday that the two sides were drafting the language for six MOUs covering the most difficult issues in the trade talks that would require structural economic change in China.
Negotiators have struggled this week to agree on specific language within those memorandums to address tough U.S. demands, according to sources familiar with the talks. The six memorandums include cyber theft, intellectual property rights, services, agriculture and non-tariff barriers to trade, including subsidies.
An industry source briefed on the talks said both sides have narrowed differences on intellectual property rights, market access and narrowing a nearly $400 billion U.S. trade deficit with China. But bigger differences remain on changes to China's treatment of state-owned enterprises, subsidies, forced technology transfers and cyber theft of U.S. trade secrets.
Lighthizer pushed back when questioned on forced technology transfers, saying the two sides made "a lot of progress" on the issue, but did not elaborate.
The United States has said foreign firms in China are often coerced to transfer their technology to Chinese firms if they want to operate there. China denies this.
The U.S. Chamber of Commerce on Friday urged the U.S. government to ensure the deal was comprehensive and addressed core issues, rather than one based on more Chinese short-term purchases of goods.
China has pledged to increase purchases of agricultural produce, energy, semiconductors and industrial goods to reduce its trade surplus with the United States.
China committed to buying an additional 10 million tonnes of U.S. soybeans on Friday, U.S. Agriculture Secretary Sonny Perdue said on Twitter. China bought about 32 million tonnes of U.S. soybeans in 2017. The commitments are a "show of good faith by the Chinese" and "indications of more good news to come," Perdue wrote.
China was the top buyer of U.S. soybeans before the trade war, but Beijing's retaliatory tariffs on U.S. soybeans slashed business that had been worth $12 billion annually.
China firmly opposes mercenary activities in Africa, and will always support African nations' pursuit of peace and prosperity, said Chinese Permanent Representative to the United Nations Ma Zhaoxu.
Mercenary activities are a threat to peace and stability in African countries, and China calls for greater international efforts to address the problem, said Ma, as Chinese President Xi Jinping's special representative at a UN Security Council meeting on mercenary activities in Africa.
He said these activities interfere with the internal affairs of the developing countries, and infringe on their sovereignty, independence and territorial integrity, adding that China stands firmly against such activities.
The Chinese representative urged the international community to support African countries in accelerating their development, reducing poverty, eliminating the root causes for conflict and turmoil, and stepping up socio-economic development in African countries.
Ma also pledged China's continued support for Africa to achieve peace, stability and development, and expressed the hope for China and Africa to jointly build a closer community with a shared future.
Monday's meeting was called by Equatorial Guinea, which holds the rotating presidency of the Security Council in February.
Shortly before the meeting, Teodoro Obiang Nguema Mbasogo, president of Equatorial Guinea, spoke highly of the bilateral relations between his country and China during his meeting with Ma.
Obiang also said he attached importance to Equatorial Guinea's relations with China, adding that he was willing to further promote cooperation between the two countries in various fields.
The complex relationship between Africa and China has become even more complicated this year. Initially, 2018 was set to reaffirm the bond through the latest Forum on China-Africa Cooperation summit held in Beijing in September.
The summit delivered its usual pageant of African leaders, side deals, and the announcement of a USD$60 billion financing package. The year also saw the recurrence of misgivings about the relationship.
The most explicit theme of this conversation was debt. Donald Trump’s US administration added fuel to smouldering anxiety, and China found itself having to defend its lending to Africa – at home and globally. At the same time, African governments are battling rumours that they are about to hand over state assets to the Chinese.
The debt debate is flawed – not least for underestimating Western contributions to African debt. Nevertheless, it is revealing. In particular, the debate reflects an anxiety that has haunted relations between China and the continent since the beginning of this century: the massive power gap between China and individual African countries.
The constant rhetoric of win-win cooperation between China and Africa has never adequately answered the simple structural question at the heart of the relationship. That is: how is an economy the size of Benin’s or Togo’s, for example, supposed to meaningfully engage with the Chinese behemoth? It’s a bit like trying to speed up your bicycle by grabbing on to a passing jumbo jet. It can take you to the next level, or it can simply rip off your arms.
The fundamental economic and power imbalance between China and African countries has led to the relationship being criticised as neocolonial. The truth, however, is that African governments exercise more agency than they are given credit for. This includes frequently playing China and traditional Western development partners off against one another.
The word “agency” is key here: to what extent is Africa able to freely make its own decisions and drive the best deals with China?
Our new research focused on this issue. We looked at two emerging areas shaping African agency in relation to China. These are reforms to the African Union (AU) and the Belt and Road Initiative (BRI). The initiative involves a massive infrastructure rollout aimed at linking China to Europe and beyond. The aim is to set up a zone of shared development that encompasses Central and Western Asia and Africa.
The AU and the Belt and Road initiative
The AU has proposed a set of reforms to streamline African negotiations at events like the FOCAC under the auspices of the continental body. This could be seen as a step towards the frequently repeated goal of Africa negotiating collectively with China. But, in fact, we show that it faces significant resistance from within the continent. This comes both from powerful states worried about losing control of their bilateral relationships with China, and from smaller states worried about being excluded.
China’s BRI reveals other aspects of African agency. It’s structured by numerous bilateral agreements, but is also subject to regional as well as local pressures. The way the initiative’s projects have been pulled into national debates involving opposition politics shows that the range of actors constituting African agency is potentially much wider than national governments.
We argue that before African agency can be maximised, this aspect of relations between China and particular African governments needs to be taken into account. Thinking about the issue has so far fixated on the role of national governments, to the exclusion of other actors. The biggest include regional economic communities such as Nepad and the AU. The smaller ones comprise opposition parties, civil society, local businesses and communities. All contribute to and constitute African agency.
What is this agency, how does it work and how can it be strengthened?
Understanding African agency
We identified three key areas where African agency can be located.
Firstly, African agency is expressed in the frameworks and documents that govern bodies like the forum. For example, in the early days arrangements paid relatively little attention to the issue of industrialisation. That changed after the formal adoption in 2015 of the AU’s Agenda 2063 – its blueprint for Africa’s sustainable development. The forum held that year saw an uptick in how many times the issue was mentioned.
By 2016, African industrialisation had become a key initiative of China’s presidency of the G20. Beijing directed an unprecedented level of G20 attention to the continent.
By 2018, the Beijing summit ended with fewer declarations of intent relating to industrialisation. Instead, it had become integrated into the continental and bilateral planning processes. In particular, it features regularly in discussions on development financing. Likewise the word “training” was mentioned over 40 times and in virtually every section of the Beijing Action Plan.
This suggests there is a shift from declarations of intent to more specific engagement towards industrialisation. This doesn’t necessarily guarantee the success of Africa’s industrialisation. But it shows that China responds to African agenda-setting.
Secondly, African agency is diffused across various levels and among various actors. Any analysis of African agency has to consider the complex interactions between continental bodies like the AU, regional economic blocs, national governments, civil society, business, and local communities. Each plays a role in shaping African decision making in relation to China. Partnerships that cut across the state-business-civil society divide are as important as state led initiatives in articulating policy initiatives in relation to China.
Thirdly, it’s important to think of the changing terms of agency as African governments face growing debt burdens via such initiatives as the BRI. For instance, rumours that the Zambian government offered its national electricity supplier as collateral in exchange for a new tranche of Chinese loans have reportedly caused political division at home.
Critics have focused on debt as diminishing African agency. What they’ve ignored are the significant financial and reputational risks to China.
Maximising African agency
As Africa becomes more involved in global initiatives, and as it moves towards greater continental integration via AU reforms and the Continental Free Trade Agreement, the need increases to think harder and more creatively about what African agency means. It isn’t enough to simply reiterate the call for Africa to negotiate collectively with China – not least because this disregards the complex interactions between African governments.
Rather, it’s time for more comprehensive thinking about how African agency manifests across actors and geographic scales. Only once we have a firmer handle on this can we move towards maximising it.
Yu-Shan Wu, Foreign policy researcher and doctoral candidate, University of the Witwatersrand; Chris Alden, Professor of International Relations, London School of Economics and Political Science, and Cobus van Staden, Senior Researcher: China Africa, South African Institute of International Affairs
China has opened the door to imports of rice from the United States for the first time ever in what analysts took to signal a warming of relations between the world's two biggest economies after a frosty year marked by tensions and tit-for-tat tariffs.
The green light from Chinese customs, indicated in a statement posted on the customs authority's website on Friday, comes in the run-up to talks between the countries in January after U.S. President Donald Trump and Chinese President Xi Jinping agreed to a moratorium on higher tariffs that would affect trade worth hundred of billions of dollars.
It was not immediately clear how much rice China, which sources rice imports from within Asia, might seek to buy from the United States. But the move, which comes after years of talks on the matter, follows pledges from China's commerce ministry of further U.S. trade openings earlier this week.
"I wouldn't be surprised to see importers trying to move rice into China from California but I don't know if it will be in breathtaking quantities right away," said Stuart Hoetger, an analyst and physical rice trader based in California.
As of Dec. 27, imports of brown rice, polished rice and crushed rice from the United States are now permitted, as long as cargoes meet China's inspection standards and are registered with the U.S. Department of Agriculture.
The USDA on Dec. 11 forecast U.S. rice production at 6.93 million tonnes while Chinese rice imports were estimated at 5 million tonnes. Rice makes up only a small portion of U.S. agricultural exports, which are dominated by shipments of soybeans, grain, tree nuts and meat.
U.S. rice futures had little reaction to the announcement, declining by 7 cents to $10.06 per cwt.
"The permission for U.S. rice suggests an improving U.S. and China relationship," said Cherry Zhang, an agriculture analyst with consultancy JCI. Zhang said she expected any imports would likely be ordered by state-owned companies.
Officials at a government-affiliated think tank in Beijing said the price of U.S. rice was not competitive, compared with imports from South Asia, and said the move to formally permit imports from the United States should be interpreted as a goodwill gesture. China opened its rice market when it joined the World Trade Organization in 2001, but a lack of phytosanitary protocol between China and the United States effectively banned imports, according to trade group USA Rice.
Nonetheless, in July China formally imposed additional tariffs of 25 percent on U.S. rice, even though imports were not permitted at the time.
East African economies have in the past 10 years borrowed $29.42 billion to grow their transport, communication, manufacturing and energy sectors.
The region's economies are now spending almost eight per cent of their revenues to service these loans, which analysts say are becoming a burden, especially given that their impact is yet to be seen on the growth.
The latest data from the China-Africa Research Initiative (Cari) at John Hopkins University shows that Ethiopia owes Beijing $13.73 billion, followed by Kenya at $9.8 billion. Uganda owes $2.96 billion and Tanzania $2.34 billion.
Rwanda, South Sudan and Burundi owe China the least amounts -- $289 million, $182 million and $99 million respectively.
Cari director Deborah Brautigam said that the risk for the African borrowers relates to the projects' profitability.
"It is always important to look at whether these projects will generate enough economic activity to repay these loans, as opposed to being seen as merely ribbon-cutting opportunities," Ms Brautigam said.
The bulk of the monies, according to research by The EastAfrican, went into the transport sector, followed by power, communications and manufacturing.
Ethiopia's biggest intake of the Beijing loans was in 2013, coinciding with the launch of its joint standard gauge railway project with Djibouti. Addis took up more than $6.62 billion from Beijing for its mega projects, which also included the setting up of manufacturing zones.
The data also shows Kenya's new railways line accounted for the highest debt intake from Beijing at $3.7 billion in 2014.
China Exim Bank has been the go-to financier for the region's governments, giving out more than $16.3 billion. The China Development Bank advanced East African economies more than $6.9 billion, while other Chinese lenders are currently owed $6.1 billion, data shows. In terms of sector funding, Ethiopia invested the bulk of its funds in the transport sector ($4.37 billion), which was used for both the Addis Ababa light railway project and the Addis-Djibouti 700km railway. This was followed by communications at $3.16 billion and power projects at $2.54 billion.
Its manufacturing sector, which supports its fledging special industrial zones, including the Eastern Industry Zone and Huajian International Shoe City, received $2.02 billion.
"China gave priority to infrastructure and has promoted Africa's sustainable development through these loans, which have been used for infrastructure construction, energy and the manufacturing industry," said Liu Qinghai, a visiting researcher at Cari and head of the Centre for African Economic Studies at the Institute of African Studies at Zhejiang Normal University.
Kenya's transport sector took in $5.55 billion, largely driven by the new railway line from Mombasa to Naivasha.
Nairobi also took a $597 million loan for its power projects, including the $135 million for the 55 MW solar power plant in Garissa funded by the China Exim Bank.
South Sudan has received $158 million for its transport sector to date, and a further $24 million for its energy projects.
Tanzania's energy sector remains the top financed sector funded by Chinese money, at $1.16 billion.
Dar es Salaam, which has not taken up any Chinese debt under President John Magufuli, has received $552 million for its communications sector.
Uganda, on the other hand, has seen its energy sector receive the highest funding from Beijing, at $1.92 billion, while its transport sector has absorbed $762 million.
Rwanda's China debt for transport amounts to $151 million.
But the region's countries seem to have slowed down bingeing on Chinese debt, with only Kenya and Ethiopia going to Beijing for loans.
Ethiopia borrowed $652 million last year, down from $926 million in 2016, while Kenya took $64 million, down from $1.09 billion in 2016.
In 2016, Kigali took $70 million and Kampala $85 million.
Debt roll over
Last month, Ethiopia became the first country to get its Chinese debt rolled over announcing that Beijing had agreed to restructure its $4 billion loan on the railway linking its capital Addis with neighbouring Djibouti.
Ethiopia's Prime Minister Abiy Ahmed said that the country's loans will now receive a further 20-year extension, which will see its annual repayments narrow to an affordable level.
"In conversations with our Chinese partners, we had the opportunity to enact limited restructuring of some of our loans.
"In particular, the loan for the Addis Ababa-Djibouti railway, which was meant to be paid over 10 years, has now been extended to 30 years. Its maturity period has also been extended," Dr Abiy said.
Kenya also sought to get a grant as part of the package for its $3.8 billion loan for its continuing railway projects, as it seeks to manage its debt burden.
"The Naivasha-Kisumu phase of the SGR will cost $3.8 billion. And owing to its regional significance, I would request that 50 per cent of its cost be provided as part of grant financing," President Uhuru Kenyatta said at the Forum on China-Africa Co-operation in Beijing in August. This request was not granted.
Tim Jones, an economist at the Jubilee Debt Campaign, said that the continent debt problem could worsen, especially given the opaque nature in which they are signed.
"Debt problems are worsening and many lenders bear responsibility, not just China. We need new rules to make all lenders publicly disclose loans to governments at the time they are given. We also need to see these lenders made to restructure and reduce debts," Mr Jones said.
Last month, China' s special envoy to Africa, Xu Jinghu, denied claims that Beijing was burdening Africa with debt, noting that China was Africa's main creditor.
Indeed, data shows that the continent owes more to private lenders than to China.
"It is baseless to shift the blame onto China for these African countries debt problems. Their debt position has 'been built over time even before we came in.
"We have to look at the fluctuations in the international economic situation vis-a-vis the price of minerals, their key exports. This is where the problem is, and not Chinese loans," Mr Xu said.
Credit: Daily Nation
Chinese funds are not for "vanity projects" in Africa but are to build infrastructure that can remove development bottlenecks, Chinese President Xi Jinping said on Monday, telling Chinese firms they also had to respect local people and the environment.
Xi said at a business forum before the start of a triennial China Africa summit their friendship was time-honoured and that China's investment in Africa came with no political strings attached.
"China does not interfere in Africa's internal affairs and does not impose its own will on Africa. What we value is the sharing of development experience and the support we can offer to Africa's national rejuvenation and prosperity," Xi said.
"China's cooperation with Africa is clearly targeted at the major bottlenecks to development. Resources for our cooperation are not to be spent on any vanity projects but in places where they count the most," he said.
China has denied engaging in "debt trap" diplomacy but Xi is likely to use the gathering of African leaders to offer a new round of financing, following a pledge of $60 billion at the previous summit in South Africa three years ago.
Chinese officials have vowed to be more cautious to ensure projects are sustainable. China defends continued lending to Africa on the grounds that the continent still needs debt-funded infrastructure development.
Beijing has also fended off criticism it is only interested in resource extraction to feed its own booming economy, that the projects it funds have poor environmental safeguards, and that too many of the workers for them are flown in from China rather than using African labour.
Xi told business leaders Chinese firms in Africa had to be aware of their social responsibilities and make sure their investments served the community and improved their wellbeing.
"I hope that our entrepreneurs will act to fulfil social responsibilities and respect local culture and tradition," he said.
"I also hope you will do more in staff training and bettering lives for the local people and will put more emphasis on the environment and resources," Xi said.
'AFRICA KNOWS BEST'
Chinese officials say this year's summit will strengthen Africa's role in Xi's Belt and Road initiative to link China by sea and land with Southeast and Central Asia, the Middle East, Europe and Africa through an infrastructure network modelled on the old Silk Road.
Xi said the plan, for which Beijing has pledged $126 billion, would help provide more resources and facilities for Africa and would expand shared markets.
China loaned around $125 billion to the continent from 2000 to 2016, data from the China-Africa Research Initiative at Washington's Johns Hopkins University School of Advanced International Studies shows.
State media has accused the West of sour grapes over China's prominent role in Africa and has angrily rejected claims of forcing African countries into a debt trap.
"In terms of cooperation with China, African countries know best," widely read tabloid the Global Times wrote in an editorial on Monday.
"Western media deliberately portray Africans in misery for collaborating with China and they appear to have discovered big news by finding occasional complaints in the African media about Sino-Africa cooperation," it said.
Every African country is represented at the business forum apart from eSwatini, self-ruled Taiwan's last African ally that has so far rejected China's overtures to ditch Taipei and recognise Beijing.
African presidents in attendance include South Africa's Cyril Ramaphosa, Egypt's Abdel Fattah al-Sisi, Zambia's Edgar Lungu and Gabon's Ali Bongo.
There are some controversial guests. Sudan President Omar al-Bashir, who has been in power for nearly 30 years, is wanted by the International Criminal Court for war crimes over killings and persecution in Sudan's Darfur province between 2003 and 2008.
Xi told him on Sunday that "foreign forces" should not interfere in Sudan's internal affairs, China's Foreign Ministry said.
The value of loans from Chinese lenders to energy and infrastructure projects in Africa almost trebled between 2016 and 2017, from USD 3bn to USD 8.8bn, with policy lenders China Development Bank and China Exim particularly active in helping bridge Africa's infrastructure gap.
Almost half of the total USD 19bn of Chinese outbound loans poured into infrastructure projects in sub-Saharan Africa since 2014 were made last year (2017). Notably, Chinese lenders accounted for more than 40% of all infrastructure finance in sub-Saharan Africa in 2017 and its policy banks made more the four fifths of lending by Development Finance Institutions (DFIs) in the region.
Chinese commercial and policy bank lending for infrastructure projects in sub-Saharan Africa totalled USD 3.6bn in 2014, USD 3.4bn in 2015 and USD 3bn in 2016, before spiking almost 300% to USD 8.8bn in 2017, driven by a series of large power projects across Africa.
The trends are revealed by new research from global law firm Baker McKenzie and IJGlobal, the leading trade publication for infrastructure projects, as leaders from the BRICS bloc - Brazil, Russia, India, China and South Africa - meet in Johannesburg this week for their annual summit. Data is drawn exclusively from fully financed projects and excludes recent announcements of government funding commitments.
Speaking from the BRICS Energy event, which preceded the BRICS Summit, Kieran Whyte, Head of Energy, Mining and Infrastructure at Baker McKenzie in Johannesburg said the rising impact of Chinese policy lending in Africa is increasingly visible.
“Chinese president Xi Jinping’s recent tour of African countries ahead of the Summit is proof of the increasing interdependence of the maturing but still fast growing Chinese economy and developing economies in Africa,” says Whyte.
“This is much more sophisticated outbound lending than the cliché about China investing in African minerals and rail to get commodities to China to feed manufacturing – the data clearly shows Chinese lending predominantly shifting towards African power projects,” he says.
“All countries need power generation, transmission and distribution assets which are reliable and meet demand; without this, wider development is a distant dream," said Jon Whiteaker, editor of IJGlobal. "It is little surprise then that the power sector has grown to be by far the biggest recipient of Chinese policy lending in Africa. The US government may have recently jump-started its Power Africa programme, but it has increasingly been Chinese lenders which African and Middle Eastern countries have turned to get power projects financed.”
Globally, infrastructure deals featuring significant Chinese financing have risen more than threefold since 2012, driven among other things by China's Belt & Road Initiative (BRI), going from 31 deals in 2012 to 105 deals in 2017. The BRI is a world scale Chinese development strategy that combines the creation of a 21st Century Maritime Silk Road and a Silk Road Economic Belt.
Whyte explains that this shift towards power is because China is comfortable operating in the energy sector and is aware power acts as a catalyst for the growth of other sectors in Africa, providing foundations for long term economic development.
"It's also true that in terms of infrastructure development, many of China’s construction companies are world leaders in the power sector and Chinese goods and equipment are used in the construction process, which further benefits China's economy,” he says.
Whyte adds that as one of South Africa’s largest trading partners, China plays an important role in infrastructure investment in that country. At the BRICS Summit Energy event this week, China pledged to invest USD 14.7bn in South Africa and to grant loans to state owned enterprises Eskom and Transnet.
Against the background of a geopolitical shift in trade relations, China has noted that it is looking to work with African countries in a participative and inclusive way,
Another recent report by Baker McKenzie and Silk Road Associates; Belt & Road: Opportunities & Risks - the prospects and perils of building China's New Silk Road details how key opportunities in Africa with regards to the Belt & Road Initiative will be transactions related to major projects in the power and infrastructure sector and related financing.
Recent examples of large power deals in Africa where at least 50% of the finance was provided by Chinese lenders include:
While European DFIs increasingly focus only on lending to renewable energy projects in Africa, coal is still an essential part of energy baseload and vital in a region where grid capacity is almost non-existent and almost two-thirds still live without ready access to power.
The African countries seeing most Chinese lending are Kenya and Nigeria, which alone have swallowed up almost 40% of the USD 19bn of lending to projects in sub-Saharan Africa since 2014. However, Chinese banks have been active lenders to infrastructure projects in 19 different countries in the past four years. Chinese policy lending is also set to widen, with Senegal recently becoming the first West African country to sign up to supporting the BRI.
Infrastructure projects in Ethiopia have received USD 1,8bn since 2014, Kenyan projects USD 4,8 bn, Mozambique infra deals USD 1,6bn and Nigerian projects USD 5bn from Chinese lenders. South African infrastructure projects have received USD 2,2 bn from Chinese lenders since 2014, Zambia has received USD 1.5bn and Zimbabwe has seen USD 1.3bn in loans from Chinese policy lenders since 2014.
The power sector in sub-Saharan Africa has received USD 17,5 bn in loans from Chinese lenders since 2014 (USD 8,8 bn of this amount was in 2017). The oil and gas sector has received USD 3,2 bn (USD 1,7 bn in 2017) and the transport sector in sub-Saharan Africa received USD 5,5 bn from Chinese lenders since 2014 (with USD 500 million received in 2017).
Whyte notes that for investors in Africa, “A big attraction of China’s Belt & Road Initiative for both African governments and project sponsors is that it assists the speed of project implementation. Project stakeholders advise that the whole process is a lot quicker than other options. Chinese policy lenders assist in providing liquidity and contribute to the speed of implementation of projects in Africa, which is necessary for Africa to participate in the roll-out of the fourth industrial revolution and the global energy transition,” he adds.
Source: The Business Insider