Xi Jinping (L, front) shakes hands with Angolan workers while visiting a social housing project constructed by Citic Construction Company in Kilamba Kiaxi, Angola, in 2010
The review that China is making to its development aid model should strengthen cooperation with multilateral agencies, keeping preferential loans for infrastructure central, according to an analysis by the Brookings Institution.
Yun Sun, an analyst at Brookings who has studied the role of Africa in China’s diplomacy, said in his latest work on the subject that loans with preferential terms (or subsidized loans), similar to those that have been granted to Angola and Mozambique are already the largest component of Chinese foreign aid, accounting for almost 56 percent of the total between 2010 and 2012.
In relation to Africa in the “near future” the “bulk” of the aid is likely to be granted through preferential loans, which together with development aid are a set of “highly valuable financial resources for (Africa’s) vast infrastructure development needs,” said Yun Sun.
In the next few months the Chinese Foreign Ministry is expected to issue a set of guidelines for external aid to frame the high growth figures expected in the coming years, in line with those recorded in the recent past.
Between 2010 and 2012, China’s aid reached 90 billion yuan, nearly a third of the total since 1949, becoming a “formidable alternative to Western aid,” according to Yun Sun.
Some analysts in China have been advocating a reduction in the weight of preferential loans and infrastructure projects, but this seems to clash with the current priorities of the Chinese government, which include establishing links, particularly along the “New Silk Route.”
Sun Yun said that in coming years preferential loans for infrastructure “will be considered favorably within Chinese foreign aid.”
In Africa, Angola and Mozambique are among the main beneficiaries of these loans – China is already the biggest bilateral creditor of Mozambique, where major investments are being prepared with Chinese capital after increasing funding to the country by 160 percent since 2012.
With a new loan of USD400 million announced last month, the weight of funding from China to Mozambique is expected to grow almost 50 percent over the current level.
The new loan is for construction of a 600-kilometer power transmission line between the provinces of Zambézia and Nampula, according to the Mozambican government.
In the case of Angola, the two countries established a strategic partnership in 2010, with China providing credit lines and Angola repaying them with oil, which led to two-way trade increasing over 2000 percent between 2002 and 2012.
The level of support for Angola was such, and as the aid scheme so effective, that it was eventually extended to other countries under the name “Angola Model” – financing agreements with low interest rates for African countries, guaranteed with the supply of raw materials.
For African countries, this support came at a time when they had great difficulty in accessing financing.
The Chinese foreign aid budget supports the difference between market interest rates and subsidised interest on loans, enough to increase demand for this financing, which also secures contracts for Chinese companies and helps ensure a market for natural resources, said the analyst at Brookings, an American private institution.
Yun Sun also said that the future of Chinese support would involve further multilateral funding, with joint initiatives of the Asian Infrastructure Investment Bank, led by China, the World Bank and Asian Development Bank. MDT/Macauhub
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