Saturday, September 14, 2013

China's Infrastructure for Resources Deals

The Diplomat published on 13 September 2013 an analysis titled "China's Developing World Edge." It focuses on China's offer to build large infrastructure projects, especially in Sub-Saharan Africa and Central Asia in exchange for oil, minerals and other products.

REUTERS/Zohra Bensemra. Via The Diplomat
The article was written by Stephan Mothe, who writes for the Shandong Academy of Social Sciences, Frances Pontemayor, liaison for Chinese SOE MCC--Guam strategic investments, and Richard Ghiasy, research fellow at the Afghan Institute for Strategic Studies.

The authors explain that China offers "concessionary loans or grants to resource-rich countries such as Angola, Ghana, Nigeria and Kazakhstan, to be used for infrastructure projects." The model was popularized in Angola and is now widely used throughout the world. Chinese companies, usually state-owned, almost always build the projects.

While the analysis is generally on target, very few of these projects are financed by grants. The exceptions are the the $200 million African Union headquarters in Addis Ababa and generally smaller prestige projects such as football stadiums, clinics and presidential palaces. The large infrastructure projects are based on concessionary loans, which means the principal and modest interest is intended to be repaid to the Chinese lending authority.

Because Chinese companies build the projects, much of the loan never leaves China. There is also often a component of Chinese labor in the projects. China is usually repaid as the African country ships oil, minerals or agricultural products to China at the market price. These are really commercial deals, albeit generally good ones for the recipient country. The resource for infrastructure deals are not, however, aid projects except where the concessionary financing component meets OECD definitions.

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