FOCAC 2024: Emerging Trends of Chinese Financing to Africa and Africa’s Adaptation to These Developments

October 29, 2024

Edwin Zhiguo Li, Partner

Beijing Dacheng Law Offices, LLP

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Following the highly successful convening of the Beijing Summit of the Forum on China-Africa Cooperation (FOCAC 2024) in Beijing from September 4 to 6, 2024, African governments and the market entities in both China and Africa have maintained a significant level of interest and enthusiasm regarding the US$51 billion fund as mentioned in President Xi’s keynote speech of ” Joining Hands to Advance Modernization and Build a Community with a Shared Future” and the “FOCAC Beijing Action Plan (2025-2027)” (“Beijing Plan”).

This article conducts an in-depth analysis of the sources and utilization of this US$51 billion in accordance with the Beijing Plan and elaborates on the evolving trends of China’s financing towards Africa as well as the adaptions to be taken by African governments and enterprises, with the objective of providing a helpful reference for African countries and market participants focusing on this type of fund.

The Composition and Sources of Fund

In order to implement and realize the “Ten Partnership Initiatives” proposed in the Beijing Plan, the Chinese government will provide RMB360 billion[i] financial support to Africa. Compared with similar action plans in the past FOCAC summits, such as the Forum on China-Africa Cooperation – Dakar Action Plan (2022-2024)[ii] (the “Dakar Plan”) and the Forum on China-Africa Cooperation – Beijing Action Plan (2019-2021)[iii] , Beijing Plan proposed fund amount is more than the Dakar Plan’s US$40 billion yet falls short of the US$60 billion in the FOCAC-Beijing Action Plan (2019-2021). Another noteworthy change is that the currency units used in this Beijing Plan are all RMB, which highlights the importance and role of the RMB. It also might be a symptom of the internationalization of the RMB.

The RMB360 billion includes RMB210 billion (about US$30 billion) in credit facilities, RMB80 billion (about US$11.2 billion) in various types of aid, and RMB70 billion (about US$9.8 billion) in investment by Chinese companies.

In terms of the RMB 80 billion in various types of aid, the Beijing Plan clearly lists few specific project expenditures, including the Chinese government’s contribution of US$50 million to renew the China-World Bank Group Partnership Facility, RMB1 billion in emergency food aid and RMB1 billion military grant to support African countries. Except for the contribution of US$50 million to the China-World Bank Group Partnership Facility, the rest of the aid will be provided mainly through China International Development Cooperation Agency (“CIDCA”) and the Export-Import Bank of China (“CEXIM”). CIDCA will be primarily responsible for the use of funds in the categories of non-reimbursable assistance and interest-free loans, while CEXIM will be responsible for the disbursement of foreign concessional loans.

The RMB 210 billion designed for credit facility will involve the participation of CEXIM,  China Development Bank (“CDB”) and other financial institutions. In addition to the concessional loans mentioned above, CEXIM has a preferential buyer’s credit product available to the African entities. Both CEXIM and CDB are also involved in providing commercial loans to African entities. However, in the event of a sovereign debt default and restructure, the nature of the debt owed to CEXIM and CDB might be classified into different categories. Other Chinese financial institutions, including but not limited to various sovereign wealth funds, commercial banks, special funds, and investment companies[iv] will also provide funds to Africa in the form of loans (or debt-to-equity swaps). It is important to note that the Chinese government will continue to “encourage Chinese financial institutions, on their own discretion and in accordance with market-oriented principles, to provide new financing and export credit insurance to African countries, as well as encourage Chinese enterprises to implement Belt and Road connectivity projects in Africa in the form of tripartite or multi-party cooperation models.”[v] On the one hand, Chinese financial institutions will be more rational in controlling the risk of commercial loans, and to a certain extent free from political impact; on the other hand, it will be more difficult for African countries to obtain such commercial loans than in the past (but might be still easier compared to the loans from non-Chinese financial institutions).

Despite the Chinese government’s commitment to escalating Chinese companies’ investment in Africa to no less than RMB70 billion, the main contribution remain dependent on state-owned enterprises (SOEs). Private companies in the infrastructure, energy and mining sectors have become increasingly active in Africa in recent years and are expected to do more in the forthcoming years. EPC-driven investments will gradually lose their attractiveness, and genuine industry investors will become the dominant force investing in the African market.

RMB 80 billion of various types of aid may be mainly in the form of non-cash, i.e., equipment, products and services. Most of the RMB70 billion of investment by Chinese companies will probably be in-kind as well. Consequently, the realistic options of cash support for projects in African countries will be preferential export buyer’s loans from CEXIM and commercial loans from other Chinese financial institutions.

Utilization of Fund

According to the Beijing Plan, a list of the utilization of the RMB360 billion has already been provided preliminarily. We will briefly list the items and projects mentioned in the “Ten Partnership Initiatives” as follows.

Initiatives	Projects	Personnel	Platforms, think tanks, centers, research institutes, conference events and networks, etc.	Exemption[vi]
Mutual Learning between Civilizations		– Invite 1,000 African political party personages to China for exchanges	– Establish a platform for governance experience-sharing between China and Africa – Set up the China-Africa network of knowledge for development – Set up 25 China-Africa research centers
Trade Prosperity		– host Cloud Lectures to train African e-commerce talent	– establish the China-Africa Center for Standardization Cooperation – establish the China-Africa Trade Digitalization Trust Verification Platform	– grant duty-free treatment to 100% of the tariff lines of products from least developed countries (LDCs) with diplomatic ties with China
Industrial Chain Cooperation	– support Africa in developing local value chains, manufacturing and deep processing of critical minerals – build growth circles for China-Africa industrial cooperation in five regions – undertake 10 supporting projects of industrial parks for African countries	– hold 100 training sessions on industrialization – 1,000 training opportunities for African business managers	– implement an African small and medium-sized enterprises (SMEs) empowerment initiative – organize 50 matchmaking activities – jointly set up China-Africa digital technology cooperation center – facilitate Chinese businesses in undertaking 20 digital infrastructure projects and digital transformation demonstration projects in Africa
Connectivity	– help implement 30 infrastructure projects in Africa – promote interconnected development between transport infrastructure and industrial parks built and operated by Chinese companies in Africa		– build a multimodal sea-rail transport network that connects China’s central and western region to Africa
Development Cooperation	– aid and deliver 1,000 “small and beautiful” projects to improve people’s livelihood		– jointly build the Global Development Promotion Center network – establish a demonstration center for China-Africa (Ethiopia)-UN (UNIDO) cooperation –	– For least developed African countries with diplomatic ties with China, China will waive their intergovernmental interest-free loans due by the end of 2024
Healthcare	– support the development and operation of the Africa CDC headquarters and five sub-regional centers – build a number of joint medical centers and traditional medicine centers – encourage Chinese businesses to invest in the production of medicines and vaccines in Africa	– train 100 professionals – send 2,000 medical personnel and public health experts to African countries – launch the free medical services program of “100 Medical Teams in 1,000 Villages”	– establish an alliance of Chinese and African hospitals – implement a program on minimally invasive medicine – implement ten healthcare facility programs and ten malaria elimination demonstration programs
Rural Revitalization and People’s Wellbeing	– build or upgrade ten agricultural technology demonstration centers –  build no less than 100,000 mu (6667 hectares) of overseas demonstration areas of Chinese agricultural standardization – build 100 demonstration villages for poverty reduction through agricultural development – carry out the initiative of “100 Companies in 1,000 Villages” – implement 500 public welfare projects in such areas as women’s and children’s health, education and training, rural development, and clean drinking water	– send 500 agricultural experts to African countries – provide training for 1,000 leaders in pursing a better life through agricultural development – encourage Chinese businesses in Africa to create no less than one million local jobs	– foster a network of China-Africa cooperation on agricultural modernization – establish a China-Africa agricultural science and technology innovation alliance – advance the development of a China-Africa Juncao cooperation center and a China-Africa bamboo center
People-to-people Echanges	– build with African countries schools of engineering technology – set up or upgrade 10 Luban Workshops and 20 schools – implement ten people-to-people exchange projects	– offer 60,000 training opportunities to Africa, with priorities given to programs for women empowerment and youth development – invite 1,000 African culture and tourism professionals to China for training	– establish China-Africa regional cooperation centers for digital education – carry out a plan of cooperation on radio, television and audiovisual innovation
Green Development	– implement 30 clean energy and green development projects – build joint laboratories together with African countries		– work with Africa to construct a meteorological early-warning service platform – set up the China-Africa Forum on Peaceful Use of Nuclear Technology – set up the Africa Center of China-Africa Cooperation Center on Satellite Remote Sensing Application
Common Security		– train 6,000 military personnel for Africa – invite 500 young African military officers to visit China – train 1,000 police enforcement officers for Africa

Through the Beijing Plan, we can initially perceive the following changes and trends in China’s investment in Africa:

1. Transition from “Hard” Infrastructure to “Soft” Power Building

China’s direct investment stock in Africa exceeds US$40 billion[vii] , among which investment in “hard” infrastructure is presumed to constitute the majority, such as projects in the railways, highways, ports, hydro, new energy and telecommunication sectors. Any of such projects may cost US$100 million or more. In sharp contrast, China’s agricultural investment stock in Africa only exceeds US$1 billion[viii] and merely accounts for 2.5 percent of China’s total direct investment stock in Africa.

In the “Ten Partnership Initiatives” of the Beijing Plan, it is emphasized that China will “support the implementation of 30 infrastructure connectivity projects in Africa”. We understand that these 30 projects will not be the same as the “hard” infrastructure projects that China has invested in Africa before. These 30 projects are limited to “connectivity” and focus on key node of logistics and transportation infrastructure, which will benefit the African Continental Free Trade Area (AfCFTA). Furthermore, the investment scale and channel from China in these 30 infrastructure projects may be more market-driven. In light of the sovereign debt pressure on some African countries, the previous sovereign-guaranteed loan or government-to-government (“G2G”) model will be rare.

The “Ten Partner Initiatives” place greater emphasis on China’s investment in “soft” power building in Africa continent. Each initiative mentions one or more of the following cooperation and co-building programs, such as building networks, platforms, think tanks, centers, schools, alliances, or carrying out relevant action plans, demonstration projects and seminars in sectors of agriculture, education, healthcare, culture, SMEs etc. Seven of these initiatives include provision of personnel training or exchanges to Africa. It is believed that these initiatives will, to a certain extent, fill in the gap of China’s “soft” power investments in Africa in the past few decades. The investment in personnel, technology, services and cultural exchanges will contribute to elevating China’s image among the African middle class and the grassroots, thus laying the foundation for the stable development of China-Africa relations in the next decade and on.

2. “Small or Beautiful” First Introduced in Official Documents of FOCAC

The Chinese Government has not provided a clear definition of “small or beautiful”[ix] (Xiao Er Mei in pinyin) projects, but vaguely describes them as “directly affecting the people. In the future, we (China) should prioritize ‘small and beautiful’ projects in foreign cooperation, strengthen overall planning, and give full leverage to the foreign aid funds to engender more grounded and popular projects.” This will bring some uncertainty at the implementation level.

The Beijing Plan introduces the phrase “small or beautiful” for the first time in the similar FOCAC official documents. The Chinese government has committed to “aiding and delivering 1,000 ‘small and beautiful’ livelihood projects”. If these 1,000 “small or beautiful” projects use only aid-type funds, i.e., $21 billion (about RMB80 billion), then the size of each project will be much smaller than the US$50 million as we perceived to be “small”[x]. Furthermore, these ‘small or beautiful’ projects may pose challenges when assessed in monetary terms, such as the establishment of a certain center, alliance, platform, network, etc. However, if the “small or beautiful” projects use loan funds (including interest-free loans), then the US$50 million standard as a “small” may still be applicable.

If “small or beautiful” is interpreted within the framework of the foreign aid, then the criteria[xi] for what constitutes ‘beautiful’ will diverge significantly . Economic viability will most likely be excluded from the criteria, with government preferences, ESG and climate change factors emerging as pivotal determinants. This aligns with the Chinese government’s transition from “hard” infrastructure to “soft” power building.

For Chinese financial institutions and enterprises involved in commercial financing and investment towards Africa, the expression related to “small or beautiful” in the Beijing Plan has the following implications: First, commercial financing and investment by financial institutions and enterprises should not be constrained by the notion of “small or beautiful”. In other words, business development staff and members of loan review commission should ensure that the concept of “small or beautiful” does not influence their project evaluation and selection. Secondly, while financing and investment in “small or beautiful” projects should not be ruled out, it ought to serve more as an enhancement rather than compete directly with governmental bodies such as CIDCA for “small or beautiful” projects. Thirdly, if “full leverage to the foreign aid funds” comes to play, there may still be opportunities to integrate interest-free loans and foreign concessional loans onto “big and beautiful” projects, which necessitates careful interpretation among all involved parties regarding what constitutes ‘small or beautiful. In summary, economically viable projects should be the focus of financial institutions and investors for their commercial loans and investment in Africa, regardless of their size.

3. Capital Channel

The Beijing Plan introduces new channels of fund utilization, signaling a decline in the directly and/or exclusively securing loan from Chinese financial institutions. This will increasingly give way to indirect and diversified financing mechanisms involving Chinese participation.

Compared to the Dakar Plan, the Beijing Plan sees the Chinese government encouraging enterprises to collaborate with African regional and subregional policy banks such as the African Development Bank and the African Export-Import Bank, as well as the Asian Infrastructure Investment Bank (“AIIB”) and the New Development Bank (“NDB”) through the support from Chinese financial institutions. This collaboration is primarily focused on enhancing investment in Africa’s infrastructure. Conversely, under the Dakar Plan, China has been fostering cooperation with both AIIB and NDB specifically for developing small and medium-sized enterprises (“SMEs”) in Africa. This highlights China’s desire to build strong partnerships with multilateral financial institutions for financing large-scale infrastructure projects across Africa while diversifying funding sources.

Conversely, the Chinese government is actively seeking collaboration with other regional financial institutions in Africa, particularly those characterized by neutrality and depoliticization. CEXIM signed a US$300 million export buyer’s credit agreement with the African Finance Corporation (AFC) in September 2023[xii]. In 2014, China and the African Development Bank established the US$2 billion Africa Growing Together Fund (AGTF), which has since been fully utilized. Currently, it appears that the Chinese government does not intend to renew this fund, and there is a lack of information regarding AGTF’s financing activities from both Chinese and African sources. China’s influence and reputation within this fund do not fully reflect its financial contributions.

For SMEs and various sectors in Africa, Special Loan for the Development of African SMEs under CDB, along with the new China-Africa Economic and Trade Cooperation Service Fund and Special Fund for China-Africa Green Industrial Chain, will provide targeted financial support.

In this context, diversified financing led by Chinese financial institutions, as well as on-lending facilitated by these institutions, may emerge as primary channels and models of financing between China and Africa. This shift will pose significant challenges to the professional expertise, organizational capacity, and communication skills that Chinese financial institutions must cultivate for the syndicated loan transactions.

African Adaptations

African government officials should be well-equipped to understand the political, economic, legal, and cultural aspects of China. Specifically, they should proactively analyze the preferences of the Chinese government, financial institutions and corporate investors, understand their financing and investment approaches, navigate regulations governing China’s outbound investments and grasp coordination mechanisms among these Chinese entities. Efforts should focus on the priority areas at the levels of African Union, sub-regional organizations and individual nations. Aligning projects in these key sectors with Chinese interests can facilitate more efficient access to financial support from China. African governments will increasingly embrace these requirements through regular communication between both parties or via systematic training conducted by third-party consultants experienced in China-Africa relations. Additionally, following the FOCAC Beijing Summit, the Democratic Republic of Cong has advocated for the establishment of a task force aiming at securing more financial support from China[xiii].

African enterprises should take the lead, move beyond politically exclusionary practices and unite all stakeholders—including Chinese firms—to focus on the commercial merits of the projects themselves, thereby generating sustainable momentum for Africa’s development. African companies, as local partners, have unique advantages that Chinese financiers and investors may not possess, even though they face challenges in securing funding for project development within their own countries. These advantages include the well-established political and economic networks with former colonial powers and other western nations. Such networks are often unavailable to Chinese lenders and investors. A significant factor contributing to the scarcity of external financing and investment in many African projects is the inability to reasonably allocate certain risks associated with these projects. Under specific circumstances, Chinese financial institutions and enterprises may effectively share this risk, potentially revitalizing projects and rendering them economically viable. In implementing such projects, African enterprises should assemble a team of consultants from their home countries, China, and third-party nations to enhance their capacity for success.

Conclusion

If China and Africa can, in their cooperation, assist each other in addressing their own domestic problems and challenges, then such collaboration will undoubtedly be advanced effectively. In the face of the challenges posed by today’s unstable world, both China and Africa must prioritize resolving their respective domestic economic and social issues. However, the extent to which cooperation between China and Africa can help one side in overcoming its domestic difficulties remains an open question. The think tanks and other platforms under the Beijing Plan should actively engage experts, scholars, and practitioners from both sides as well as third parties to conduct targeted research on this topic, thereby achieving a synergistic effect of 1+1>2 or 1+1+1>3.

Financial resources alone cannot address all the challenges faced by Africa and China. While this article primarily centers on China’s financial support to Africa, under China’s diplomatic principle of non-interference in the internal affairs of foreign countries, it is essential for African governments themselves to critically evaluate their own political and economic development. They must strive to optimize the utilization of Chinese funds for areas and projects that enjoy broad consensus. This consensus is manifested not only in the agreement between China government and African governments but also, more importantly, in the alignment between African governments and their own citizens. The latter is even more crucial to the success of the projects.

The Chinese government authorities and policy-oriented financial institutions may adopt appropriate measures to enhance the auditing and post-loan administration for foreign aid projects, making them as open and transparent as possible from the perspective of donor country. This will facilitate access and supervision by relevant stakeholders, including the public in both China and African nations. It will also significantly constraining the illegal or immoral behavior of relevant entities in these countries. Regarding China’s commercial financing and investment activities in Africa, both parties should strengthen anti-corruption cooperation in accordance with the principles outlined in the Beijing Plan. Such collaboration will not only create a cleaner and more efficient business environment for China-Africa cooperation, but also mitigate negative perceptions from third parties regarding financing and investment activities between China and Africa. Ultimately, this will undoubtedly promote sustainable investment and financing to Africa from various countries, multilateral development banks, commercial financial institutions and investors around the globe interested in Africa. This is crucial for fostering sustainable development in Africa.

(You may reach the author at zhiguo.li@dentons.cn)

 

Footnotes:

[i] Based on the foreign exchange rate of RMB7.09 per US dollar published by the Bank of China on September 6, 2024, RMB360 billion is approximately equivalent to US$50.776 billion. For consistency throughout this article, we will refer to this amount as $51 billion along with this exchange rate.

[ii] http://www.focac.org.cn/focacdakar/eng/hyqk_1/202112/t20211222_10474206.htm

[iii] http://focacsummit.mfa.gov.cn/eng/hyqk_1/201809/t20180912_5858585.htm

[iv] For an introduction to the relevant players in China that can provide financing to Africa, see “How to Get Financing from China – Part I Who are the Chinese Overseas Direct Investment Lenders and Equity Investors,” https://projectfinance.com.cn/how-to-get-financing-from-china-part-i-who-are-the-chinese-odi-lenders-and-equity-investors/2024/03/28/

[v] Report on the Joint Development of the Belt and Road Initiative Between China and African Countries, August 2024.

[vi] Such exemptions may be included in the RMB360 billion fund though it is difficult to define the exact amount.

[vii] Ibid.

[viii] Ibid.

[ix] We use “Small or Beautiful” in this article except for the quotation of the Beijing Plan or third party’s documents. We still believe the expression of “Small or Beautiful” is more appropriate and practical to the BRI projects.

[x] How to Define “Xiao Er Mei” (Small or Beautiful) in the Belt and Road Initiative, Edwin Zhiguo Li, February 2023, https://projectfinance.com.cn/how-to-define-xiao-er-mei-small-or-beautiful-in-the-belt-and-road-initiative/2023/02/19/

[xi] Ibid.

[xii] http://www.eximbank.gov.cn/info/news/202309/t20230927_52995.html

[xiii] https://actualite.cd/2024/09/10/focac-felix-tshisekedi-enjoint-julien-paluku-de-travailler-avec-son-collegue-des