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These podcasts are recordings from the Cutting Edge Issues in Development Thinking & Practice lecture series 2023/24, 2022/23, 2021/22 and 2020/21, a visiting lecture series coordinated by Professor of Development Studies, Professor James Putzel and Dr Laura Mann.
The Cutting Edge series provides students and guests with fascinating insights into the practical world of international development. Renowned guest lecturers share their expertise and invite discussion on an exciting range of issues, from climate change policy, to pressing humanitarian crises. In 2020, the series took place online, enabling us to host fantastic speakers from around the world and to stream the lectures on YouTube, opening them up to a global audience. Now we are back in person but still recording the sessions to share with our global audience.
SPEAKER 3
So thanks for joining us for this final lecture of the Cutting Edge series for this semester. Um, I. Oh, yeah. Sorry. Well, sorry. It's not the final one. There's another one next week. My mistake. Well, I'm the I'm a PhD student in the international development department. My research looks at the globalisation of China's internet industry and a more specifically look at Chinese digital investments in North Africa. My supervisors are Professor James Basil and Laura mann. So I'm really excited about this panel today because it's very much linked to to my research. And it's with great pleasure that I welcome our guests for this session on China's Belt and Road Initiative development finance and Investment in Africa. So discussing Chinese financing and investment abroad is particularly timely this year as the Belt and Road Initiative celebrates its ten year anniversary. Big questions emerge from the like China's globalisation and its presence in other developing countries. It's important to ask whether Chinese, you know, financing to African countries is a form of debt trap, as we often read on media headlines. But, you know, it's important to ask whether it's more complicated than that. And for for you here, postgraduate students in development, it's very important to ask whether China's engagement with Africa is contributing to to structural change or not. And I will let our fantastic panel help us answer some of these very important questions. So let me start by introducing our speakers. So I'm going to go from the left to to the right. So first I'm happy to welcome Yunnan. Chance Yunnan is a research fellow in ODI Development and Public Finance program. Her work centres on the changing development, finance, architecture and the role of global China. She holds a specialist interest in the role of Chinese development finance. She was previously working for the China-Africa Initiative at Johns Hopkins University, and she has published widely in academic journals and policy briefings. Next to her, we have Dr. Weiwei Chen. So Weiwei is a postdoctoral researcher at the Open University. Weiwei's academic interests include the globalisation of Chinese firms and Chinese private foreign direct investment in sub-Saharan Africa. She has been conducting fieldwork in both Angola and Ethiopia since 2015, and she surveyed an impressive range of Chinese firms in light manufacturing, but also in the construction sector. She holds a PhD from psoas, and her research outputs have been disseminated in several policy and academic publications. Last but not least, there's Dr. Qiu Jin, who's an associate professor of economics at the LSC. She reaches researchers and teaches international macroeconomics and the Chinese economy. She's the author of The New China Playbook Beyond Socialism and Capitalism, and her academic papers have been published in top economic journals such as the American Economic Review. She previously sat on the editorial board of the Review of Economic Studies, and is currently an academic member of the policy thinktank China Finance 40. Jin has a PhD from Harvard University and has previously taught at Yale, Berkeley and Xinhua University. Okay, I will stop here. And yeah, without further adieu, I'll ask Yunnan to kick things off.
UNKNOWN
Thank you. It's good. Okay.
SPEAKER 2
Can you hear me? All. Cool. Um, so it's a pleasure to be here. Thank you so much to the team at for for inviting me and my presentation to kick off this. The seminar will focus kind of on the state side of things and China's state backed development. Or if you want to call it development finance in Africa. Um, and this will go through a mostly descriptive. Landscape of who are the key development actors, what have been the patterns and focus of financing in Africa, and then looking a little bit at the sort of the controversial issues around Chinese debt in Africa. So what do we mean when we say development finance? And I think the first thing to, to, to put on the table is that China's overseas financing has been a fundamental challenge to OECD and traditional donor understandings of of development finance, of aid and of official finance. There is a very different model and conception on the relationship between aid and trade finance in the Chinese system, and we have a very different kind of institutional set up as well, between the the institutions involved in providing Chinese aid and providing different kinds of official finance. That and all of these. Contrast the kind of established OECD model of aid and development finance that have evolved and culminated or cohered in the last 50 years or so. China has. Chosen not to assimilate into a lot of these regimes. And here I'm specifically talking about certain normative frameworks around the OECD arrangement that governs export credits and the use of official finance to support domestic exporters and trade. The OECD, DAC, the Development Assistance Committee and norms around untying aid, as well as the Paris Club, which governs debt restructuring. All of these frameworks or rules were established before China really became a major player in this field. And and so I think there is a sense that as a slight late comer to the game, it doesn't want to sit down at the table where the dishes have already been prepared or the rules have already been laid out. There are other things where Chinese finance has also been kind of criticised for where it stands, quite in contrast to, to traditional donors. Um, and this relates to issues such as ESG approach to, to, to labour to environmental impacts or social assessment. And on this, you know, I think some of that comes from Chinese creditors being relatively. Young and a newer to the scene. But also they're very streamlined. Right. And this has also been a, let's say, an advantage of Chinese lenders and Chinese credit for developing countries, and that Chinese financing is very, very fast. Another criticism is that Chinese finance comes with no strings attached. They and that this has contributed to issues of governance or poor governance and corruption. And this is true to an extent that, you know, Chinese loans don't come with the same kinds of policy conditionalities that the world Bank might require, or that loans from from OECD donors might require. But that's not to say that Chinese loans are not conditional. They do, in fact, have very clear policy conditionalities. And the biggest one is that you have to break diplomatic relations with Taiwan and recognise only one China, as in China, as in Beijing and the People's Republic of China. Um. Moving on, I'm going to pull a slightly complicated looking diagram that shows the the sort of the spectrum of actors and institutions involved in China's overseas finance via the Belt and Road Initiative and beyond that. Whereas, for example, I mean, pre-merger UK aid primarily came from one single development agency. At that time, it was deferred. Now its Fcdo, China's overseas aid and finance is spread over a much broader range of institutions, both political actors and financial institutions. And so, you know, all of these fall under the governance of of the top level of leadership under the State Council and the and the Foreign Affairs Committee. And then at the bottom where it goes is to support contractors, project owners on the ground. And there are different kinds of financial instruments, right, that we're talking about. So when we talk about Chinese aid, this is really a very, very small subset of total official finance. And this comprises of zero interest loans, grants which usually involve in-kind donations. And the biggest bulk of this are concessional loans which come from China Exim Bank. You have what would be classified as other official finance and OECD terms, which is financing that comes from an official institution but is not concessional. And the two major providers of of of official finance are the two policy banks Exim Bank in the middle and CDB. And then you have commercial finance which come from CDB, which which provides loans only at commercial rates as well as. Relatively newer players in the Belt and Road Initiative, such as ICBC or Bank of China, which are two of what are called the Big Four state owned but commercial commercial banking institutions. Of these, the ones that you'll probably have heard of or seen the most are China Exim Bank and CDB. China Bank is the, let's say, more state adjacent institution. It's the most clear kind of policy bank. It is the provider and the sole provider of concessional loans. So it has a direct funding relationship from China's foreign aid budget. It's also been the one that's been the public face of Chinese debt renegotiations and the in the ongoing G20 common framework. And it's also been the one that's most active in the African continent. CDB, meanwhile, is a little bit more of a hybrid institution. It is technically a policy bank, but seems to behave a lot more as a commercial lender. And it's the one that's been more active in in Latin America. And then to the right and the far right. Something that I've been working on as well is, is the role of cynosure, which is less visible than the others, but it is also an export credit agency, and it's the one that's responsible for ensuring or underwriting a lot of these commercial transactions overseas. And Sinosteel has been quite critical in a lot of the major flagship Belt and Road Initiative projects. So when we dive into the patterns of of China's lending in Africa, you'll see that Africa is not a monolith in terms of Chinese interests, and in fact is extremely concentrated in a small number of countries. And. Primarily Angola. And this is a long relationship. And now Weiwei is going to talk about this in a lot more detail. Angola has been the largest recipient of of Chinese loans, a lot of which date back into the early 2000, where Chinese lending was instrumental in the post-civil conflict reconstruction of Angolan infrastructure. Angola was also a very important trade partner in supplying oil and as a commodity exporter to China in that period. But after Angola, you also have other non-recourse exporters Ethiopia, Kenya, for example, who have also been major recipients of Chinese lending, particularly in hard economic infrastructure sectors. And as you can see on the right. Energy and transport are the two biggest sectors in terms of projects that have received Chinese lending. What does this look like on the ground? Well, it reflects very coincidentally, the sectors and industries where Chinese contractors and construction firms have a competitive or a comparative advantage. Hydropower railways. These are all things that contractors in China at home are very, very good at constructing and coincidentally end up becoming a very strategic pillar of China's going out, particularly in the years after the global financial crisis. But these projects also, I think it's important to say they coincide with the development strategies and demands of African governments and governments of the global South in their own, let's say, wish lists for investment. These are these are sectors where MDB, such as the world Bank and traditional donors for the last decades, have really retreated from in the early 2000, the world Bank really wasn't funding very much in the way of hydropower or railways anymore and had shifted a lot had shifted away from from hard infrastructure towards softer programs. And so the rise of Chinese lending in this period, I think, also filled a much needed it, provided much needed resource, and filled an important financing gap when it comes to this kind of hard, productive economic infrastructure. When we look at patterns of lending over time, you see certain very clear kind of booms and and busts. Right. In the early 2000. There's this there's this very slow uptick, very much driven by, by, by Chinese patterns of trade demand in this period where we see a lot of lending to to resource rich countries. And so these loans were also backed by resources as collateral. But but really, when we see China become a big player as a creditor, is is in the years after the, the financial crisis. And this is what becomes known as the Belt and Road Initiative. But that boom in lending begins before the Bri or One Belt, One Road really becomes a thing. And this is a, I would say, a spill-over of what's happening at home in the years following the global financial crisis. China invests massively in domestic economic infrastructure. You have a huge stimulus to support hard, hard industries, heavy industries, and then you reach a point of every saturated infrastructure market, excess capacity, etcetera, etcetera. And conveniently, a lot of companies decide to go overseas and you see a capitalisation of the policy banks and major financial institutions who are then enabled to support these companies to go out. 2013 is if you ignore the spike in 2016. 2013 is really the peak of of Chinese lending to Africa. This 2016 spike is basically all Angola and it's one framework agreement between CDB and Angola. But but the broader trend is that basically the second half of the decade of the 20 tens, Chinese lending to Africa has been in a phase of slowdown. And this is reflected more broadly when we look at global lending patterns. So so this this is from a data set of China's overseas official lending across the world. And you see the same pattern again 2016 is is an anomalous spike which is basically explained by Angola. But but there's a secular shift right in the in the post let's say 2015 era. And a lot of that is explained by domestic factors where you see a, a shift in the regulatory environment, um, greater regulatory pressures on both the policy banks and more broadly in the financial sector. You also see a lot more international backlash and criticism of the Bri. And a lot of the projects that that were initiated in that early phase of exuberance start to come online and start to face a lot more kind of teething problems. Um, and there's a little bit of a shift in narrative, particularly after Covid. The, the Bri in recent years has had a little bit of a profiling when it comes to mentions in official rhetoric. There's been the announcement of newer initiatives, including the Global Development Initiative alongside the Global Security Initiative, a Global civilisation initiative. So so the Bri is no longer the only acronym in town, let's say. But that said, the bridge is not dead. And with the forum in October of 2023, we're also seeing a little bit of a revival in in terms of political commitment to the Belt and Road Initiative and in terms of the the funding windows that have been created at the at the policy banks. Um, this is a point on. Another kind of secular shift to mention is that, you know, whilst we are seeing a little bit of a revival and potentially an uptick in the years to come in terms of lending, I think there has been a bit of a transformation in terms of the the risk attitudes and approaches to risk from Chinese creditors. And one component of that is, is the willingness of Sino. Sure, the major export credit agency that that ensures a lot of this overseas investment and lending and their willingness to to underwrite, uh, underwrite some of these long term, long horizon debt financed projects. Um, there is a bit of a question over how much moral hazard Sino Shaw has has generated over the years where, you know, when you have a project that that is ultimately guaranteed by Sino Shore, as a creditor, you can feel a lot more comfortable to take on that risk because ultimately you're fulfilling your mandate. And so ultimately, I think we are seeing we are seeing a little bit of a. A shift in approach, am quickly running out of time. So I want to get very I want to throw this at you to to close the presentation. And that is kind of handling the myth of the debt trap, right? One of the biggest kind of controversies of China's overseas lending has been this, this idea that China uses or strategically intends to leverage its overseas lending to in debt borrower countries and therefore seize their strategic assets. And and the the main case of this has been the port of Hambantota in Sri Lanka. However, you know, and I won't have time to really get into the case. This is not in reality in asset seizure. The the reality is, yes, Sri Lanka's government was was was facing a lot of debt sustainability issues. However this was debt not to China. It was debt to its private sector bondholders. And completely independent of the port project that happened to be constructed by a Chinese firm. It ended up being a concession of the Chinese company, because the Sri Lankan government invited the Chinese company to take it over and to take out some of the the financial pressures that it was facing. And Sri Lanka is still to this day, trying to renegotiate its external debt, both to China but also primarily to its private sector creditors. But this myth has infected a lot of other projects across across Africa and other global South countries as well. So the Kenyan SGR Uganda, Entebbe airport, there's been a lot of kind of media hyperbole and hand-wringing over, over whether or not these projects would be taken over by Chinese creditors or companies in the case of a default. And the reality is, no, we have really not seen any evidence of this. However, there is a genuine and very real problem of opacity when it comes to Chinese lending. It's very, very non-transparent. But when it comes to debt restructuring, what we actually find is that Chinese creditors have been, in some cases, very flexible, especially when there's a strategic bilateral relationship at play. And in recent years, China has joined new multilateral debt restructuring initiatives. And so at the top line, it is trying to play ball at a political level. However, at the implementation level, this has also been a lot more problematic. And happy to discuss this in the Q&A. And and I'll just conclude there because I'm running out of time. But this is another figure from from Boston University, which kind of illustrates when we talk about debt, where the scale of the problem is China, as you can see, is there. It is the largest official sector creditor. But but there are bigger problems at play. All right. And I'll conclude there. Thank you.
SPEAKER 0
Yep. Hello everyone is my pleasure to be presented here. Just want to follow by Nan, and I want to focus more on sharing insights about Chinese investment in African country, particularly about Chinese foreign direct investment. Based on my past eight years, ground based research, in particular in Angola, Ethiopia. Firstly, I want to provide an overall picture about the Chinese FDI to Africa. It is evident to see that Chinese FDI has demonstrated a significant growth over the past two decades, increasing from 75 million USD in 2003 to 5 billion USD in 2021. And since 2013, the investment into Africa from China has existed those from the US. A trend can be seen that emphasised by the general decline in US FDI during the post 20 period. In this sense, Chinese FDI to Africa is fairly big, but it also Chinese FDI to Africa also present a paradoxical picture in the sense that it's also quite small in terms of the overall proportion among Chinese total investment abroad. By 2021, is investment in terms of investment, stock to Africa is just 1.59% of the total investment, so it's fairly small in this sense. In terms of the top recipient of Chinese FDI by 2021, DRC, Zambia, South Africa and Kenya have become the top recipients. Angola and Ethiopia used to be a top recipient back to 20 1517, but has been dropped from the top ten. Um, you can see there is a strategic shift in Chinese investment towards region, not traditionally targeted by Western investors, as has been an update to 2021. The data show that the top sectors, including construction, manufacturing, especially among those countries, are not targeted by Western countries such as Ethiopia in manufacturing sector, especially the light manufacturing sector. Now I want to move on to the second point, which are the key challenges for us to studying Chinese FDI to Africa. Basically, whenever you read about media report, newspapers, those kind of common perception regarding Chinese engagement in Africa in the form of foreign investment always show some how one dimensional bias picture. People do not distinguish between state owned enterprises or private owned enterprises, which all lumped together as Chinese. This kind of problem. We also refer to methodological nationalism, whereby the origin of a firm or agency determines the outcome, has two significant drawbacks. The first one is that it conceals highly significant heterogeneity of Chinese actors overseas, and ignores the variety of Chinese capital in terms of variety of Chinese capital. It's not only about state owned or private owned, but also variation within each group of firms. And secondly, it also ignores the importance of the context of African countries that host overseas investment. As African state and the society were not able to shape how foreign actors and firms operate in their countries. In reality, it's not always the case. It has been demonstrated, at least from, for instance, in Ethiopia at least, the Ethiopian government can force, for instance, the Chinese FDI investment from previously focussed on Ethiopian domestic manufacturing in a light textile garment industry to focus on export to the US and the European market. Um, so the second problem encountered from in terms of challenger is the data issues. Sometimes when we researching about Chinese FDI, we look about the database and look about secondary data. If we have limited resources, we cannot go to the field. But always. Sometimes they have. The overreliance on the limited database can lead to mis misrepresentation, because sometimes you take it for granted and some database makes investment Chinese foreign investment and contract and put them all together. That lead to a very misleading picture. And secondly, some of the official official statistics can be misleading in terms of the geographical sectoral distribution. For instance, the database I have collected from the field in Ethiopia shows as many of the Chinese firms originally from Georgetown Province, they also brought their own capital somehow, sometimes from tax haven, from their internal taxing networks to invest in Africa, but not officially registered in the MOF data in China. So solely relying on those kind of secondary data and and didn't check the composition of the database, how they collect the data can sometimes lead to a very misleading picture. So how we try to mitigate this kind of problem collectively. Recently, in recent years, Professor Connelly also called for the concept of global China. Try to understand of China beyond Chinese borders and to in our in the team that I'm working on right now from led by Professor Charles Mohan at Auburn University, focus on the dynamics and efforts of Chinese infrastructure investment in Europe. Our team also call to productively engage betraying the concept of global development and global China to. So in doing so, we can try to avoid a so called methodological nationalism or Chinese exceptionalism. So what we need to do is to think in terms of a capitalist hole rather than Chinese exceptionalism, varieties of capitalism, or micro-level geographical outcomes. And secondly, we need to disaggregate the state and the capital, both in home country and the host country, and the factors matter in relation to agency. Falsely is the ideas and interests are coal determined. So in terms of data collection, we also call for more rigid, ground based comparative analysis to either prove or disprove this kind of existing data. You really need to triangulate different data to see whether it's the validity of it. So how do we do? So in a recent paper. Me and Professor Carlos Oya from University, actually, he's my former PhD supervisor. We write a paper on the heterogeneity and adaptation of Chinese FDI in Africa. Evidence from Angola, Ethiopia. So in our paper, we focus based on the data we collect from 2015, from two different projects that we did in the field. And combined with my PhD thesis on Chinese private investment in Ethiopia with one year comparative comparative ethnographic study in the field. And then we updated the data with the interviewees up till May 2023. I just wanted to provide some of the insight because it's quite relevant to today's topic. So what's the driver? What's the driver of Chinese investment to Africa? Why are Chinese firms investing in Africa so. So in order to understand the driver, we need to know who are those actors? Who are those investors? Where are they from? And and how they overcome this kind of initial difficulty to make the decision and also to install their investment in the underground. So in our paper, we argue that firstly, the main drivers of investment really depend on the variety of Chinese capital, state owned enterprises, private enterprises, and the variations among each group of firms. And equally important are the contextual factors in African countries, especially the role of the state. For instance, Ethiopia industrial policy contrasts with Angola's infrastructure boom, for instance. Secondly, we also argue that heterogeneity among Chinese firms is very significant, driven by a combination of factors such as sector specificity in in the sense of the particular market either focussed on domestic host country, domestic market or export market, if its export market, whether it focus on the European or US market or from the surrounding areas because it has different kind of standards on environment, on the labour training and the management workforce. And also the prime mover in this for the market seeking for profit seeking, for strategic asset seeking, what's the most important determinant of this individual investor to invest here. And then we look about trace back about okay they are from China. But where are they from. Some of firms for instance in Ethiopia we identify the majority in terms of total number. Majority firms are firstly from 31 province, then Giang Province and Guangdong Province. And they have quite different kind of region specific developed model. Equally important is the question networks once you here means a kind of connection relationship is combined with personal, business and social networks. But we also trace about which ties is the most important determinants to drive them to invest in particular sector in the market. And then it's the scale. And the characteristic of owner and or entrepreneur is essentially the case for private investors. And certainly firms tend to adapt to the host country context. In Africa, we argue, especially private firms with grab opportunity as they emerge. Adaptation has been seen in business management practices, labour regimes and investment diversification. If you want to know more, I can explain more in detail in the Q&A session. And then I want to explain like what kind of type of firms we identify with, distinguished in in on the field. Firstly like state owned enterprises from central level, provincial level and municipal level. And we also identify certain kind of firms, has mixed ownership enterprises, has certain share of the state from the state, but mainly a private owned a. Meanwhile we also identify diversified business groups. That means certain kind of some firms they invest in more than three industry in the host country has big financial muscle can manoeuvre the time even for instance in Angola they encounter the commodity crisis. Those kind of firms enable to be resilient to to act as those kind of shifting conditions and continue their businesses. And additionally, we also examine large medium private manufacturing firms connect to global production networks, such as those in and in Ethiopia, particularly before the Covid 19 pandemic, as well as medium small private firms and those kind of trends local who seek local market opportunities. So by highlighting these distinctions, we illustrate the differences in drive among those different type of firms and create a typology accordingly, in Angola, Ethiopia's manufacturing and construction sector and the use, the push and the pull framework to explore. Okay, what are the key drivers of different type of firms? Investment in Angola, Ethiopia with a focus on sector specific factor both within and between the sectors. So for example, in Ethiopia, we we identified that manufacturing sector ranked number one, followed by construction, real estate and machinery leasing and consultancy. Why construction was not the first one because majority of the construction was through the contracts rather than foreign direct investment. And sometimes we often mix them together and think, oh, they all Chinese investment, which is wrong when you really check on the ground. And in Angola, the majority of the AI, unsurprisingly, was directed toward oil sector. According to Wanda, manufacturing ranks third among non-oil investment, followed by trade and construction. And the manufacturing sector in Angola and Ethiopia has shown quite distinct differences, resulting in significant variation among firms. Resample. For instance, in Angola, the trans local are more prevalent in construction in all the sectors resampled. But it's not the case in Ethiopia because the government of Ethiopia has really strict force produced really strict restriction to foreign investors, in particular industry. For instance, they only allowed firms invest since 2017 to focus on the market in the light of manufacturing industry. To conclude, I want to provide some of the implications for economic transformation in African countries from Chinese FDI easier with a focus on manufacturing and infrastructure construction in Angola. Ethiopia. We try to argue that Chinese FDI has a potential transformation effort in terms of job creation. Technology transfer provided this kind of physical connectivity between the continent with each some of the African economies, as long as conditions do not substantially deteriorate, such as political stability, and the firms continue to adapt to challenges and new opportunities. However, we also argue that the potential impact of such investment really depends on the existence of a coherent policy framework to manage a foreign investment in the host countries. In this respect, the contrast Angola and Ethiopia is important and illustrative. Let's end my speech. Thank you.
SPEAKER 5
Okay. Thank you. I will not be using slides, but I benefit greatly from two real experts on Belt and Road. So I'm going to come from a slightly different angle. First and foremost, from the role as a macro economist, which is my field of expertise. If we think about it for the first instance, you know why China does investment outside of China. Let's go back to the basic equation which is savings minus investment. And that's equal to the current account. Right. And as we've all we've all known China has ran a huge current account surplus trade surplus. But what it does tell you is that if China saves more than it can possibly invest domestically, then that difference is capital flows abroad. Okay. And so in the period of the last 20 years or so, there's been a huge rise in Chinese saving, as we all know. And that's deemed to be a puzzle because despite the fact that income has grown more and more Chinese people are saving more and more. The savings rate on average for Chinese family was 35%, as opposed to 2% in the US, and recently during the pandemic, it was as high as 50%. So as long as they save a lot and that's driven by a number of structural factors, which we won't go into today and they can't invest all domestically, that difference has to be exported abroad. And that's why we're seeing a substantial amount of net capital flows outside of China. And where do they go or they go all around the world, despite the hype about Belt and Road. And we've seen the numbers only, you know, less than 5% was going into countries like Africa. A lot of it actually came to the UK, to Europe. Even Heathrow Airport I think is partly funded by China. Now we got to also ask the question how much of that will continue? Right? Um, the savings boom or some would call it the savings glut of developing countries in the last 20 years, with China as being one important part of it, was also one key factor driving down real interest rates. Okay. And the low interest rate decade, more than decade has produced a number of effects. And we're seeing the reversal of that kind of low interest rate decade going forward. We also want to ask is this a good thing or a bad thing? There's been a lot of criticism about China's outward investment, but the truth of the matter is that it did help development to a large extent. I'll come back to that. Going forward, with reduced savings capacity or with reduced, let's say, current account surplus coming from China, the reversal of a saving glut globally. What we're going to see going forward is a rise in real interest rate, high real interest rate in the decade to come. And again, I'm not sure that will benefit to a great extent, developing countries. In fact, as we know, post-pandemic developing countries are really suffering greatly from high stress of indebtedness and higher interest rate just simply means much more debt burdens. And that will become a significant factor for economic crises around the world. And that is something definitely to be concerned about. So that global saving, availability or availability of capital, I think was a very important characteristics of the last decade, but maybe not in the future. And second, let's turn internally to China itself. China's economy is coming under strain, lowest growth in decades in the for 40 last 40 years, high youth unemployment and unbelievable amount of debt in its own country 345 trillion R&D of debt numbers that are even higher than the US when you measure it against GDP, and a lot of it is local government debt. So with this kind of fiscal constraints, you'd think that, you know, there will be a lot more of resources that were directed inward rather than outward. And we talk about policy banks and commercial banks. That has done a lot of this lending outside of China. These are the same banks that are helping the local governments to resolve their debt issues and absorb the real estate debt or the various infrastructure debt that has accumulated in China internally. So the second point is that China's internal challenges is definitely going to affect affect its ability to invest abroad. Thirdly, China's manufacturing hype, you know, that that was characterised also by a substantial amount of, let's say, oversupply of a lot of key materials manufacturing solar panels and steel and so forth in the last decade and strategically or economic, whether it's strategic or economic thinking, it made a lot of sense that these kind of developments. Two problems from the Chinese perspective. On the one hand, I'm not saying that there weren't any strategic advantages to becoming more present in Africa and Latin American countries, where politically that was also important, but also, first and foremost, it was also driven by economic interest. It is true that there was something like $1 trillion of infrastructure infrastructure gap per year around the world, and China was able to at least a finance part of it, but also export some of its overcapacity abroad to make use of this accumulated expertise, efficiency, huge amount of efficiency and productive capability to undertake these these projects. So these three factors really determined China's outward expansion, at least in this front. But I think we've come to a time where there are two things. There's reassessment and there's potential retrenchment. I've already talked about retrenchment as a potential trend, as China refocuses its resources domestically, as China kind of a moves on from being a completely manufacturing based economy to more high tech, renewable innovation based economy, that, that, that kind of that kind of signals of retrenchment of capital. But there's also a reassessment. It's a learning curve. As with most things with the Chinese government, it's an experiment, an experiment that's expanded or reduced over time. But a lot of learning that has gone that will, that will, that will be kind of derived. And one of it which was also mentioned is about risk. And I think there was not enough careful analysis about risks, both on the Chinese investment side but also on the borrower side. So creditors and borrowers, and they are reassessing this impact or reassessing how to better manage the risks. I think that, you know, there's a trend towards redirection towards renewable energy investment. And, you know, the beauty about this project is that it can be spun in different directions. And it all makes sense according to what's really important. And right now is about green tech, climate tech and and renewables. And of course, China also has an advantage in terms of its renewable development. One of the leaders in the world and Belt and Road Initiative going to take more green actions, be more considerate towards the environment. Again, in the recent kind of gathering convention, there was an emphasis on how to deal with corruption and how to deal with corrupt, more corrupt economies. And all of that is part of the learning curve. There's a new emphasis on smaller projects. A small but beautiful is the kind of slogan for Belt and Road. And if you look at systematic evidence on data, of course, these these two are the experts here. But from what I've read, there is, you know, an improvement in terms of quality of investment, in terms of the kind of projects they engage in, the kind of countries they can engage in in terms of the corruption index improving along those lines, and also a shift from a working with the state actors to more moving towards working with the private sector. So all that has changed significantly over the last ten years, but has not has not met with the warranted kind of attention and acknowledgement that these things have changed. Then there are the positive externalities, right? Just taking Africa alone when you're talking about ten 10,000km railway, 100,000km of highway, more than a thousand bridges, a hundred ports, along with power plants, hospitals and schools, you know, these are really significant things for, for, for, for development. And here I'm just mentioning a few, not to mention the the renewables and hydropower plants and all these things for water and electricity and the fact that according to data, you know, we've seen this this is not just concentrate on resources, but on on, you know, broad services, manufacturing and finance and real estate. So a broad representation of sectors, it's totally misrepresented. And the headline news as if it's only a one way street. And, you know, in this day and age you don't sign up for one way returns. But it's a mutually, potentially mutually beneficial project with the caveat that some of the risks might be underestimated. The fact in Sri Lanka we talked about this case, but Sri Lanka had a terrible Covid, you know, crisis with the lack of tourism and its internal economic challenges was one really important reason why some of some of these well, and overall debt indebtedness was a driver behind. In some of these these episodes. It's also fair to say that when you work with African nations, you know it's not possible to take care of the entire economic ecosystem. Yes, you build roads and highways, but you know who provides the jobs and the I mean, broadly speaking, right? You know, some of the African people would say, yes, we have great roads and highways, but we don't have the jobs. We don't have food on our table. And, you know, it's not really necessarily yes, these kind of projects provide certain kind of jobs, but the economy has to get going before this infrastructure can be fully maximised to its potential. But at the same time, China's own experience is that this kind of infrastructure network really also enabled China to grow much faster because of the connectivity. And we've seen China has the most efficient global supply chain in the world, and a lot of it has to do with this great infrastructure. But it's a chicken and egg problem. And China won't be able to help to solve some of the general economic developmental questions problems for these, these countries. Um, so. You know, it's also so coming back to the debt issue. China accounts for 17% of Africa's total external debt. Right. And that's significantly lower than Western countries. We've seen some of these numbers in the previous presentations. Um, most of the loans provide funds for African countries to build infrastructure, promote economic growth through trade, and filling some of the financing gap that Western countries are often have often been unwilling to address. And the majority of the lending. So let's say a study released by the UK in July revealed that African countries owe three times more to Western private lending institutions than they do to China. The majority of external debt owed by emerging markets is to Western institutions, financial institutions, and we've seen throughout history, right, sovereign debt crises, repeated cycles, serial defaults that had nothing to do with China's arrival. It was in the last as long as capital markets were internationalised. Since the 1990s, there have been these crises throughout history in virtually all emerging markets in developing countries. And again, that had nothing to do with China's arrival. So these are driven by a variety of factors that are primarily internal rather than externally driven. So we have to keep that in mind. At the same time, I think it's also part of the learning curve as to how to be a creditor to emerging countries. And in 20 2022, Chinese government announced debt forgiveness of 23 interest free loans to some developing countries and additionally cancelled over $3.4 billion in debt in the last ten years, and then some, some more for other developing countries. And I should also mention that the interest rate on these loans are significantly lower than the loans offered by Western Private Institute Asians, right. And so forth. Now, the question of China's participation in the Paris Club, or lack of participation in the Paris Club, or this kind of international coordination of of these debt issues in developing countries, I do think it is an important topic, and let me just try to present a different side of the story, apart from the one that we usually listen to, which is China is not coordinating with the Western countries to deal with the debt problems in the developing countries. And that is China not acting as a global player first and foremost, I do think that this set of questions will be very important, especially going forward. As I mentioned, one big major risk factor is the developing countries sovereign debt or debt crises coming forth because of the post-Covid recovery and because of rising interest rate, it will be very, very significant. And of course, Tan is one of the largest official creditors to developing countries. But the other side of the story has to be told. And this side of the story is coming from the perspective of developing countries in emerging countries. First of all, the Paris Club was founded by a handful of Western nations, and it basically is designed based on rules of the past century rather than updated to suit the market conditions of today. And it does come with a lot of foreign lending or Western lending does come with a lot of strings attached. We mentioned no strings attached from from China. But the truth of the matter is that IMF kind of lending institutions, conditionality is sometimes inconsistent with these developing countries goals and and, and needs. And therefore they shun some of these, you know, participation from international institutions. Um, first of all, they believe China believes the Paris club is somewhat outdated. It has to be more tailor made. It has to be more attention has to be paid to economic and market realities. For example, China believes that some of these short term challenges are really cyclical. You know, for instance, if they can't repay in the short run, if China helps them get over that short period, then they will be sustainable or can be repaid over the long run. That not might not be what the other Western institutions think they think. Okay, it has to be haircut. It has to be, you know, completely resolved instantly. And that could affect these countries, sorry, capacity to access foreign markets, investment markets in the future. And China doesn't believe in necessarily this method or that method, but potentially to whether some of the short term cyclical factors to be able to have longer term, lower interest, sustainable investments. Um, so it's it believes that the right approach is often to offer fresh loans at lower cost to help them. You know, whether the temporary storm. But then that's not how the Paris club believes it thinks that's the right thing to do and being constrained by these conditions and. Height. Fiscal conditions would actually be bad for growth for these developing countries. Again, there is a misalignment of of of, you know, approach in terms of how to deal with developing countries. And so China's position is that times have changed. We need a new architecture. A lot of it, you know, maybe with according to new developments, there needs to be more private sector engagement. The private sector should also play a role in setting the rules of the game and so forth. So what is fair? It depends on whose perspective you're talking about. So a lot of these, you know, anyway, I'm not going to go into this, but a lot of these debt cancellations could disproportionately fall on the burden of one country versus another versus the Paris club. So there's a lot of fair issues to be debated. And I think so there's a lot of complexity behind this. Increasingly, you know, also complex financial architecture where China and other developing countries would want to play a bigger role and would also want to have a bigger say. So I think that pretty much summarises my conclusion. I just end with the fact that, you know, I think China's challenge is overwhelmingly internal, and that would be the primordial focus going on. But that said, at least we've seen the dip in the FDI to Africa. But at least compared to last year, you know, I think there was a 4.4% growth in FDI to to Africa year on year. But I think it's a constant learning curve. And as I mentioned, when the current account surplus shrinks by definition, by accounting the amount of net capital flows going from China to the rest of the world will reduce. And I'm not really sure that that would be overall a really good thing for for economic development. Thanks. Thank you.
SPEAKER 3
Excellent. Thank you so much for this genuinely fascinating set of presentations. I'm sure that it gave rise to a lot of questions in the audience to see. We have about an hour for for questions. So who wants to start I see yeah, lots of hands up. Okay, maybe we should take three questions at once. Let's start with the gentleman here and then you. And. Thank you.
SPEAKER 6
Thank you. My question is to Professor Jin about the Chinese economy. And if you see the past Chinese economic economic growth pattern, the high economic growth rate is accompanied by a really low CPI and comparatively high unemployment rate. And this this serious issue has been more just like horrible and obvious. Nowadays, if you see the figures. So my question is, how do you examine this confusing relationship between economic growth rate, unemployment and inflation, and what is the potential cost of it? Thank you. It's like.
SPEAKER 0
Hello. Thank you for your interesting talk. My question is about how China's engagement in Africa differs from its engagement in Central Asia and the Middle East. Are there any key areas of contrast or overarching similarities in China's approaches to these regions?
SPEAKER 8
Hi there. I've just got a general question to to all of you about the strings attached to China's foreign investment. So it seems that in general, it's less strings attached, less ideological and political political conditionalities. Is this a good thing in that it gives countries more policy space and freedom to do things on their own terms? Or should things like democratic governance be required?
SPEAKER 3
Hmm. Maybe one final question for this round.
SPEAKER 9
Thank you so much. I am a travelling scholar from Kazakhstan. My name is Raphael. I have a quick question. So considering the geopolitical escalation and the savings rates in China, to what extent China is trying to diversify and stay away from buying US debt. And to what extent the exodus of China from European and American markets, I mean, technological exodus, like Huawei and China is trying to support its domestic manufacturing in developing countries. In the Financial Times, there was an article that said that the exports that the Chinese export to developing countries now are higher than to the developed markets. Thank you.
UNKNOWN
Okay. Should we start answering? Can.
SPEAKER 0
Okay.
SPEAKER 5
Um, so on the Chinese economy, I'm not sure there's a contradiction here in the sense that it's suffering from a severe lack of demand. So when you have lack of demand, inflation is relatively low. Potentially deflationary and then also know high unemployment and low growth. And that's what the situation is today. The question is are there policies to to get out of this demand trap. And there are. But the question is why is the government not unleashing a series of Western style, case in style helicopter drafting kind of policies? And that has a lot to do with its own preferences for or its own conviction that to get, you know, to get people to spend, you need sustainable income growth that is longer term rather than a short term kind of helicopter kind of solution. I'm not sure that's correct. I'm not sure I agree with that, but that's kind of the thinking and the fact that you need a massive stimulus to have really any effect on the Chinese economy today. Added to the fact is that they have a lot of fiscal constraints because of the debt is probably the reason why we're not seeing huge policy. But in terms of the economy itself and low inflation, it's consistent with the fact that unlike US and Europe, which had a massive stimulus package for households in China, had a very long post, did not have the rebound spending that you've seen in this part of the world. And then I'll just pick up on kind of the US debt issue. I can't even read my own handwriting, but I'll try to remember the question. Yes, it's already reduced the purchases of treasuries, as we've seen. And that's actually going to be another reason why we're not going to see low interest rate, you know, a low real interest rate going forward. And of course, if you have higher, you know, a real interest rate, nominal interest rate obviously will be will have to be higher as well. We've seen a diversification away from US Treasury debt. And that's significant implications on the global market. Yes, it is intentional in some ways. I think lots you know they want to diversify away from the dollar but also diversify in general. Diversification means that. Yeah. Let me, let me, let me pass it on to the other.
SPEAKER 4
Um, yeah. Try to answer partially the second question. Um. Actually, I'm not very sure about Middle East because I haven't done research about it, but I think it really need to look about, firstly about the whole picture, what the most prominent investment in terms of the different sectors. You need to look up a sector distribution in the continent, then look about our region and then look about the geographical distribution of the investment, and then look about the what type of Chinese firms are there? Are they state owned enterprises or in what sector? You have to look about the scale and the sector and within the sector. But I think I have limited knowledge about this. But this is something I think whenever you look about the different region, you first have to look about what are the prominent investment in India in terms of sector distribution and the type of them? And the fourth question I can partially answer, because I'm doing a research funded by European Research Council right now about Chinese infrastructure investment in Europe. There's a project start from 2020 and focus about the dynamics and efforts of Chinese investment in Europe. Focus on. We select four countries Germany, UK and Greece and Hungary, two countries. When we were selected, it was kind of proteina that Greece and Hungary, while under the two a kind of holding a neutral position and attitudes at time. But slowly you can see that becoming increasingly cold. That was Germany and the UK. So when we look about so what kind of projects are more prominent in those four countries in terms of infrastructure projects, then we found that in Germany is a more high tech, those kind of investments through much acquisition. So Chinese investment really have different kind of drivers and modality to invest different countries in European continent, for instance, like Huawei, Xiaomi, they have been there for a while and while in UK, it's quite interesting to see these are more brownfield investment. It's more focussed about regeneration project about enterprise zone one is in London's Royal Albert Dock and another one in Manchester is called Manchester Airport. Cities. That's are two case study actually I'm leading so we'll have more more findings later next year. So it really depends on the different countries focus and also the host country context. Like what's the priority for the host country countries states and the society and what they have been driven to engage with Chinese investment in Hungary, it's more like Huawei's logistics centre is quite prominent there. And also the idea that the railway project linked to what's that called? So sorry. Then another one is in Greece is a port investment that is more focussed on Piraeus. Costco's investments there as can be quite significant in in terms of this. So it really depends on the context of the different countries. They are the role of the host country, society and the country to to manage a shape that foreign investment, including Chinese investment here I guess it's partially answer the question. And the third question is it possible to refine it? I didn't get it.
SPEAKER 8
Yeah, just. Just about where the the kind of number of strings attached is it?
SPEAKER 0
Um.
SPEAKER 4
That's very difficult to answer. It's no black and white picture is really depends if I'm a frame into like whether Chinese investment bring lead to this kind of. Economic transformation in African continents. It really depends because as I mentioned it's really relational. It partially Chinese investment going out, partially because it's domestic. Sometimes the challenges they encounter from the overcapacity, the structural transformation. And for light in the industry for instance, they have to upgrade and the certain kind of firms they might encounter that environment standards that are being restrained, especially along the coastal areas. That's why they going out. But partially it's also dependent on the host country, how they perceive managing those investments. For instance, in Ethiopia at the very beginning, they have a first wave of Chinese investment focus on low end local low end products focussed on, for instance, plastic sleepers or those kind of load and t shirts, textile manufacturing. So they seek the profit in Ethiopian domestic market and they focus on there. But by 2015 onwards, Ethiopian, they also change their regulation to enforce those Chinese existing investors to force them to export market. Otherwise they won't be able to get US dollar to fuelling that manufacturing. In order to do so, some of them have to manufacture and focus on, explore the US market and European market, and some of them withdraw from the Ethiopian country. So it is quite relational in this sense. So it's really depend on the context. While in Angola we see quite different picture where trans local fund, where I mean is some of Chinese firms are not only Chinese, but actually they register with a domestic name in Portuguese or in Angola language. You won't be able to identify they are Chinese unless you physically see those. And those are firms they can engage with different kind of industry that can be very profitable on the ground. That partially because the host country context, because Angola allows them to do so. It's not like Ethiopia is very strict in foreign investment, at least before the Covid time. Yeah.
SPEAKER 0
Thank you. Do you want to add. Sure.
SPEAKER 2
Um, I mean, maybe, maybe coming on to the no strings attached. Right. I think the kind of the host country context is extremely important when we're looking at the impact or the actual success or the governance or the social, the ESG compliance of a Chinese project. But but it is true that overall, um, Chinese banks have a lighter load when it comes to the bureaucratic side of things. Right. Um, you know, something that struck me and speaking to, to, to a world Bank employee was that, you know, these days you don't just have to take into account the ESG requirements of a project. It's not just environment, it's not just social. You also have to take into account human rights issues, gender as another requirement and now increasingly climate alignment. So something that used to be a 50 page document in terms of the assessments you have to do is now 100 pages. And this is a this is a huge process and a workload, not just for the staff of the financing institution, but also for imagine a very, very strained Ministry of Finance in a low income country where you are very poorly paid civil servant, and you may not have the capacity or the expertise to deal with a lot of this. And so this is something where the lighter load of a Chinese loan is actually quite an attractive thing. And then most importantly, I think as I mentioned, speed is a huge attraction. So in some cases in in certain countries you may have a project that has a that has alternative competing offers. And even when a Chinese loan, when it's not a concessional loan or a preferential export buyers credit, generally they are on commercial rates, but you may be willing to pay that as a sovereign government because you are looking at your political timeline. If you have an election coming up in four years and you know that Exim Bank loan will come through in two years and you could potentially get that bridge built within that lifespan in time for your next campaign, that makes Chinese finance a lot more attractive than, you know, waiting six years for the European Union to get its act together and finally approve that that project. Right. So, so think this is this is one aspect of saying no strings attached is sometimes can have good. Um, effects or good kind of co-benefits to it, but think that is also changing. And I think that Chinese banks, you know, are also learning and and becoming a bit more disciplined and a bit more sophisticated in how they operate overseas, because ultimately, I think they recognise that that with a world Bank and with their many, many decades of experience, are very good at doing good projects that are more sustainable in the long term. And if they are more environmentally and socially sustainable, they're probably more likely to be financially viable and generate the returns that they're meant to. And so, you know, I think we are seeing patterns of learning from one example is that, you know, and China and Bank are now cooperating very much on this exact topic on on how to improve and indigenous standards around ESG compliance. So. You know, I think I think that the landscape is changing and there is a bit more of a recognition of, of the value of having some strings. And then just on the question on regional differences mean. Even China's activity within Africa is not monolithic, and there's a lot of diversity in how China behaves in different African countries. But on the whole, just drawing a broad brush stroke. There are certain distinctive features of China's relationship with with Africa as a whole. There are a lot more kind of historical narratives around China's engagement with Africa that go back to the sort of South-South solidarity of the 1960s, the Bandung Conference, even the the sort of story of Deng taking his voyage or back in the 14th century, to Kenya. And there are these long standing narratives of China-Africa friendship, which China has very much deployed to its strategic advantage in its relations with African countries. The other aspect is that I think China's relationship with Africa is perhaps the most regionally institutionalised, and you have that with the forum on China-Africa cooperation, which takes place every three years. And so China's I think Africa was a sort of early experiment in China's going out, and it is in its relationship with with different developing regions or regions of the global South. And and it has been the kind of learning space for how it engages with, with other regions of the world as well. But it does remain, I think, the most institutionalised, primarily through Focac and the one where you have, I think, the most consistent kind of political relationships. Right, in terms of UN votes, for example, African votes in alignment with China's interests in the UN General Assembly is a very important factor as to why China wants to cultivate these relationships with African countries.
SPEAKER 3
Excellent. Should we take another round of questions? Okay, great. So let's take three questions at once. Oh, yeah. The ones upstairs. Yeah. That's true. Yeah. Should we start with the lady in the middle? The white hat.
S11
Hello. Thank you for this wonderful presentation. So earlier this year I was in South Africa, and when I talked to people, many of them seemed very unhappy or even antagonistic towards Chinese investment, even more so than compared to Western investment. And so why do you think in terms of people to people relations this is and do you think this will change in the coming years?
SPEAKER 0
Any more questions? Um, yeah. Yeah.
SPEAKER 3
That you can start and then the person at the back.
SPEAKER 0
I have two questions.
SPEAKER 3
Maybe use the microphone.
S12
Okay. Thank you for your presentation. And I have two questions related to the public and private partnership in this topic. And Professor Jay mentioned that the increase of the public and private partnership cooperation is required. So I wonder, like if there are any transnational public private partnership on the Bri and if it's what is the shared value and shared risk in this kind of project, and how could we balance the shared value and shared risk? The second question is that, as you mentioned, that the importance of involving the private sectors in rulemaking process. I just wonder in what way can private sectors participate in the rule and regulation making process, and why it's important to involve them in this process.
S13
Thank you. Thank you so much for your presentations. My question is about the participation of China in the common framework, and whether you think this reflects maybe a shift in value, whether that be on the Chinese side, to adopt a more Paris club approach to dealing with non-payment, or vice versa. Thank you.
SPEAKER 3
Maybe a fourth question.
S12
I thank you so much for the presentations.My question is a bit technical. As I was getting into China-Africa development finance, one of the biggest challenges is to distinguish, like the different varieties of development finance. As to we have mentioned like different varieties of capital. And, and I wonder what is the the varieties that we need to pay most attention to and how to distinguish them when, when we are looking at the data, because they can be quite confusing at times, especially when are compared to different actors. Different? Yeah, that's my question. Yeah. Thank. Great.
SPEAKER 3
Yunnan, do you want to start? Sure.
SPEAKER 2
Maybe I'll go in reverse on the on the disaggregating different loans. I mean, I know the diagram was a bit of a sprawl, but but you can see the kind of the biggest. Types of loans in that. And you know, you have the ones that are technically aid, which includes zero interest loans. This is tiny. It's really quite pitiful. And so when you when China talks about, oh, he cancelled all of these loans, they talk about zero interest loans, which is less than 5% of the total portfolio. A bigger chunk of concessional loans, which come from China Exim Bank. And these are the ones that will be generally around 2% interest rate. And these are what China calls concessional rate. China doesn't follow OECD measurements of concessional or their discount rate. So if you apply Western or OECD frameworks to to Chinese lending, you, it ends up being a little bit more fuzzy. But within China's delineation, concessional loans are aid and everything else is not the the biggest. The primary kind of loans from China Exim Bank are the preferential export buyers credits and the export buyers credits. Those are the ones that you see that constitute the sovereign loans to to governments and to parastatals. And from CDB there's a there's a bigger kind of variety of of loans that they offer. But all of these, the latter few, these are the commercial loans. They have a LIBOR plus some number of basis points. They are commercially oriented. They generally fund projects that are supposed to deliver some kind of economic return or some kind of stream of revenue to, to the, to the project owner. And they are not aid. They are not motivated by any kind of altruism. Um, and they are the ones that were in the previous decade considered very, very cheap. And now in this current interest rate environment now becoming a lot more problematic. Um, on and coming to the question on debt and China in the common framework. Uh, so so China joined the G-20 and this was actually a pretty big moment. It's the first time that that it participated in a multilateral debt restructuring framework of any kind. It's China has historically refused to join the Paris club. It didn't see itself as a creditor country. It sees itself still as a developing country. And and so has resisted kind of joining these established rich world frameworks. Right. But but it joined the DSI. And this was this was quite a momentous occasion. It was something that I think can be explained by some political economy factors of people within the Ministry of Finance who wanted to, I think, present a bit more of an international face or to show China as a responsible stakeholder to the world. So I think there were some genuine internationalist drivers behind that. What's happened in the in the kind of interim is that China did join the DSI expecting that others would also take part, primarily bondholders, private sector creditors and MDS, and those did not. And so there was this kind of sense of, well, we played ball. We trying to end up being one of the biggest kind of contributors to the debt relief under the DSI. But but there was a sense that we played ball. But but the other guys didn't, um, just say overall, the amount of debt treatment under the DSI was still pretty paltry compared to the actual need. But but it was this kind of positive political moment that that in the end, didn't work out the way that that the stakeholders wanted it to. The Common Framework was designed to remedy a lot of the weaknesses of the DSI, which is the lack of private sector participation and and hopefully to also bring in the MDGs. But but the MDGs have have resisted joining any kind of multilateral, um, debt restructuring treatment that is. I won't get into it, but that that is also because MDPs kind of stand aside with their preferred creditor status as a slightly different kind of creditor, and they want to maintain that. But think what's important for China is that they they want. There's a perception of fairness. They want to to take part, but they don't want to take on more than their fair share of of of the debt restructuring that needs to take place or of the debt relief that needs to take place. And they want Western private creditors who they perceive as ultimately, you know, based in London and New York in the global North as also taking their fair share. Um, and this has led to a very, very politicised, often very geopolitics sized in the wake of US-China tensions and a very, very prolonged process, because ultimately, you're coming you're trying to develop a completely new kind of framework for something that makes everyone happy, that tries to bring in private sector bondholders, that tries to ensure comparability of treatment between all of these kind of creditors. Uh, and based on a document that's, I think, less than five pages. That is how long the common framework document is. Um, I guess I probably don't have time to get too far into this, but. But, um. Yeah, I'll stop there. It's a very it's going to be a very prolonged process. And ultimately the pain is borne by the borrowing countries.
SPEAKER 0
Did you want to add something? Yeah.
SPEAKER 4
Back to the first question. Why your your friend or someone you met in South Africa. Not happy. Well it's have it's very difficult right. But I think I can framing the way that how to deal with the matter of subjectivity. So because you talk about VII you get 100 answers how they reflect about VII and so how do you assess about the impact of, for instance, Chinese investment in African countries? It really depends on the context. Give you a story that I encounter in Ethiopia. This is from the interviewee from the Eastern Industrial Park, who owned by a private Chinese investor. And he told us that, okay, some one Western journalists tried to interview them and they did not want to because they were fear about they have something negatively only exploded without telling them. But then the state of interview, the workers walking for the industrial park. This journalist interviewed a one of the unemployed male outside the industrial park, which can be potentially a little bit biased about the particular event, about what's the impact of Eastern Industrial Park. That can be biased in that sense, because he only selectively pick one side of the picture without looking about, oh, what about the workers in the industrial park in Eastern Industrial Park? What about the supervisors here? So I think it really depends on the person's own experience and what kind of perception it generated. For instance, as I always say, that if you only solely rely on the media, sometimes it can be dangerous because you don't know what's really happening on the ground. And one another issue is about the complexity of the unhappiness. One story is from Angola. We identified in our findings. We found that Chinese construction companies in general pay lower than Portuguese and Brazilian company. Then we identify why it's the case because as this can generate some of the negative part of Chinese pay lower. But in reality is that because those companies, those projects, railway road projects, they are in remote area and those workers from the different states. So Chinese company provide accommodation, living costs and provide transportation to them. And eventually when you look about how much does this say monthly to send back to their hometown, they have higher, they generate a higher fee. That's a kind of way of saving than those working in Portugal company, partially because those companies concentrate on road projects near the capital city of Luanda of Luanda, and that the living cost is far higher than those remote area. And plus the Portuguese company. They don't provide accommodation and the living costs. So when you compare to have a holistic picture, then you know why it's lower and then you can generate why the happiness and unhappiness you have your own. Insights on that. So it's I think as a researcher or a students that want to reason about Chinese investment in Africa, we have to be aware of our positionality and identity. So what kind of background you have to position yourself in the field. For instance, for myself, I'm I was born in Shanghai and had education in Shanghai, then start a master's degree. So as a PhD associate. So my background is my father used to work for so and then have some of this helped me to position myself to engage with Chinese community and the Chinese firm when I interview them in the field, which is my my advantage. But meanwhile, I might be too close to the Chinese side and ignored or neglected some some of the voices from the other side, which are the host countries, community or society. So in order to mitigate kind of potential buyers, I have to to be closer to, for instance, the local workers. That's why I was spending a whole year in Ethiopia, staying together with those local workers in the Eastern Industrial Park, and to stay in the container and be together with the local worker and Chinese workers, which can be quite different to Chinese management level. So this helped you to evolve your. Knowledge about what's really going on and observe with the triangulating the data was really happening. I think it will be helpful for you.
SPEAKER 3
Okay, maybe. Yeah. Like that was a very interesting question. I remember that the Afrobarometer has actually a survey on that, actually asking people in different African countries about their satisfaction with Chinese investment. And it's interesting to see that. I remember when looking at it, there is a correlation between like actually the countries which had most Chinese investments expressed most dissatisfaction with China's presence. But then when you look at the disaggregated data, it very much depends on the sectors in which, like China is playing a big role. So I think it's interesting to look at this type of data. I'm abusing my role as a moderator here. I just wanted to add maybe just a little point on the question about the difference between Africa and the Middle East and China's presence. I think it depends very much on like the sophistication and diversification of the economy, because when you look at like maybe China's engagement in Iraq in Post-construction effort, it's very similar to China's, like work in some parts of Wartorn, Ethiopia, for instance. And like a lot of Chinese construction firms have got quite lucrative contracts in like reconstruction efforts. It's the same in Libya, actually, where Chinese firms are rebuilding some major infrastructure in the country. I think the major difference in United is completely right to say that, like China's engagement with Africa, maybe it's like dates back to, you know, the non-alignment movement and all of that. But since the Bri, we've seen renewed interest of China in the Middle East and North Africa because of its strategic position and what we see, especially in capital rich Middle Eastern countries, lots of high level contracts in the digital sector. So in AI, when you look at the UAE, Saudi to some extent like Egypt and like the North African countries, there's some high level contracts being signed in the digital sector. And the interesting thing I would say maybe there are different types of Chinese firms engaging with these capital rich countries compared to maybe poorer and capital scarce African countries. But yeah, I'm going to stop here. More questions. Is this a question James. Yes okay. So microphone please.
SPEAKER 1
Hi. I'm always up there and I don't get to ask any questions, so I'm taking advantage. Um, Weiwei, this work that you and Carlos have done is really interesting. And, you know, the work of Joe Young here, young Joe, showing that the variety of investors. And I'm just following up a little bit on this as my first question, and that's it. There are a lot of small investors, almost family, businessmen and businesses operating in Africa. I'm wondering if you've gotten any idea of the scale of that because. Out of perception, going around to various places. We see a lot, you know, an increasing role of small towns making their fortunes in this, you know, still land of great opportunity for somebody who wants to take risks, you know, so that's one part of this. But the second part follows on this other kind of controversial sort of question. And that's do you have any perception of how much training Chinese state is doing for investors and Chinese going into Africa? Because as we travelled around doing different research in different countries, we really saw very bad behaviour on the part of Chinese, very racist behaviour. And it's not often talked about. And I have raised it in China a number of times. You know, about the kind of. You know, recognition of this there is because this is really important in the strategic longer term. Yeah. The second question I had is that Ethiopia is rolling back industrial policy. It's unravelling in a great way. So I'm wondering if you have any perception of whether the Chinese investment that's in Ethiopia is going to continue reproduce itself, or you'll see it drawn down now in this retreat. And if I can be really I want to ask you a question about China and that's it. There's still a lot of unequal development in China itself, territorially into its own peripheries. And I'm just wondering what your own take is on the the continued investment in internal economic integration, right up to, to China's borders, because there's still a great deal that would need to be done in China. So it's not just about boosting demand with, you know, with consumption, with money for consumption of existing sort of middle class and permanently employed people in China. But it's the investment at the extremities and the frontiers of China.
SPEAKER 3
And like my friend Laura, another question here. Thank you guys. Thank you so much for your wonderful presentations.
S14
I feel like our students have really benefited from you all, so thank you. I wanted to ask a kind of broader question. Um, I can't remember who brought up Lee's book about Global China. I wonder if if I can ask the all of the speakers to talk a little bit about how this idea of global China might be also applied to other countries that invest in, in Africa and elsewhere. Global, the US, global Europe. What does China's and the approach that we take to studying China? What can we learn more broadly about development and the kind of global context, the relationships between what's happening in high income countries or capital rich countries and capital scarce countries. Thanks.
SPEAKER 0
Yeah. Question. The third question.
S15
Thank you. I wanted to just ask you a question about Chinese investment that comes in and how it relates to or whether there's any relationship with an increase in corruption in or how it how it interacts with corruption in African states, and what that does in terms of both impacts on the projects, but also impacts on the citizens of those countries. And I guess a broader question, and not in comparison to like, Western investments, but just as a standalone sort of thing, and I guess a broader connection to a lot of the projects that are implemented when when we're talking about development or like implementation of these projects, are they mostly in line with. Like agendas of the elites of that country, or is it going to more broadly like the. So I think these are just some questions, especially considering there aren't so many strings as we say, or like social and human rights sort of requirements.
SPEAKER 3
I'm sure with that answering, please. I'm sure we're going to reverse my thoughts.
SPEAKER 0
Yeah.
SPEAKER 5
I'll start with James question. Of course. Look, you know, if you look at the eastern provinces, Beijing, Shanghai, Shenzhen and so forth, it's like a rich country, right? It's South Korea levels. And what's dragging China down is the geographical disparity, which I would say is the most highest source of inequality in China rather than within cities or, you know, and like in other countries. So that, of course, is the focus. But, you know, the cyclical factors are really important. You know, if you don't take care of the short run, it might well be a long run problem, which is why I'm for the demand kind of stimulus to get it out the cycle. But in any case, real estate has been the biggest drag on the Chinese economy currently, and all the negative investment in China growth is coming from real estate. So. So to your question, the way the Chinese government plans to address this going forward is to rapidly expand affordable housing and do what we call Chungcheong like village, you know, reform. It's not easy to pronounce in Chinese anyways, so that amounts to potentially trillions of our R&D next year, which means, you know, increasing investment growth by 5% on the order of that. And so that would go towards more reducing inequality and more opportunities for the middle income. There's some all the other projects where you're, you know, attempting to move some of the renewable or new energy sectors into the inland areas, which I think is a very good idea because that will jumpstart development there. But of course, this will take time. We can't underestimate the endogeneity behind endogenous factors behind, you know, these economic conditions are often not good. And when you put these things there, is it going to be very successful? There was a very interesting study that showed policies rolled around. China had very, very different impact. The same policies and the ones that are more economically productive and efficient had more successful programs as opposed to others. So there's some endogenous factors that you should also take into account. So and then and then of course, I think one of the causes of big geographical disparity is the hook-up system. The the absence of internal migration flows. Less than 5% of the population move across provinces, which is significantly lower than other countries such as India and others. And there are also a lot of internal trade barriers. And these, taken together according to some studies, suggests that if you get rid of them, that raises productivity significantly because these are the big barriers. So yes, I think these are a lot of things to be done. And then when you talk about 900 million people still living under $300 a month, you think that there's a lot of potential. But I guess that when we always talk about longer term structural policies, but not focus on the short term, you could potentially get into an economic trap that I think will hamper some of these longer term policy. So some of that is is happening. But and then on I guess on global China. Yeah, it would be very interesting because I think the idea of Belt and Road is to put forth a new global paradigm that's neither just trade and financial flows and trade and goods. Right. Those are the two engines of globalisation. It was a new model of connectivity, whether it's physical infrastructure or digital, so that countries can work, be more even more integrated and to export not just goods and capital but expertise and things like that. So I think that was a good idea. And I say, I think that we underestimate well, we don't acknowledge enough some of these, these benefits. We often focus on negative news because newspapers don't sell with positive news. So it's always tend to be negative. But but that was the idea. But I think a lot of the implementation has problematic. And as James you mentioned the behavioural elements and I'm not expert in this. Maybe you have talked to that so eas, but my impression that it has also been a learning curve, you know, the fact that European powers have been on the continent for a few centuries, they understand the cultural nuances and and you know, how to interact with locals much better than than a novice. I don't want to point to wolf warrior movies as like a reference point for some of these, you know. But but the recognition that this is this has to improve, I believe, is partly there. I'm not sure there's enough training going on, but on the global China aspect, I think so. So coming back to that question, what's the next, next big thing? And I think a lot of it is going to be technology but technology embedded. In business models and services or products. Now, despite the huge tensions between US and China, I don't think that American people realise this. But four out of the five most downloaded apps today in the US are Chinese. I mean, that is very ironic, I have to say, but but with countries that are less geopolitically tense, such as in the global South, the penetration of a lot of these low cost, high quality, you know, products and services affording to them, afforded to them is, is is a huge benefit. And China has new business models that are kind of the best in the world, really at the frontier, not to mention EVs and renewables and all that. Think all of that will penetrate the global South, especially since that there's no resistance to Chinese companies from a geopolitical standpoint, whereas it will be much more difficult to get into European American markets because of geopolitical reasons. So I'm not sure global China can really be global north also being in the global North for these these reasons that are not economic. Let me let me pass on okay.
SPEAKER 4
Try to answer the third question first in terms of corruption, how to deal with this. Well, the first thing actually, we did some reading recently about the Chinese, the role of the intermediate agency testing networks, Chinese network. To what extent the different to Western idea of the networks? I think important thing firstly is how to define corruption, because corruption in the context can be corruption has been legitimised, but in China it can be many different things. So how you define corruption is important. And also one book, I think from article from Wuhan and also identify different types of corruption in China and certain type of corruption not necessarily lead to bad consequence in terms of economic development, because those kind of corruption to her is transactional. It helped to facilitate certain kind of regional local development into China, in China, but in African context, where generally the institutional context regulation has been quite weak. So what really happened is not about rely on the institutional context. It's really dependent on the actual deal made on the ground, like how you made a deal with one of the key decision making. One of the policymakers in Angola, for instance. Because I have from our research, we identified actually sometimes Chinese firms, not only Chinese firms, but Chinese firms use that kind of testing network like the relatives of friends of the the key policy maker, and support them to educated in education in China or whatever, working for their company to facilitate the conceal so what is important here is not to look about corruption, but it's like how this can actually deal made the process of it. And who was the one to help them and how how it helped. I think this is more important to look about those kind of testing network. I'm also explore this in the UK case right now. Yeah, we'll be better to share later on in the publication. The back to the Global China. The concept has been called by Professor Chin Kuan Li to call China beyond the geographical geographical territory. But what we really understand that the Council of Global China is put Global China as the integrated unit of analysts into the global development. So the rise of China globally in the form of foreign investment, trade or foreign, like immigration or the the export of the China standards, what does that mean to the the world economy? What that means to the remaining of the others. So what we need to understand is put them together. And as I our team has called to productively engage with global China, with and together with global development, and I think the it's interesting to look about different capital emerge from those emerging economies, because when sometimes we think a lot about China compared to global capital in Europe, in UK, in Germany, and sometimes people forgot when they talk about we are the UK company, but this sometimes they already forgot themselves are global capital. So it's very important with the idea about what does a global China mean. And in one paper I did present two weeks ago at LC, chaired by Yang, and is called for more theoretical to work really on. Foundation of the concept of global China to engage with global development. This is what we me and the professor Giles Mohan. Our team has been recently really focusing on and I think in next year's DSA conference, as so as we will have a panel particular focus on global China and engage with global development, how to recenter global development with idea, for instance with the global China. And back to if I don't forget I hear your questions. Yeah. It's. I try to be concise because with this. Question. I have hours to answer, so really depend. I think the small medium enterprises really depend on the sector and also the different country contexts. For instance, in Angola, what we identify as more medium enterprises, more focussed on different diversified sector because Angolan host countries, it didn't really restrict about those kind of industry. Well, in Ethiopia it's more focussed on light manufacturing sector and the building materials sector, which has been aligned with their industrial policy of export oriented Made in Ethiopia and also the industrial development since 2004 onwards. So this can be quite different. And interestingly, we also identify in Angola. Actually they have more trans locals where in Ethiopia they have more small medium enterprises firms. We are in my PhD thesis we identify like in terms of capital, comparatively capital intensive firms in light manufacturing in the building materials sector are more from Jiangsu province, where those kind of family owned, those kind of own operated firms are more concentrated from Georgian province. In terms of the number of Chinese firms, they're ranked number one. But in terms of the capital and the number of employment, Jiangsu ranked number one. And in terms of the export oriented firms holding the manufacturing firms ranked number one because in terms of its export oriented to to US market. But it has its political commitment somehow as well. So it's quite exceptional to that case. Then the second question. What's that? Oh, okay. I think for the consequence of Ethiopia, Chinese investment in Ethiopia, particularly in the manufacturing in recent years. Actually, I'm a bit sad about that, but it has they have a different kind factors. That's why some of the Chinese firms withdraw, etcetera, from private sector, partially because of the ongoing civil war. And the domestic politics has been intrigued for a long time in Ethiopia. This has been concerned, especially in different regions. Certain region has more negative consequence, and the fourth of those firms have to withdraw. But also a coincident with the outbreak of Covid 19 and also the the withdrawal of Agoa. This has a huge impact on export oriented firms because without this they can't export to the US market. But in our research especially, we update the data up to 20th May 2023. We also show actually Chinese private fund also quite resilient in terms of this kind of shifting condition because in instead of many firms still there because of the Ethiopian government also be flexible, adapted to this kind of condition and that those firms previously focus on export to product in domestic market. This is a temporary strategy, but in order to attract more Chinese investment and to focus more on their long term industrialisation, I think the Ethiopian government has to committed to their investment to shape those investment, to be more qualitative, to be focussed on high end also. Yeah, that's what I think. Did I answer the question?
SPEAKER 0
Yes. Yeah, I think I have got something. Okay. Do you want to add a final?
SPEAKER 2
So just a couple of quick points. One on the and the question around projects and hinting at issues of corruption. Think you have to look at the kind of incentive structures at play. There are a lot of Chinese contractors who go out to Africa and Global South countries that to make money and they want to win contracts. Helpfully, they have state owned financial institutions whose mandate is also to help them make money and to sell Chinese goods, services and technologies overseas. So so this is kind of what I was trying to get at in the discussion on moral hazard in a lot of these infrastructure projects. In many cases, they're led by the contractor. Right. As an who goes they build up a good relationship or a rapport with the Department of Transport or or with a certain ministry or even with at the presidential level. And they and they try to fulfil the infrastructure wish lists of, of the host country. Um. And so there's this kind of demand led model which which I think contrasts the sort of OECD, MDB, Western development finance framework. Uh, you know, it's something that I think is good in many ways for the policy space for the agency of host countries in Africa and elsewhere. Um, but also comes with, um, with some issues. And there's been studies by researchers at data think where they, they find when you take an econometric analysis, you do find a slight predisposition of Chinese projects to be located in the birth regions of the political leader. So, you know, there are there are also certain patterns that this gives way to.