|credit: Derek Bacon for The Economist|
What's wrong with this? Nearly all of it.
(1) "...Eximbank, China's foreign-aid bank..."
Eximbank is China's export credit agency, i.e. it finances trade deals like the 2009 deal where my old friend Mort Arntzen's American shipping company OSG bought a handful of Chinese tankers. Yes, China Eximbank also manages China's foreign aid concessional loan program, but this is a small part of Eximbank's total portfolio. Standard & Poor's credit rating review of China Eximbank in 2005 found that the concessional loan portfolio made up only 3% (three percent) of Eximbank's assets.
(2) "...their enthusiasm for tying foreign aid to commercial advantage..."
Yes, China does tie its official foreign aid, while other countries have moved away from this (the UK led this move, but the US is a laggard here). However, tying export credits to your own country's exports is still the norm. Why else would countries have a government instrument to intervene in trade?
(3) "One of China's favorite tools is oil for infrastructure".
Not really. This kind of tool is relatively rare. If you consider all the transactions financed by Chinese banks in Africa, for example, oil-secured infrastructure loans that are unrelated to developing an oil asset (including refinery/pipeline) seem to be limited to Angola, the Congo-Brazzaville, and (in the works) Ghana.* Latin America has seen more deals like this: at very high interest rates. And coming right after a sentence about foreign aid implies that China's oil-secured infrastructure loans are "foreign aid" -- when they're not, by anyone's official definition.
(4) "China offers to provide poor countries with schools, hospitals and the like (usually financed by soft loans and built by China’s infrastructure giants) in return for a guaranteed supply of oil or some other raw material."
This isn't quite how it works. This makes it sound as though the Chinese dangle a few hospitals in front of an African president and then say: you can have this if you guarantee us a supply of your oil!
Here's how it really works. The Chinese bank will offer to provide export-secured finance (these exports can be anything -- as I wrote recently in The Guardian, in Ethiopia, all of the country's exports to China were used to secure a loan). I'm not sure what a "soft loan" is technically, but all of these loans have been at market rates. The "guaranteed supply" of whatever export is already going to China is simply the mechanism for ensuring repayment of the loan (the proceeds are deposited into an escrow account). China doesn't dangle promises of schools, hospitals, etc. -- the proposals about what infrastructure to finance with the loan are made by the borrower. They might include schools, but they usually focus on productive infrastructure: roads, rail, electricity production.
(5) "Eximbank supplied a $2 billion low-interest loan to help China’s oil companies build infrastructure in Angola."
No. First, China's oil companies were not building infrastructure in Angola. The Chinese have world-class construction companies, and that's who got the business. Second, the loan was not "low-interest" but was made at LIBOR (London Interbank Offered Rate) plus a margin of 1.5% (this changed in later tranches). LIBOR is a market rate, and LIBOR plus 1.5% is actually a higher rate than some western commercial bank oil-secured loans given to Angola, as an excellent study by Global Witness makes clear.
For more detail than you probably want on how China's foreign aid really works, see some of my published papers here.
* Nigerians proposed using this model, but it apparently never happened. Although there is some evidenced that an early suppliers credit to finance two power plants was secured by oil exports, the loans were never repaid. If this system was used, it broke down. In Sudan, this model was apparently used very early on in the mid-1990s, but I believe it was limited to the construction of a joint-venture oil refinery. In Niger and Chad oil-related construction (refinery /pipeline) is also being financed this way.