Chinese Loans to Africa: The Economist Gets it Wrong

On September 7th The Economist published an article, "China's Relationship with Africa is Growing Murkier," with a graph on "murky" Chinese lending into Africa that really muddied the water (Figure A).

Figure A

The article focused on sovereign lending, that is, loans to governments. The accompanying graph suggested that Chinese annual loan commitments to African governments peaked at close to $80 billion around 2017, using data from AidData. This compared with a peak of around $30 billion using data from Boston University and a peak of $14 bn around 2011 for the World Bank's International Debt Statistics (IDS). 

The Economist implied that Boston University and the World Bank were underestimating China's sovereign loan commitments in Africa because they were not shining their light in all the dark corners: specifically, they were not including all Chinese creditors and all kinds of loans. But instead, it appears to be The Economist that needed a better flashlight. 

As Chinese-loan-data-geeks, my Cornell University colleague Yufan Huang and I are very familiar with the World Bank's IDS, AidData, and Boston University. We spent a good part of Monday trying to replicate the numbers in The Economist's chart. 

Here's what we found. 

• We guessed from the shape of the World Bank data curve that The Economist was only selecting "official" Chinese creditors, and not "private". Yet many African governments (like Angola's) report China Development Bank loans to the World Bank as "private". [That data is in the IDS, but analysts need to select "official" and "private".] 

• Working on that hunch, we were able to replicate the curve of the World Bank's data on sovereign loan commitments using "official", but not the amounts (Figure B). 

Figure B (CARI chart)

• What The Economists' graph showed as $20 bn, should actually be labeled $10 bn. The data labels on the right axis were off by 100% for the World Bank data but, strangely, this was not the case for the other databases. 

• When we added "private" Chinese loan commitments to the World Bank data (Figure C), we were able to bring the curve much closer to the Boston University curve. [Although the article implied that Boston University only tracked Chinese policy banks, their Chinese Loans to Africa database includes all Chinese creditors, official and "private", that make loan commitments to African governments and their state-owned companies.] 

Figure C (CARI chart)

But the big problem came when we tried to replicate the AidData figures. 

• BU, World Bank, and AidData have a few methodological differences, discussed below.* Most importantly, AidData includes Chinese loans to private Chinese corporations investing in Africa. Interesting, but not the same as sovereign, i.e. public and publicly guaranteed debt. This adds some $26 billion to AidData's figures that do not show up for the World Bank or BU. They also include $4 bn in central bank swap lines.

Figure D (The Economist) 

 

With our concerns in hand, The Economist agreed to revise their chart (Figure D). The new chart corrects the AidData numbers (note the color of the lines are changed), although it still overcounts currency swaps tracked by AidData by including all the rollovers as new credits, and they still include Chinese loans to Chinese corporations. However, they do not correct the World Bank data, and thus imply, wrongly, that the World Bank is significantly undercounting Chinese sovereign loan commitments in Africa.

Here's the sovereign lending chart they should have included, in our view (Figure E). This removes private borrowers and swaps from AidData, and Chinese loans to regional banks in Africa from AidData and BU.

Figure E suggests that Chinese loans to African sovereigns are not so murky -- the World Bank**, Boston University, and AidData all seem to agree on this. 

Figure E (CARI)

This may seem a data geek tempest in a teapot: the equivalent of  quarreling about how many angels can dance on the head of a pin.  But what worries me most is that the skilled folks at The Economist didn't wonder why their data was so off the charts. 

It suggests that huge overestimations of what China is doing in Africa -- and perhaps elsewhere -- are now seen as plausible. 

This feeds a larger, fear-based narrative about Chinese lending overseas. And that complicates the goal we share, of trying to understand the real story of how China engages in Africa.

*Methodology Differences

A. Syndicated Loans. Boston University follows the World Bank's International Debt Statistics reporting protocol. The World Bank asks countries to report syndicated loans, record the lead bank, and report "whether the syndicate comprises institutions of only one or of several countries." If Chinese banks are part of an international syndicate with other multinational banks, this does not show up as a Chinese loan in either source. AidData does include these loans. Their methodology "assumes that each bank provided equal contributions to the syndicated loan" and they include the Chinese portion in their data.

B. Swap Lines. Boston University does not includes People's Bank of China central bank swap lines in their development finance data, although they have a separate database on swaps. The World Bank only began requiring countries to report swap lines of greater than one year duration in 2020, so their data wouldn't include most of these. AidData includes swaps, but in their most recent database, they record only about $4 bn in PBOC swap lines in Africa, covering only Nigeria and Egypt (in a separate swap database they also records PBOC swaps in Morocco and South Africa). 

C. Lines of Credit. The World Bank records Chinese lines of credit as a commitment in the year it happens. Boston University and AidData record instead the individual projects under those lines of credit. This explains why in Figures B & C, the World Bank data for 2011 spikes up and falls back, compared with BU and AidData.

D. Loans to Private Borrowers. Neither the World Bank nor Boston University report data on Chinese loans to private Chinese or other private sector borrowers in Africa, unless that loan has a public guarantee. AidData does include these private sector loans, coding them as either "potential public sector liability" (total of $6.8 bn) or purely private (total of $26 bn). This explains the difference between AidData and Boston University/World Bank in our Figures B & C.

**Sam Pa, China International Fund, and Angola

We wondered why the World Bank had a big bump of close to $20 bn ($10 bn once the data label is corrected) in Chinese loan commitments for 2005, when neither CARI/Boston University nor AidData had this figure. Digging into the World Bank data revealed that they had included $9.8 billion in "Chinese official loan commitments" for Angola -- the exact amount that was allegedly pledged by the notorious Hong Kong company China International Fund (CIF). This private company, which later moved its headquarters to Singapore, failed in its boast that it would arrange that financing. (Their leader, Sam Pa, was arrested in 2015 under Xi Jinping's anti-corruption campaign and hasn't been heard from since). Despite its deliberately confusing name, CIF was a private Hong Kong company, not a Chinese official creditor, so it is included in error. 

French Police Seize Nigerian Jet for Chinese Company: the CARI Connection

SAIS students with Zhongfu in Nigeria

A private Chinese company is behind the French seizure of Nigeria's presidential jet. What's that about?

Over the past few days the internet has been buzzing about Zhongfu Corporation's successful arbitration action against the Nigeria government for Ogun State's wrongful seizure of Zhongfu's joint venture with the Ogun State Government.

Bailiffs in London, New York and Paris have been seeking Nigerian overseas assets to impound as they enforce an arbitration award. I'd often wondered what happened to John Xue and Jason Han, the two dynamic investors leading Zhongfu Corporation. They had a CARI connection.

The CARI Practicum with Zhongfu

In the summer of 2015, when I was the director of the Johns Hopkins/SAIS International Development Program, I circulated a call on a China-Africa listserv for proposals for clients to work with our students on a practicum. John Xue, the Chief Operations Officer of the Zhongshan Fucheng Industrial Investment Co. Ltd. ("Zhongfu"), a graduate of the Thunderbird School of International Management in Arizona, wrote to me:

I happen to read your letter dated June 24 addressed to Colleagues about your Practicum Class. I wonder if you might be in interested in what we are doing here in Nigeria. As a private Chinese consortium, we are managing and developing an industrial park in Ogun State in Nigeria. We came in late 2012 and the zone has developed into the most active zone in Nigeria with over 20 investors from China, India, Lebanon and 4,500 local employees. If what we are doing sounds like a good target or client for the team work you mentioned in your letter, please feel free to contact me.

I let him know I was very interested. I knew about the Ogun zone from my research on Chinese overseas zones (see note below*). John, who had worked with Coca Cola, Jack Daniels, and other American companies in China, wrote back:

Delighted to read your quick response. It seems we do have something to share. As far as we know, the majority of Chinese in Africa are involved in trade, others are engaged in infrastructure projects such as roads, rails, ports and estates contractors. We are in the third category, focusing on industrial park development. This may not be a new phenomenon but we are trying to identify a approach for a diversified industry park with sustainability, run by a private consortium, which could be replicated in Africa.

We established a practicum group with four students. They spent nine months working with Zhongfu, including a two week field visit in the January 2016 intersession, and wrote up their experience in a
CARI blog post, February 2016.

Zhongfu - Ogun State: Some History

Our students' May 2016 practicum report outlined a strategy for the sustainable development of the zone. The report summarized the history of Zhongfu's involvement:

The Ogun-Guangdong Free Trade Zone (OGFTZ) began as a partnership between the Chinese Guangdong state government and the Ogun state government of Nigeria, with Chinese partners holding an 82% share and Ogun state holding the remaining 18% ownership share. By 2012, however, operational practices of the original Chinese SOE management team had deeply strained relations with Ogun state officials, ultimately requiring their exit from the zone and motivating a potential shutdown of the project.

At this time, members of what would become the Zhongfu Management Company had begun an investor relationship with the zone as an potential on-site manufacturer. Facing a potential loss of their investment, these individuals accepted the invitation of the Ogun state government to assume management responsibility for the zone (as well as the Guangdong state government’s ownership share in the zone) at the end of 2012. Though the original name for the special economic zone was retained, the Guangdong state government completely exited the project, and Zhongfu emerged as the only case where a unique model of Chinese private ownership and management of a special economic zone in Africa has transitioned from a state-owned group to a private company headed by a manager with an American MBA.

A Nigerian source gave further details of that transfer:

On 28 November 2011, a senior official of Ogun State wrote a letter to CAI complaining of its violation of the terms of the 2007 JVA, the unsatisfactory share arrangement, and rampant smuggling. In the letter it also referred to the fact that following extensive due diligence enquiries in both Nigeria and China, CAI or its parent company was now officially bankrupt. On 10 April 2012, CAI’s appointment as manager and operator of the Zone was terminated by Ogun State via letter. On the following day a further letter wrote to Zhongfu confirming its appointment as the managers and operators of the Zone."

Over the next four years, John and his CEO, Dr. Jason Han, made substantial investments in the zone. They had hired new staff (including a young Nigeria, Chibuzor Timilehin Wigwe, who spoke Chinese and had studied International Economy and Finance at Shanghai University of Finance & Economics) and invested some $50 million in infrastructure and machinery.

As John pointed out in one email:

As you have learned, Zhongfu went to the Zone as tenant in the first place, however, the former management team was terminated and Zhonggu’s interest was at risk. So we took over the zone hoping to recover our investment. Though it was an “accident”, yet we believe we have done the right thing.

A Quiet Battle for Control

John and Jason visited the World Bank/IFC in Washington DC on a business trip and were able to attend the students' practicum presentation on April 27, 2016. But behind the scene, a quiet battle for control was already underway.

On March 16, 2016, the Economic and Commercial Section of the Chinese Consulate in Lagos sent a cryptic Diplomatic Note 1601 to the Ogun State Government:

We have been officially notified by State-Owned Assets Supervision and Administration Commission of Guangdong Province, China about the replacement of shareholdings owner of China Africa Investment Limited from Guangdong Xinguang International Group to Guangdong New South Group. The shift of shareholdings will legally lead to the replacement of management rights of the OGFTZ, which is now in the hand of Zhuhai Zhongfu Group, to Guangdong New South Group.

Shortly after John and Jason returned to Nigeria, the Ogun State Government moved to forcibly evict Zhongfu from the Ogun Zone. Around midnight on August 17, the zone's CFO Wenxiao Zhao was asleep when the Ogun State Police arrived at his house, arrested and beat him, and detained him for 10 days.

Into the Courts

Jason and John went into hiding but they fought back. They contacted the lawyers who had drawn up all the contracts that governed their investment in the zone, and they started the long journey of legal action.
On September 3, 2016, I had another note from John.

Dear Deborah, I am sure you have heard about our case here. I am sorry I was not able to give you an update earlier. Here's the briefing on our case. Zhongfu is creating history and we might be the first Chinese investors to say no to the most powerful people in Nigeria for their bright day light robbery. Best regards, John

That same day, Jason Han published an open letter to Nigeria’s then President Buhari, asking for his help.

“We regret that innocent Nigerians may have to bear the burden of the substantial damages that we will undoubtedly be awarded in legal action against the OSG and others,” he concluded.

It’s pretty remarkable, but that day has finally come.


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*NOTE Deborah Brautigam and Tang Xiaoyang. “African Shenzhen: China’s Special Economic Zones in Africa,” Journal of Modern African Studies v. 49, n. 1 (2011); Deborah Brautigam and Tang Xiaoyang, “Economic Statecraft in China’s New Overseas Special Economic Zones: Soft Power, Business, or Resource-Security?” International Affairs (July 2012); and Deborah Brautigam and Tang Xiaoyang, “’Going Global in Groups’: Structural Transformation and China’s Special Economic Zones Overseas,” World Development, 63 (2014).