In 2008, the World Bank estimated that China had become the largest financier of infrastructure projects in Africa. China's role in Africa's infrastructure bottleneck has widened its arc and become more sophisticated. In addition, unlike mature economies, the effects of the financial crisis on China's economy have been muted. In fact, uncertainty around the longevity of the current global financial architecture has encouraged Chinese policy makers to pursue tangible assets as opposed to US government bonds, which decision lends itself to further investments in Africa. Consider that China reduced its holdings of Treasury securities by USD34.2 bn in December, despite foreign exchange reserves growing robustly.

At FOCAC in 2009, China announced an additional USD10 bn was available in the form of concessional loans for China's policy banks. Targeted areas are infrastructure and agriculture – two significant bottlenecks to Africa's ongoing socio-economic progression. Success has been more muted with regard to the rollout of the allotted USD5 bn through the China Africa Development Fund (CADFund), which was established following the Beijing Summit. As reported at the Sharm el-Sheikh Summit, the CADFund has invested in 220 projects with a total value of around USD500 mn – half of the USD1 bn initially made available to the fund upon its establishment in 2007.

At FOCAC in 2009, Premier Wen Jiabao made explicit mention of aligning China's strategy in Africa with the United Nations Millennium Development Goals (MDGs) for the continent. Increasingly, China will look to partner prominent Western institutions in Africa in order to counter accusations that it acts in unilateral self-interest.

China's competition has altered the terrain and changed the terms of engagement. China is gradually creating infrastructure corridor development to secure key resources (Power et al., 2008). However, managed correctly, the self same infrastructure will unlock complementary industrial capacity. Nevertheless, while China has made significant headway since 2000, the idea that China has gained a wholesale advantage in Africa is somewhat overstated.

Chinese loans harm debt sustainability and are opportunistic

Challenge: The charge is not only that Chinese support provides fertile soil for poor governance and corruption, but that the country is free-riding on Africa's past debt relief, adding new layers of additional debt (Parker & Beatie, 2006).

Since 2006, countries such as Cameroon, Gambia, Malawi, Sao Tome and Principe, Sierra Leone and Togo have been forgiven past debt by the Paris Club. Other countries such as Nigeria and Uganda have benefited immensely from debt eradication. These countries now have the fiscal space to take on additional debt financing. In some instances, China has entered these markets through concessional loans (Ampiah et al., 2008). In September 2006, the US department of the Treasury labelled China a rogue creditor practising opportunistic lending (Phillips, 2006). Nevertheless, China has provided a mere USD6 bn in accumulative bilateral support to Africa since 1950. Granted, a more inclusive view that incorporates loans, government-directed investment and donated vehicles, equipment, food and human capital investments suggests that China's assistance is markedly higher. However, China is a small lender on the continent; Russia forgave USD20 bn in cold war-related debt in 2008.

The majority of Chinese bilateral support has flowed to countries outside the jurisdiction of the highly indebted countries. In addition, China has met its pledge to cancel the debt in the form of all interest-free government loans maturing at the end of 2005 owed by heavily indebted poor countries (HIPCs) and LDCs in Africa which maintain diplomatic relations with China.

Cohen (2000), Kraay and Nehru (2006) and Reisen (2007) argue that useful metrics for estimating the probability of a debt crisis are the ratio of debt-to-exports, debt-to-gross national income and debt service-to-exports. Accordingly, a medium probability of a debt crisis is associated with the following thresholds: debt-to-exports above 150%, debt-to-gross national product of 40% and debt service-to-exports of 20%. And, say, debt reaches 300% of exports then the likelihood of a debt crisis increases from 60% to 90%. In the case of Angola, first, debt-to-exports has declined, from 114% in 2000 to 48% in 2007. Second, debt-to-gross national product has declined, from 126% in 2000 to 41% in 2007. Finally, debt service-to-exports has decreased, from 21% to 9%. Similarly, in the case of the Sudan, debt-to-exports has declined, from a staggering 663% in 2000 to 308% in 2007. Clearly, the Sudan is still in a dangerous zone, but the improvement has been remarkable. Second, debt-to-gross national product has declined, from 157% in 2000 to 72% in 2007. Finally, debt service-to-exports has decreased, from 10% to 6% (Reisen, 2007). Both Angola and the Sudan have not received any debt relief (Campo et al., 2008), but have shown significant improvements in their debt distress levels. More importantly, China makes a positive contribution to debt tolerance through stimulating exports and GDP growth.

China's controversial interest-free government loans have been replaced by discounted loans offered through Chinese banks, and a number of bilateral aid grants have been replaced by joint ventures (Van der Plooy, 2006). Furthermore, at the FOCAC in 2009, Wen Jiabao presented a softer and more people-centric three-year plan, reflecting sensitivity to criticisms.