In 2015, the small African island nation of São Tomé and Príncipe signed an agreement with China to build the country’s first deepwater port. As was true of many other projects signed during the heyday (roughly 2014 to 2017) of the Belt and Road Initiative (BRI), the envisaged port was celebrated for the connectivity it would grant to the isolated São Tomé, allowing closer integration into the three regional economic communities of Central, West, and Southern Africa. São Toméan officials hoped the port would provide the country with the revenue necessary to finance other important initiatives related to health and education despite the project’s $800 million price tag. Nine years later, the deepwater port still hasn’t been built and China is out of the equation. What happened?
When Prime Minister Jorge Bom Jesus was elected in 2018, his government found that the size of the project proposed under former Prime Minister Patrice Trovoada was unfeasible given São Tomé’s high level of debt and limited financial capacity. After two years of negotiations, China had offered to drop the cost of the project somewhere between $500 and $800 million, but São Tomé was wary of China’s intention to use the port for fishing. Given the Chinese fishing fleet’s well-documented history of illegal, unregulated, and irresponsible fishing practices, the São Toméan government was hesitant to allow Chinese companies access to its fishing stocks as São Tomé is dependent on fishing for its food security. To broaden the pool of prospective project partners, the country invited bids from international construction companies. But due to a combination of São Tomé’s high levels of debt, subsequent credit restrictions under a deal with the International Monetary Fund (IMF), and its choice to use the Design, Build, Finance, and Operate (DBFO) public-private partnership (PPP) model—which is more demanding for the private sector partner as it must shoulder the financial burden of the project in addition to construction—its options were severely limited. Developers such as the China Road & Bridge Corporation and Macau Legend Development were among the few who publicly expressed an interest in taking part in the project. So, despite the São Toméan government’s intention to diversify its partners, Chinese companies once again seemed to be the only viable choice.
Ultimately, São Tomé and China were unable to see eye-to-eye on the port project’s financing and terms of final use. São Tomé granted the deepwater port construction deal and a thirty-year lease on its operation to Ghanaian consortium Safebond Africa Ltd in 2021, a typical agreement given the level of development and financing that the project required. While the cancellation itself of the Chinese port project in São Tomé was fairly unique (of the 101 Chinese overseas port projects documented in a new Council on Foreign Relations tracker, only nine have been cancelled), its reasons for doing so are not. Many Chinese-backed port projects face local, national, or international opposition due to political, environmental, financial, and legal concerns.
Most projects facing such concerns still move ahead—of the ninety-two active port projects, twenty-eight have faced domestic or international backlash. These concerns usually relate to the possibility of environmental damage, “debt-traps”, and future Chinese militarization of the ports. Environmental and security concerns are present in all regions where China has financed ports, with debt-trap concerns concentrated in Africa and South Asia. This is not to say that all Chinese port projects, including successful projects, are received negatively. On the contrary, many low-income countries that have limited access to credit welcome these projects as a much-needed infusion of capital and infrastructure investment. Indeed, China has grown to become the largest bilateral lender to emerging economies.
The consistency and scope with which China has been willing to lend has been recognized by local communities. Pakistan, for example, the country in which the Chinese debt trap diplomacy narrative originated, has continued to welcome Chinese investment into its ports even though China has been accused of playing a major role in the country’s current debt crisis. A 2022 public opinion survey of Pakistanis conducted by the Sinophone Borderlands project at Czechia’s Palacký University Olomouc found that 85 percent of survey respondents held a favorable view of China, while a 2022 Gallup Public Opinion poll found that 56 percent of Pakistanis prefer to have a relationship with China when given the choice between China, the United States, Russia, or the European Union. China’s long-term willingness to invest in Pakistan when other countries have not is a major driver of these sentiments.
Whether Chinese port investments are met with excitement or suspicion, the fact remains that in most cases, it remains the most attractive or only option. Due to its foreign policy of non-interference, Chinese money does not come with any official political strings attached as compared to money from international financial institutions (IFIs), multilateral development banks (MDBs), and the so-called Paris Club group of wealthy countries. The promise of “free” money makes China an even more attractive partner for those states that feel they have been otherwise abandoned by traditional partners. Such sentiments are reflected in the Greek government’s embrace of Chinese investment in the country’s Piraeus port after being forced to sell key pieces of infrastructure as part of its IMF debt relief deal.
Even states that are interested in partnering with foreign governments other than China resort to borrowing from Beijing after their other offers are turned down. In the case of Hambantota port, arguably the most infamous Chinese port project investment, the Sri Lankan government approached both the United States and India for investment and was turned down before approaching China. In fact, prior to the announcement of the India-Middle East-Europe Corridor (IMEC) during the 2023 G20 summit, there was only one case in which an external government cautioned a country not to accept a Chinese port project deal while also presenting a viable counteroffer. prospective host country of a Chinese port project.
In order to give host countries access to fairer deals, it is crucial for other financiers, especially the leading multilateral development banks and democracies, to not just continue but to increase the scope of their infrastructure project portfolios in low- and middle-income countries. Such institutions are the benchmark for environmental, social, and governance (ESG) project standards. Their presence in the competition for project tenders should force other bidders to match or better their own project standards. A decade ago, Chinese companies may have won tenders in developing countries by undercutting on price alone, playing on the price-sensitive nature of these markets. However, China’s focus on low-investment, high-yield projects, coupled with host country concerns about the quality and sustainability of Chinese contractors’ work, could signal a shift in a host country’s willingness to pay for quality.
The United States and other high-income countries can take several steps to offer an alternative to Chinese infrastructure investment. Although wealthy countries have proposed larger projects such as IMEC, more targeted projects such as the revival of the Lobito Corridor would be more practical and will reduce the risk of creating burdensome “white elephant” projects. Meanwhile, development finance organizations should continue to seek opportunities to collaborate with one another as well as with the private sector to fund infrastructure projects in low- and middle-income countries. Progress has been made in this respect over the past year, such as the memorandum of understanding (MoU) between the U.S. Development Finance Corporation (DFC), the Japan Bank for International Cooperation (JBIC), and South Korea’s Export-Import Bank (KEXIM) to strengthen cooperation on infrastructure financing. The DFC’s strength is in its ability to mobilize private sector investment; it is generally prohibited from partnering with state-owned enterprises (SOEs). JBIC and KEXIM, on the other hand, frequently partner with government ministries and SOEs. Collaboration between these three organizations thus allows each to play off each other’s strengths and shore up weaknesses, expanding development finance coverage across the board.
Host country governments can also take steps to further maximize the benefits of such infrastructure projects, including by stipulating local sourcing for a certain proportion of the project’s workforce or materials used in construction. With such conditions in place, even if projects funded by non-Chinese financiers are more expensive, the costs will be at least partially offset by the value of increased local employment and knowledge transfers.
China’s own economic slowdown is now prompting policymakers to turn their attention inwards and focus on domestic economic imperatives. But as China pivots away from larger infrastructure projects due to a reassessment of its goals and priorities for the BRI, low- and middle-income countries’ need for access to capital and credit will not disappear. The rest of the world, especially the United States, should stop chasing China. Instead, Washington should demonstrate leadership through sustained connection and investment with its partners, particularly those small and medium size states such as São Tomé that may be forced to accept sub-optimal or detrimental agreements due to a scarcity of options. In this case, if Chinese companies are still interested in competing for such projects or tenders, they are welcome to do so, but they would be forced to match the higher ESG and transparency standards favored by international financiers and host countries. The goal for Paris Club members, IFIs, and MDBs should ultimately be to increase project sustainability and transparency across the board, improving project outcomes no matter who wins the contract.
Nadia Clark is the Research Associate for International Political Economy at the Council on Foreign Relations.