As globalization fragments and traditional aid declines, low- and middle-income countries are forging new partnerships to finance their development ambitions. In this episode, Dan Banik speaks with Hong Bo about how China’s overseas investments are evolving, from mega-projects to smaller, greener, and more strategic initiatives, and what this means for the future of global development finance.
As globalization gives way to fragmentation, the politics of finance and development are shifting fast. Tariffs, trade wars, and geopolitical rivalries are redrawing economic maps, while traditional sources of aid are shrinking. In this environment, low- and middle-income countries are searching for new partners and new pathways to growth—and China’s role looms large.
Over the past two decades, China has financed and built roads, railways, power grids, and digital infrastructure across Africa, Asia, and Latin America. But since the pandemic, its overseas investments have evolved: fewer mega-projects, greater attention to debt risks, and a growing emphasis on clean energy, technology, and localized, value-added production.
In this episode, Dan Banik speaks with Hong Bo, Professor of Financial Economics at SOAS, University of London, about the changing nature of Chinese investment and what it reveals about the future of global development finance. They discuss how sovereign risk shapes investment decisions, why small and “green” projects are replacing large ones, and how African and other developing countries can strengthen their bargaining power in negotiations. The conversation also touches on the politics of transparency, the role of private Chinese investors, and the possibilities for industrialization in a world of shrinking aid and shifting alliances.
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[Dan Banik]
Good morning, Hong. It’s lovely to see you. Welcome to the show.
[Hong Bo]
Thank you for inviting me.
[Dan Banik]
There’s a lot of discussion these days about geopolitical tensions, tariff wars, and the sense that globalization is under strain. One country widely seen as having benefited from globalization—through trade and investment—is China. I’m especially interested in the infrastructure investments China has undertaken on the African continent. Of course, China is active in Latin America, Europe, and Asia as well, but let’s focus on Africa. How have Chinese investments abroad—particularly since the pandemic—changed? There’s an ongoing debate about their usefulness for countries in the Global South: who benefits, whether they create “debt traps,” and so on. It’s a polarized discourse. To start, what are your initial thoughts on how Chinese investments in Africa are working now, and how they’ve evolved in recent years?
[Hong Bo]
You mentioned geopolitics at the outset, and I agree that’s essential context for discussing the future of Chinese overseas—especially infrastructure—investment. We’re seeing mounting evidence that cross-border trade and investment are dividing along geopolitical lines. Several recent papers, particularly since the latest round of trade tensions, show clear diversion in import sources and export destinations. Fragmentation is already a fact.
Given that the core rivalry is between the US and China, this has important implications for Chinese investment. China has been investing overseas for at least two decades, not just a few years, but there have been structural changes after COVID. Before the pandemic, Chinese investment in Africa was rising. Using one figure I’ve seen, the average global growth rate of Chinese infrastructure investments between 2005 and 2023 was about 13%, which is substantial.
After COVID, many argued that Chinese infrastructure investment declined, especially immediately. But we then saw some recovery from around 2021. In fact, this year—looking at data for the first half of 2025—one new report suggests a notable uptick in investment in Africa. So there is recovery, but with shifts in sectoral distribution: more focus on energy, climate and environment-related projects, metals and mining, and technology.
[Dan Banik]
A few years before COVID, President Xi announced at the UN General Assembly that climate and the environment would be a major priority, including stopping the construction of coal-fired power plants outside China. While coal remains important domestically, that was a clear external signal. Another big trend I see is fewer “mega-projects” in Latin America and Africa—the very large, headline infrastructure deals. There are several reasons: a stronger focus on green, clean, and SDG-aligned investments; and a shift to “small and beautiful.” Chinese banks and policymakers seem to have learned that very large projects and loans can be hard for host countries to service. So rather than mega-projects, the emphasis moved to smaller, greener, more manageable investments. Given your point about investment picking up again, the question is whether those mega-projects will return.
[Hong Bo]
Two points. First, yes—there are fewer mega-projects and fewer very large physical infrastructure deals. In a recent study covering all BRI countries, we found that after COVID, Chinese infrastructure investment became much more sensitive to sovereign risk. Countries with higher public-debt vulnerabilities received less investment, and certainly fewer large projects.
Second, there were practical constraints: supply chain disruptions meant Chinese equipment, materials, and labor could not be moved to sites as easily. On the host side, sovereign debt problems worsened after COVID. All this helps explain the decline in large-scale projects.
However, we do see continued investment in the kinds of smaller, greener, technology-oriented infrastructure you mentioned. In a chapter I recently wrote, I argue this is the right moment for China to reduce project size but increase localization. You now see more private Chinese investors in Africa investing in processing and value-addition, not just resource extraction. Private investors tend to go where core infrastructure already exists, which enables the next steps—industrialization and resource processing.
[Dan Banik]
That aligns with what I’ve observed in fieldwork. In Nairobi, I looked at two major Chinese-linked projects: the Nairobi–Mombasa railway—well known and controversial due to the size of the loan—and the expressway from the airport to downtown, done on a build-operate-transfer model where the Chinese firm collects revenue before handing the asset back after 20–25 years. Very different models.
Your point about ecosystems is crucial. Firms—Chinese, Indian, or otherwise—tell me they prefer to invest where others already operate, so there’s an ecosystem of suppliers, services, media, and software. Without that, manufacturing is hard. A longstanding criticism of earlier Chinese projects was limited local labor or technology transfer, but I’d say that’s changed significantly. Still, when I talk to Indian pharmaceutical companies or large Chinese firms, they often say they’d like to manufacture locally, but the ecosystem is thin or the markets are too small to be profitable. Given trade wars and fragmentation, how do you see the potential for more assembling and manufacturing in African countries rather than import-only models?
[Hong Bo]
Linking Chinese investment in Africa with geopolitics, my view—controversial to some—is that this particular relationship may be less affected than others. China has been engaged in Africa for two decades; it’s hard to imagine a clean break simply because of geopolitics.
On manufacturing: there’s a lot of talk about “premature deindustrialization,” but I think manufacturing is coming if African economies continue to move forward. Resource exports will face more restrictions, so investment will increasingly target local value-addition. We’re already seeing Indian, Chinese, and Middle Eastern firms invest. The real competition is over suitable technologies—those that can be adopted by local firms and workers. EV-related and broader environmental technologies are examples already underway in Africa.
[Dan Banik]
Low-cost or frugal innovation has been one of India’s selling points—generic medicines, for instance. That’s now complicated by new US tariffs on Indian goods, which could push Indian pharma to look for markets elsewhere. From my research on Chinese investments in Africa—even before the Belt and Road—China has tried to adapt to local needs. African policymakers often told me that Chinese ambassadors understood their priorities: they wanted infrastructure, and Western actors had largely stopped building it. As a former Liberian minister said on this show, critics of BRI should offer credible alternatives—and there haven’t been many.
Still, debt sustainability is a real concern in several countries. What’s your view on the “debt trap” claim, and how does it relate to the resource-for-infrastructure model?
[Hong Bo]
There are two strands in the literature. First, most agree connectivity has positive growth effects. Second, the “debt trap” debate: I don’t think China set out to trap countries. In a PhD thesis I examined on Chinese loans in Africa, the average share of Chinese lending in total public debt for recipient countries was about 13%—lower than many assume. We should be guided by evidence, and there isn’t consistent evidence supporting a deliberate debt-trap hypothesis.
That said, Chinese contracts often involve collateral—resource-for-infrastructure arrangements, or taking over management of an asset for a period before handing it back. There’s variation across deals. If a coastal country lacks capacity to build critical infrastructure and other lenders aren’t available, borrowing from China with repayment via resources can be a second-best but feasible option—especially if the infrastructure boosts growth. Over the long run, the benefits can outweigh the risks, provided projects are sound.
[Dan Banik]
I agree on the composition of debt—most African public debt is owed to non-Chinese creditors. And I don’t buy the idea that China aims to trap countries; it has larger priorities. My critique has been that China needs to learn from past mistakes. In some cases—Venezuela, Kenya—Chinese lenders seemed too responsive to leaders’ requests without asking tough questions: Is there public support? Is the project viable? The non-interference principle can make due diligence harder, which then creates problems later. The trend toward fewer mega-projects and more viable, smaller projects is encouraging.
On motivations, resources matter—oil, minerals—but infrastructure also serves diplomatic goals. Chinese officials often frame it as solidarity and friendship. In your view, is it profit, solidarity, or both?
[Hong Bo]
Both. Our recent work shows Chinese infrastructure investment isn’t primarily directed by a host country’s institutional quality or low political risk, and most contractors are Chinese SOEs. State capitalism theory would predict investments motivated by long-term strategic interests—geopolitical positioning and relationships—beyond short-term profit. We’re now studying measurable economic benefits for Chinese firms over time, but the mix of commercial and strategic motives is clear.
[Dan Banik]
A new trend I see is large Chinese firms, like CRBC, seeking contracts financed by Western sources. Western donors or investors want projects delivered and may contract well-established Chinese companies, especially where they already have local capacity.
Part of the polarization, I think, stems from limited political homework and transparency. Negotiations often happen government-to-government; when administrations change, positions on China can flip, creating tension. Confidentiality clauses—sometimes insisted upon by host governments—fuel mistrust. Even when projects aren’t loan-financed, people suspect hidden costs. Greater openness would help, and I do see Chinese firms improving on public communication, but norms differ.
[Hong Bo]
I agree. Leadership changes are part of institutional design; strong laws and regulations can ensure continuity beyond individuals. Transparency is also an institutional issue. There’s a useful sub-literature on agency problems within host countries—governance and institutional capacity matter a lot. Your observations point to those fundamentals.
[Dan Banik]
Colleagues on this show have argued that African, Latin American, and Asian governments need more negotiating capacity. It’s often framed as “China–Africa,” but perhaps it should be “Africa–China,” with a clearer articulation of needs and bankable plans. Pitching projects with demonstrated public backing, credible financing, and clear collateral beats vanity projects like stadiums or universities tied to specific leaders. On debt workouts, media narratives about China “taking over” ports or airports persist, but there’s little evidence of outright seizures. What I hear from places like the World Bank is that all creditors—including China—should move faster on restructurings. How can African policymakers negotiate better in these situations?
[Hong Bo]
Bargaining power is the crux. China brings both finance and construction capability—two things many host countries need—so negotiating from a weaker position is common. Still, localization requirements can raise bargaining leverage: use of local labor and suppliers, for instance. In Central Asia, I’ve observed higher localization, suggesting China adapts to stronger local demands.
Building leverage also comes from upgrading: processing natural resources before export, i.e., industrialization. Value-addition reduces dependence and increases options. I’m a manufacturing person—without manufacturing, services alone can’t carry development. That’s especially true in many African economies.
[Dan Banik]
Another angle on bargaining power is negotiating as a bloc. Larger African economies could help represent smaller ones; the African Union could play a stronger role. Thus far, it hasn’t been very effective, but regionalism may matter more in a fragmented world.
[Hong Bo]
Exactly. With fragmentation, regional integration—trade and cross-border investment—becomes more important. Building collective bargaining power, as ASEAN has done in some contexts, could help. Much of this must be built from within host countries and their regional institutions.
[Dan Banik]
We’re constantly hearing about tariff changes, rules of origin, and new frictions. Some worry that a slowing Chinese economy will shift attention inward, reducing engagement in Africa. If China scales back and aid budgets continue to fall in the US and Europe, finance will be scarce. Looking ahead six to twelve months, what trends do you anticipate for Chinese investment in Africa, Asia, and Latin America?
[Hong Bo]
Forecasting is always tricky, but I don’t expect profound, lasting damage to Chinese exports and outward investment from current tensions. While domestic challenges exist—consumption, property, etc.—China is prioritizing technology and energy. I anticipate continued overseas investment, with a larger role for private firms alongside state-linked actors.
Regionally, I expect continued focus on Central Asia, parts of the Middle East, and selected African countries—especially in strategic sectors critical to global supply chains. It’s not about China assuming responsibility for specific host countries; it’s about pursuing its own strategy while ensuring resources are organized to keep investing in critical areas.
[Dan Banik]
Hong, it was lovely speaking with you. Thank you for joining us today.
[Hong Bo]
Thank you, Dan, for the thoughtful discussion and for the platform to talk about these important issues.
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