China’s Belt and Road Initiative in Africa

What Is The “New Silk Road” Of China?

China’s Belt and Road Initiative (BRI) is one of the most ambitious global infrastructure programs ever launched. Infamously referred to as China’s “New Silk Road”, President Xi Jinping’s economic project aims to connect China with Asia, Europe, Africa and beyond through major investments in infrastructure: roads, railways, ports and digital networks. Originally, the project was devised to link East Asia and Europe through physical infrastructure. Since then, the objective has substantially grown: the vast collection of development and investment initiatives has now expanded to Africa, Oceania, and Latin America. Consequently, China’s economic and political influence was further pushed into the Western hemisphere, making some countries apprehensive towards Chinese expansion and the strengthening of infrastructure connections. The US given the complexity of its relations with China, has raised alarms of the possibility that the BRI initiative could be a Trojan horse for China-led regional development and military expansion. President Xi Jinping announced the BRI project in 2013, presenting the plan as based on two key parallel strategies: the overland Silk Road Economic Belt and the Maritime Silk Road. It is the latter we will subsequently focus on in our article. The leader of China announced plans for the 21st Century Maritime Silk Road at the 2013 summit of the Association of Southeast Asian Nations (ASEAN) in Indonesia. To achieve this objective, China would invest in port development along the Indian Ocean, from Southeast Asia all the way to East Africa and parts of Europe. Even though the project seems to be aimed at further integrating China into regional trade through the opening of economic corridors, the BRI is, in fact, a global and motivated by economic and strategic interests. Were BRI to fully succeed, it would allow China to more efficiently utilise excess savings and construction capacity, expand trade, consolidate economic and diplomatic relations with participating countries, and diversify 1China’s import of energy and other resources through economic corridors that circumvent routes that are controlled by the US and its allies. The initiative enjoys broad support across the developing world, as many nations struggle with severe infrastructure deficiencies and financial hurdles. By providing substantial funds for infrastructure projects in diverse sectors, the BRI facilitates economic growth. Nevertheless, while developing nations generally welcome the initiative, as previously mentioned, the Western powers do not support this infrastructure initiative. Critics argue that the BRI lacks transparency and serves as a vehicle for promoting China’s authoritarian governance model, substantially eroding democratic principles. In this regard, it is extremely difficult to get specific data from the government in Beijing about the size, scope and nature of China’s foreign aid program aside from periodic announcements about the provision of emergency humanitarian relief. From observing China’s investments in various countries, there can be observed five key points where BRI fails to provide necessary transparency: there is no justification for project feasibility; there is a lack of publicly available reports on environmental and social consequences; there are concerns surrounding the financial framework; no protection of the freedom of information through legislation; and in some cases there is insufficient governance and oversight over these investment projects. Furthermore, the commercial loan terms may trigger a new round of debt crises in the developing world. Lastly, the projects are criticised for supporting inadequate environmental and social safeguards. The article will focus on the implementation of BRI infrastructure projects in Africa, delving into the intricacy of legality raised by both corporate and international law in this context. In this regard, it should be noted that the African countries are diverse, and, therefore, the BRI may be observed from different perspectives and may yield different results.

Corporate Law Perspective

The appeal of BRI for African countries is mainly supported by the limited availability of Western aid. Developing countries necessitate funds to improve the quality of life of their citizens, consolidate economic stability and push towards further progress, in 2line with the more industrialised, modern and democratic states. Besides the limited funds, making a commitment to highly complex infrastructure projects with an institution like the World Bank is time-consuming and bureaucratic because of the extensive environmental and social regulations. Consequently, many developing countries in Africa prefer to use Western finance for issues like budget support, health, and education, subject matters of significance for democratic states, and more importantly, objectives in which the West believes and invests substantially. At the same time, these countries would rather turn to Chinese finances for big projects in transport and power. The terms may not be as generous as concessional lending from the World Bank; however, they are attractive compared to other alternatives. Now, China’s growing port footprint covers 24 African seaports across 20 countries, amounting to 25.5 billion dollars invested in the BRI initiative. Faced with the challenges raised by the BRI's growing power, it is important to observe the implications for corporate law, specifically for cross-border ownership, financing structures, state participation, and regulatory alignment.

Investment Models and Their Legal Structures

Engineering, Procurement, Construction – EPC

Under the EPC arrangement, a contractor is obliged to deliver a complete facility to a developer who needs only to turn a key to start operating the facility. The facility must meet certain strict requirements, such as delivery by a guaranteed date for a guaranteed price, and it must perform to the level agreed on by the parties at the time of the signing of the contract. Consequently, the responsibility falls on the contractor to perform all project activities from the design phase all the way through the construction phase: engineering, procurement of resources, construction, commissioning and handover activities for the project. In comparison, the owner only must turn the key at project delivery. Furthermore, EPC contracts do not necessarily represent long-term investments in African ports, as they are construction contracts that are paid for by the port authority or an African government. Their attraction is that they provide jobs for the workforce and 3therefore grow the working capital during the construction period, especially when milestone payments are included after each stage of work is completed. While this contractual relationship may appear unbalanced, it reflects the standard definition of EPC contracts for large-scale infrastructure. In the context of these complex operations, it is customary for the contractor to bear the responsibility of the development risk, from the early stages until completion. To mitigate the potential for substantial loss of revenue (in the case of non-payment by the host government or if the contract does not include strong protections such as arbitration clauses, sovereign guarantees, or milestone payments) contractors typically rely on comprehensive insurance policies to cover liabilities. Crucially, the BRI initiative provides an advantageous proposition for African governments through the EPC contracts. In normal circumstances, when a government hires a contractor, the delays and cost overruns create considerable financial risks. Nevertheless, in the EPC contracts with China, under the structure of the BRI project, those risks are shifted to the Chinese contractor, who must finish the project on time and within the agreed price as previously mentioned. This gives the host country more financial predictability and less exposure to unexpected costs. Moreover, they constitute a significant financing advantage as these projects are often supported by long-term loans from Chinese banks, which further facilitate African governments by allowing them to financially implement large infrastructure systems. The loans are typically connected to the same Chinese contractors handling the construction, thus creating a “package deal” of finance and engineering. EPC also allow for joint ventures that are mutually beneficial for both the Chinese contractor and the African workforce. China gains local knowledge and networks, while the African partner accesses Chinese capital and technology.

Engineering, Finance, Investment – EPC + F + I

The EPC + F + I mode is a variation of the EPC, which also includes finance and investment modalities that should be secured by the contractor. This is the most widely adopted entry mode in Africa, accounting for 33% of all operations. Why? 4First, African countries are developing countries. Now, their economies are growing rapidly, despite that many of the infrastructures are outdated. However, domestic funding in many African countries is inadequate to cover the cost of infrastructure projects. Consequently, the traditional EPC model previously introduced had become obsolete, as host governments became increasingly dependent on Chinese contractors to also provide financing and investment. Moreover, in recent years, as financing requirements have become more demanding, Chinese contractors have adapted to the new requirements, and to provide EPC + F + I contract, they have evolved from “single entities” to “cooperative entity groups”. These clusters of Chinese companies help to solve the problems related to the lack of funds and of technologies or skills in the field of engineering, design and construction in the host African countries.

Public-Private Partnerships – PPP

The PPP is, in broad terms, a long-term contract between the government and the private sector in providing a specific public service. In this type of entry mode, there is more equality in the distribution of responsibility between the two parties: the government might provide the site of the construction and the necessary regulatory support, while the private partner will invest capital and will manage the actual construction or operation of the facility in question. With respect to seaport projects, they are rather costly investments and pose complex technological problems. Therefore, many governments in developing countries, as previously mentioned, lack the capital or the expertise to develop them without external aid. To ease the burden on the government’s budget, many countries opt for PPPs, which have become a common model for port development worldwide, as they attract private investment but allow for public oversight. Aerts, Grage, Dooms, and Haezendonck went one step forward and devised a list of factors that are critical to assess the potential success of a PPP: the concreteness and preciseness of the PPP contract, the ability to appropriately allocate and share risk, the technical feasibility of the project, the commitment made by partners, the attractiveness of the financial package, a clear definition of responsibilities, the presence of a strong private consortium and a realistic cost/benefit assessment. 5In the case of the Chinese BRI project in Africa, there is uncertainty in the interpretation of the term “private”. Usually, the private partner in these PPP contracts is in fact a state- owned enterprise, such as China Harbour Engineering Company or China Merchants Holdings. These firms, even though they may operate commercially and seem independent from national governance, are in fact owned and controlled by the Chinese government. Thus, when African countries enter a PPP with a Chinese company, the partnership cannot be truly categorised as being between a public and a private actor. A more accurate portrayal is a partnership between two state actors: the African government and the Chinese state through its enterprises.

Build, Operate, Transfer – BOT

BOT is only a common PPP type used in African post-development. The government or the port authority grants a private partner the right, also called a concession, to finance and build a specific project for infrastructure, and this right is defined in a legal agreement which prescribes what the company can do and for what period. In this contractual relationship, the private company not only builds the capital, but is also responsible for raising the capital. This implies that the project is not funded in a direct manner by the host government, a fact that adds to the attractiveness of the entry method. Like the EPC, the contractor bears the brunt of the commercial risk because, in the case of lower revenue, the private company is directly liable for the loss. At the end of the determined time, the ownership and control of the port are taken back by the government, and the infrastructure, now developed, returns as a public asset. From a legal perspective, BOTs require a stricter and more detailed contract which defines: the duration of the concession, tariff rights and revenue-sharing mechanisms, risk allocation and conditions of asset transfer back to the state.

Acquisitions and Equity Purchases

In the context of China’s port investments in Africa, acquisition refers to the purchase of equity of already constructed ports by Chinese companies. The ports are operated and managed by a company which has previously obtained the legal right of concession (as introduced in an earlier paragraph). The company which holds the concession are usually 6Special Purpose Vehicles. They are a separate subsidiary formed by a parent company to isolate and manage financial risks: by operating independently, SPVs secure obligations even in the event of a parent company’s bankruptcy. This mode of entry allows the acquirer – the Chinese companies – to implement economies of scale, diversify, grow the market share, increase synergy, reduce costs, or focus on niche offerings.

Why It Matters for Corporate Law

The entry models China employs in African port investments under the BRI framework reveal complex questions of ownership, liability, corporate governance, and regulatory oversight. Notwithstanding their diversification and varied consequences in application, all of them collectively reveal tensions between the interactions of Chinese state-owned entities and the African domestic corporate regulations. EPC contracts fall mostly outside of the corporate law scope, as they are instead covered by commercial contract principles. They do not delve deeply into issues of ownership or governance due to their limited timespan: once the construction is completed, the obligations on the part of China are met. Nevertheless, they pose their challenges with regards to arbitration clauses or enforcement issues. In comparison, the EPC + F + I touch upon key corporate law topics, such as profit distribution, transparency, equity. In the cases when Chinese state-owned enterprises (SOEs) hold a percentage of stakes which grant them substantial control powers in the operations of African ports, domestic corporate law must answer questions on minority shareholder protection, foreign ownership limits and capital repartition. Furthermore, the additional layer of financing and investment creates tension between commercial investments and funds addressed to sovereign states. As for PPPs, they raise concerns in broad governmental control on “private” Chinese companies, procurement of transparency (an issue raised numerous times for the whole BRI framework) and long-term accountability. Furthermore, BOT arrangements may trigger investor overreach considering the weak regulatory capacity of many African states. Finally, acquisitions engage M&A law, foreign investment screening and competition law. In this regard, the greatest concern is that the majority stakeholders have control of 7critical infrastructure, resulting in vulnerabilities for corporate governance and sovereignty itself, an issue we will also tackle in this article.

International Law Perspective Human Rights Law

The nature of the Belt and Road Initiative (BRI), involving massive, state-backed, cross-border infrastructure projects, intersects with fundamental legal principles across different domains. In the domain of Human Rights and Labour Standards, the BRI has increasingly been associated with areas of tension. To start with, research concerning Chinese firms operating in BRI-participating states, particularly in Africa, showcases a pattern of labour-related problems. These include allegations of low wages, precarious employment conditions, and insufficient safeguards for work, health, and safety in manufacturing, construction and mining sectors. Moreover, a Harvard study revealed that the Asian Infrastructure Investment Bank (AIIB) Environmental and Social Framework (AIIB Framework) lacks several key labour standards established under the International Labour Organization (ILO). Under International Human Rights Law, States have the duty to respect, protect and fulfil human rights. States must be proactive in facilitating and guaranteeing effective enjoyment of human rights within their national jurisdiction. The United Nations’ Guiding Principles on Business and Human Rights states that it is the responsibility of states to “protect against human rights abuse within their territory and/or jurisdiction by third parties, including business enterprises” (OCHR 2011). Recent developments in international human rights law may create difficulties for governments participating in the BRI. It is worth noting that almost one-third of the BRI countries have not ratified the core ILO conventions on freedom of association and collective bargaining. This problem might be aggravated by their economic reliance on China’s investments and grants. Such dependence can give China considerable leverage, potentially weakening initiatives aimed at raising labour standards in these countries. Consequently, host government may become reluctant to endorse trade unions or support collective bargaining efforts involving Chinese-funded enterprises. Consequently, China bears an even bigger responsibility to ensure that enterprises under its jurisdiction respect human rights, especially considering that labour practices with China have been shown to shape labour relations in Chinese firms overseas. To better illustrate this, one can look at the case of labour disputes in a Chinese-owned coal mine company in Zambia, which involved “military style” labour discipline, which resulted in the death and injuries of workers on strike. This lead, inevitably, to the revocation of the mine’s license by the Zambian government.

International Environmental Law

In the environmental domain, there is the increasing fear that the BRI will enable Chinese companies to oversee infrastructure construction and operations in environmentally fragile or sensitive regions; this is a problem since Chinese firms are widely criticised for poor environmental practices. The current international environmental law is constantly evolving from the basic framework of the 1972 Stockholm Declaration of the UN Conference on the Human Environment and the 1992 Rio Declaration on Environment and Development. From this evolution, two key principles arose: the preventive principle (according to which states are required to take “all appropriate measures to prevent significant transboundary harm or at any event to minimize the risk thereof”, along with being required to conduct an environmental impact assessment for all planned activities, presumed to have an impact on the environment), and the precautionary principle, (which affirms that environmental protection should be implemented, even if there is not clear evidence of a particular risk or when said risk remains uncertain). With time, it will be increasingly difficult for China to respect and apply both these principles, as there is a clear lack of strong policies and regulations that deal with environmental issues. What is more, there has been an absence of Environmental Impact Assessments (EIA) in many Chinese overseas investment projects (problem of incompatibility with international law). An example of this is the 2015 “Visions and Actions on Jointly Building the Silk Road Economic Belt and twenty-first Century Maritime Silk Road” plan. Even though, China-Russia-Mongolia made an extensive geographic outline and exposed infrastructural ambitions, they remained almost entirely silent on the environmental consequences of large-scale projects or measures to address them. Additionally, there is lack of transparency in the planning of infrastructure projects along the BRI, which make it harder to avoid impacts on fragile ecologies. This problem can be better understood by looking at the new transportation corridors, especially the Pokrovka corridor, which will run through highly sensitive ecologies and critical habitats of many endangered species, and which will inevitably lead to a crucial environmental impact in those areas. Nonetheless, China has begun to adopt environmental policies for its overseas investment activities, as the 2013 publishment of the Guidelines for Environmental Protection in Foreign Investment and Cooperation, by the Chinese Ministry of Commerce and Ministry of Environment, 9shows. However, like human rights these efforts to regulate are non-binding “suggestions” without actual legal consequences in cases of non-compliance.

Prospects Of Dispute Settlement

Given its prioritization of the PPP model, the BRI facilitates trade, service and investment dealings between China (or its state-owned enterprises) and companies from other countries. If disagreements arise, parties can use current systems for solving disputes, such as the International Centre for Settlement of Investment Disputes (ICSID) or the World Trade Organization (WTO) to solve them. However, China has stressed that these mechanisms are unsuitable for the BRI. China criticises the existing dispute settlement mechanisms affirming that they are time- consuming, lacking enforcement efficiency, or creating inconsistencies in treaty interpretation. Opposedly, China highlights how the BRI is a special grant project involving more than 60 countries, but with only one source of investment from China. Having said this, any dispute settlement mechanism that emerges from the BRI, would have in consideration China’s interests. This is relevant, considering that China has the interest of interpreting certain concepts and provisions differently from other countries. What is more, the International Academy of the Belt and Road released a “Blue Book” on the dispute resolution mechanism for the BRI in October 2016. This new document introduces a new set of procedural rules, and its scope of application will concern essentially three types of disputes: commercial, inter-state and investor-State disputes. The dispute settlement means include conciliation, arbitration and appeal procedures. Conciliation is given particular emphasis, both to embody the so-called Asian values and to ease foreign parties’ concerns about China’s traditional litigation style. Consequently, conciliation is set as a mandatory step before any formal litigation can take place. Mediation is also recommended as the starting point for arbitration proceedings; however, mediators are not required to serve as arbitrators if mediation fails. Mediation sessions should be completely confidential, and the mediators are bound by a professional code of conduct.

Conclusion

The Belt and Road Initiative has become a defining feature of China’s global economic strategy, and Africa stands at the centre of this transformation. As it was highlighted by 10this article the legal implications of the BRI are far-reaching touching upon multiple complex topics regarding both corporate legislation and international law principles. The different investment models adopted by Chinese actors demonstrate the multifaceted nature of China’s economic engagement with African states. Yet these structures also reveal recurring tensions: the tenuous line between state and private enterprise, the challenges of regulatory oversight in host countries and the inherent risks of attributing ownership and control of critical infrastructures to foreign state linked entities. From an international law perspective, the BRI exposes significant gaps between China’s growing influence on the global scenario and the respective responsibilities that accompany cross-border investment. The long-term credibility and efficiency of the initiative will depend on whether China, and its respective partners, adhere to established human rights, environmental, and dispute-resolution norms, rather than allowing economic ambition to superimpose legal accountability. Lastly, the BRI presents both opportunities and challenges. For African states, it offers infrastructures and investment, but at the same time introduces environmental and labour challenges. For the international legal order, it tests existing norms and raises questions about the future balance between global standards and state-driven development models.

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