The State as a Risk-Sharper: China's Development-Oriented Equity Investment in Africa

Abstract

The post-2008 financial crisis era has witnessed a significant change in global development landscape. Facing fiscal challenges, countries that used to practice state-led, gift-like development assistance begin to adopt a more market-based, self-interest driven means of development finance. This allows us to reconsider the role of the state and the market in development. Focusing on the China-Africa Development Fund (CADFund), China's first official development-oriented private-equity fund and a subsidiary of the China Development Bank, the world's largest national development bank, this paper examines how Chinese official credits mobilize private capital to facilitate global development. The research is based on 32 interviews with management at CADFund, its partners, and project companies in Africa, four months of participant observation at CADFund’s headquarter in Beijing, and ten months of in-depth field research in African countries. The paper finds that through offering state-backed resources in addition to equity shares, CADFund has empowered China's private firms to expand business activities in Africa and undertake development-oriented projects that they otherwise would not be able to undertake. Nevertheless, the 'state-ness' of CADFund has also created various challenges in terms of partner selection, monitoring, and investment decision-making. These issues may in turn jeopardize the economic and reputational interest of the fund and the Chinese state.