• China's Belt and Road Initiative (BRI) has hit a roadblock as Beijing turns inward. 
  • Overseas lending by Chinese financial institutions has fallen in response to a number of large loans failing to make a commercial return. 
  • Many Chinese-sponsored free zones have yet to live up to original expectations. 

At the 2018 Forum on China-Africa cooperation held in Beijing, a proposed Nigerian special economic zone (SEZ) signed a major deal with a prospective anchor tenant. Chinese textile maker Shandong Ruyi Technology Group was set to take up 300 hectares of land for textile and garment manufacturing in Enyimba Economic City (EEC), a proposed charter city and business hub set across a 9500-hectare area in Abia state.

“It was going to be their biggest African site,” says Darl Uzu, the managing director of EEC, who says a term sheet and memorandum of understanding had been signed with Shandong Ruyi Group. The Chinese company intended to invest about $2bn across the entire cotton value chain in Nigeria, according to an EEC statement released at the end of 2018.


“China is going to transfer a lot of labour-intensive manufacturing out of China,” says Mr Uzu, who believes that rising wages in China will lead companies to seek more competitive locations such as Nigeria for their production facilities. 

But, more than three years after EEC signed the initial deal with Shandong Ruyi, the textile maker has put its plans on hold. The company did not respond to a request for clarification of their plans in Nigeria.

EEC is one of many SEZs in the developing world that have hoped to take advantage of a surge in overseas Chinese financing and investment under the Belt and Road Initiative (BRI) – Beijing’s grand plan to develop a network of transnational land and maritime infrastructure.

But there are questions over the viability of this strategy as the future of China’s foreign investment and financial aid changes. Now, as observers warn of a slowing Chinese economy, as well as Beijing’s zero-Covid policies and more inward-looking attitude, the future of the BRI will be watched closely by SEZs courting Chinese companies.

Historical growth

While Chinese international infrastructure financing and construction has been around since at least the 1990s, Beijing initiated an official international trade and cooperation programme in 2006. It aimed to support Chinese companies investing abroad through the set up of dedicated SEZs. 


Since the programme was launched, Chinese companies have announced 196 FDI projects in free zones worth more than $41bn, according to fDi Markets, a greenfield investment database which tracks FDI in more than 800 free zones worldwide. 

The development of China-financed zones has accelerated too. Since the initiation of the BRI in 2013, the number of overseas Chinese SEZs has almost doubled to reach 156, as Beijing has sought to establish itself as an influential partner for developing economies.

“There are many SEZs that have been kickstarted with the help of China, either through official or private developers,” says Linda Calabrese, a China-focused research fellow at the think tank International Economic Development Group.

Pullback risks

While relatively small in number – representing about 2% of the more than 7000 SEZs worldwide – Chinese SEZs have helped some developing countries attract inward investment and boost economic diversification.

From Cambodia’s Sihanoukville SEZ to Mbale Industrial Park in Uganda and Ethiopia’s Eastern Industry Zone and Hawassa Industrial Park, Chinese support has been fundamental to their development. Despite SEZs coming in various forms and attracting investment from a diverse set of source countries, the changing nature of China’s international engagement raises questions about the future of some zones.

For instance, overseas lending by Chinese financial institutions has fallen in response to a number of large loans failing to make a commercial return. In 2020 and 2021, a total of $52bn worth of overseas Chinese loans had to be renegotiated, according to the Rhodium Group, which was more than three times the $16bn of the previous two years.

The reduction in BRI-related financing may mean that zones which are built and financed by China are at risk of not being built or completed to the extent planned, according to Jan Knoerich, a senior lecturer in the economy of China at King’s College London.

“The recent pullback from the BRI will likely result in some of these SEZs performing less well than originally intended,” says Mr Knoerich, who adds that most SEZs do not rely on Chinese funding and investment from Chinese companies.

Ms Calabrese says that the decline of official lending may not directly affect SEZ financing or construction, but that SEZs “very often” rely heavily on inputs including machinery and intermediate materials imported from China.

Modelled on China

While not all SEZs in developing economies rely directly on Chinese financing, some have tried to follow the decentralised model used by well-known zones in China, such as Shenzhen SEZ. Over four decades, the gradual liberalisation efforts undertaken in Shenzhen SEZ helped transform it from a humble fishing village to a flourishing technology hub.

Chinese state-owned enterprises also often act as engineering, procurement and construction (EPC) contractors for SEZs too, such as the China Civil Engineering Construction Company at Nigeria’s EEC. For Mr Uzu of Nigeria’s EEC, investors from China are good targets as they tend to have more risk appetite than those from Western economies. 

“Chinese companies are actually rather new players, but increasingly sought after by those who run SEZs,” says Mr Knoerich, who notes that there is future potential for manufacturing to shift out of China as exports become more expensive.

The risk appetite of Chinese investors is evident in Sri Lanka, where the Colombo Port City Project has attracted $1.4bn of investment from the China Harbour Engineering Company. The long-term project, which was launched during a 2014 visit by Chinese president Xi Jinping to Sri Lanka, has been courting investors from numerous countries, including the UAE, UK and US.

But Chinese companies are set to be central in the zone's initial efforts to generate revenue and kickstart the zone’s development. For instance, China Duty Free Group is currently building a mall in the SEZ, according to officials at the Colombo Port City Economic Commission.

“Chinese firms move to SEZs and they tend to flock together, moving with other firms along the value chain,” says Ms Calabrese, who notes this is a phenomenon seen with many source markets.

But the trend points to a more difficult investment promotion environment for free zones courting Chinese companies moving forward. fDi Markets data indicates that the number of greenfield projects announced by Chinese companies in free zones has fallen from a high of 37 in 2018 to 13 in 2021. By comparison, free zone projects by British companies rose from 24 to 52 over the same period. US-based companies remain the largest investors in free zones with 101 projects announced in 2021.

This article first appeared in the October/November 2022 print edition of fDi Intelligence. View a digital edition of the magazine here.