Huge Chinese loans to Africa have created a dilemma in which China will fight to get its money back while maintaining its image as a friend to developing nations, Chatham House researchers said.
Africa’s foreign debt quintupled to $696 billion between 2000 and 2020, with Chinese lenders accounting for 12 percent of that, according to a new report from the London-based think tank.
For the latest headlines, follow our Google News channel online or via the app..
While Chinese lending to Africa has been criticized by the US and other Western nations as opaque and designed to seize African assets offered as collateral, the researchers said this is not the case.
“Far from being a sophisticated strategy to expropriate African assets, the splurge of Chinese lending in its early phases may have created a debt trap for China, entangling it deeply with stubborn and increasingly assertive African partners,” the researchers said.
China is a big creditor of Zambia, for example, which has defaulted on its debt. It has also provided loans to other African nations struggling to meet their debt obligations, including Angola, Ethiopia, Kenya and the Republic of Congo.
The economic consequences of the pandemic and the Russian invasion of Ukraine have undermined the ability of many African nations to service their sovereign debts.
The continent is headed towards a payment crisis, with 22 of 54 nations at risk of suffering the so-called over-indebtedness, according to the criteria of the World Bank and the International Monetary Fund.
China’s main African debtors are: Angola: 42.6 billion dollars; Ethiopia – $13.7 billion; Zambia: $9.8 billion; Kenya – $9.2 billion.
China has been criticized for its apparent lack of commitment to the global effort to reduce the debt burden of developing nations; US Treasury Secretary Janet Yellen has said several times that Beijing has become the biggest obstacle to progress.
José Fernández, assistant secretary for economic growth, energy and the environment at the US State Department, said in an interview last week that China needs to be more transparent about the debt owed to it by African nations.
Concerned about the inability of many nations to repay their loans, Chinese institutions have in recent years cut back on the amount of credit they will extend to Africa, Chatham House said.
New Chinese loans to African governments fell from a peak of $28.4 billion in 2016 to $8.2 billion in 2019 and just $1.9 billion in 2020, during the coronavirus pandemic, the researchers said.
“China’s approach to African debt is one of dynamic change, with lending patterns linked to Chinese infrastructure in Africa shifting from resource-backed profligacy to more calculated business or geostrategic decision-making,” the Chatham researchers said. House in the report titled “The response to the debt overhang in Africa and the role of China”.
“The image of China as a predatory lender seeking to expropriate African economic assets does not hold up in most cases, they wrote.
Still, there are indications that China may have lent money to the tiny Horn of Africa nation of Djibouti to secure political influence, they said. Between 2012 and 2020, China provided Djibouti, whose annual gross domestic product is equivalent to about two hours of Chinese economic output, $1.4 billion in investments and loans for infrastructure.
China has also set up a military post just six miles from a US base in Djibouti, which is located at Bab-el-Mandeb, a narrow strait through which some 30 percent of the world’s shipping passes on its way to the Red Sea and the Suez Canal. .
“Djibouti offers a stark illustration of the tension between lending to certain African countries that are likely to have difficulty making payments in the future, and the geostrategic imperative to build and maintain influence,” Chatham House said. “Djibouti is debt-ridden, but the country may be too important for China to let it default.”
China now faces the dilemma of pressing its rights to extract payments or taking a more accommodative approach to preserve its political relations, the researchers said.
chinese dilemma
While China’s initial instinct has been to try to tackle debt payment issues bilaterally, it is becoming increasingly involved in multilateral talks and will need to continue to do so if it wants to have the best chance of getting paid, they said.
“Eventually, China may feel that it needs to become more forceful in getting paid through unilateral action,” Chatham House said. “This would be particularly damaging if China resorted to seizing significant assets such as ports, railways or power grids in response to defaults: the vision of ‘debt-trap diplomacy’ is not impossible, but it is hard to overstate the strategy and political costs that this would bring”.
Read more:
Yellen says China is a ‘barrier’ in African debt relief
Chinese FM in Kenya on tour of Africa to check Beijing-funded infrastructure projects
China to waive 23 zero-fee loans to 17 African countries, offer $10bn in IMF funds
