A recent announcement by China that it is forgiving 23 loans
for 17 African countries may be motivated by accusations of debt-trap
diplomacy, say some analysts.
Critics have long accused Beijing of practicing debt-trap
diplomacy, suggesting it deliberately lends to countries that it knows cannot
repay the money, thereby increasing its political leverage.
China vehemently
rejects this, alleging it’s a way for the United States to discredit Beijing,
Washington’s main challenger in the quest for influence in Africa.
China’s decision to forgive the zero-interest loans is, in
part, aimed at countering the debt-trap narrative, said Harry Verhoeven, senior
research scholar at Columbia University in New York.
“It is not uncommon for China to do something like this,
forgive interest-free loans, now obviously it is connected to the overall
debt-trap diplomacy narrative in the sense that clearly there’s a felt need on
the part of China to push back,” Verhoeven said.
China’s
announcement did not specify the countries or the amount of loan forgiveness,
but analysts say that since 2000, China has regularly forgiven loans that are
nearing their end but have a small balance.
“This is not a loan cancellation, but the cancellation of
the remaining unpaid portion of interest-free loans that have reached maturity,
that is if a loan was supposed to be fully paid off over 20 years, but it still
has an outstanding balance, they cancel that outstanding balance,” Deborah
Brautigam, Director of the China Africa Research Initiative at Johns Hopkins
University’s School of Advanced International Studies. Brautigam’s research
shows that between 2000 and 2019, China canceled at least US$3.4 billion of
such debt in Africa.
While
this applies to the Chinese government’s interest-free loans, it is not the
case with the country’s interest-bearing commercial loans, which can be
restructured but are never considered for cancellation, analysts explained.
Verhoeven said the sums of money involved in the 23 loans
forgiven would likely be modest, but the politics of such gestures are
noteworthy because for many years the Chinese would kind of shrug at various
aspects, various lines of criticism, pertaining to their engagement in different
African countries. But with the debt-trap allegations, China has belatedly
woken up to the fact that this is a bit of public relations nightmare, said
Verhoeven.
China
has also been playing a role in restructuring the external debt of some African
countries such as Zambia, which became the first African country to default on
its debt during the pandemic. China, along with France, is chairing a committee
to deal with debt relief efforts. The move, welcomed by the International
Monetary Fund, is ongoing.
China is Zambia’s biggest creditor. Lusaka owes some US$6
billion to Chinese entities. In July, Zambia’s Finance Ministry announced it
was canceling US$2 billion of undisbursed loans from its external creditors, US$1.6
billion of which are from Chinese banks. The move stopped construction of
infrastructure projects largely funded by a Chinese bank, the South China
Morning Post reported.
Shahar Hameiri, a political economist from the University of
Queensland in Australia, agreed that the latest move by Beijing in forgiving
African nations’ interest-free loans was probably just a goodwill gesture.
“The bigger loans are likelier to be restructured, if
repayment problems loom, as we saw in Zambia,” said Hameiri
Senior officials in the United States have regularly warned
developing countries, particularly in Africa, about the dangers of Chinese
loans, and a 2020 State Department document, titled “The Elements of the China
Challenge,” referred to China’s “predatory development program and debt-trap
diplomacy.”
On a visit to the continent this month, the US Ambassador to
the United Nations, Linda Thomas-Greenfield, touched on the idea that the
wealthy and powerful have extracted Africa’s natural resources for their own
gain. And it continues today through bad deals and debt traps. She did not
mention China by name.
African politicians themselves have had mixed reactions to
the debt-trap theory, with some, such as Ethiopia’s Ambassador to China,
Teshome Toga Chanaka, refuting the idea, saying, “A partnership that does not
benefit both will not sustain long.”
Others, including Kenya’s new President-elect, William Ruto,
and Angolan opposition presidential candidate Adalberto Costa Jr., have
expressed concern over taking Chinese loans.
The debt trap allegations have infuriated Beijing, which
says Western private lenders are responsible for the bulk of poor countries’
debt and charge much higher interest rates.
The US allegation
against China is simply untenable, Chinese Foreign Minister Wang Yi said this
month.
Chinese state media constantly run articles aiming to debunk the narrative.
A number of economists and researchers are also saying the
debt-trap narrative against China is unfounded.
“The debt-trap idea is that Chinese banks had ulterior
motives, deliberately lending to countries when they knew those countries couldn’t
repay,” Brautigam said.
“The reality is that like bondholders, which hold the
majority of Africa’s debt, Chinese banks lent to countries that looked quite
promising. All of these creditors have belatedly realized that risk profiles
can shift dramatically in a short period of time.”
China restructured or refinanced about US$15 billion in
African debt between 2000 and 2019, Brautigam’s research has found. She did not
find that China had been involved in any asset seizures.
Echoing Brautigam, Hameiri said, “There is scant evidence
that China has pursued ‘debt-trap diplomacy’ the idea that it would on purpose
issue loans to ensnare recipients in unsustainable debt, in order to seize
strategic assets or exercise control over their governments.”
Chinese lending has at times been problematic, Hameiri
wrote, because in a frenzy to issue loans, Chinese lenders often spent little
time considering debt sustainability. Chinese lending has contributed to debt
problems in a number of countries, although it is not necessarily the only or
even the primary cause as in Sri Lanka.”Some critics blamed China for the
crisis in Sri Lanka earlier this year, when the cash-strapped government –
which had defaulted on its debt – was deposed by mass protests. Beijing also is
Colombo’s biggest bilateral creditor; however, Sri Lanka’s largest foreign
lending source is in sovereign bonds.
Verhoeven said the growth in sovereign bonds has been an
important factor in African nations’ debt too and rejected the Chinese
debt-trap narrative.
“When
it comes to China, the debt-trap narrative suggests … this is being done on
purpose,” to get countries to vote with China in the UN General Assembly and to
reduce Western influence, he said.
There “is little actual evidence that China’s been doing
this for political gain,” Verhoeven said, “which is not to in any way say that
Chinese lending is all fine, or that it’s always responsible or the best thing
for countries to do, far from it.”
Since China has now been burned several times regarding its
lending, with several countries defaulting on the loans, plus its own economic
difficulties at home, there is certainly a sense that the good old days of 10
or 15 years ago where it could sort of give out loans left and right … are
over,” said Verhoeven.
