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Rolled Yuan bill on the map of Africa. Chinese investment in African economy
Rolled Yuan bill on the map of Africa. Chinese investment in African economy

China and Africa: Debt-Trap Diplomacy?

The story of China helping Africa modernize resists simple formulas

Last week, I reported on the accusations of racism on the part of the the Chinese authorities against African residents of the city of Guangzhou in Guangdong province. While Africa and China have enjoyed a seemingly amicable relationship since the 1970s, several African leaders have pointed to the COVID-19 pandemic as highlighting unresolved underlying tensions. One of those tensions is several African countries’ debt burden. China’s response to requests for deferral in the midst of a pandemic has strained Sino-African relations.

Medicine  face mask with name of coronavirus covid-2019 on the globus. World epidemic of coronavirus.

China isn’t the African countries’ only creditor. As of this writing, G20 leaders will be meeting to discuss debt-relief and extending the Debt Suspension Service Initiative (DSSI). The service has deferred debt payments by poor countries due to the economic stress of the COVID-19 pandemic. Originally the DSSI suspended payment of official bilateral debts until July 2021, but as the pandemic continues to tax global economies, the DSSI will likely be extended until the end of 2021 or later.

It’s unclear just how much money Africa owes China

According to the World Bank, China accounted for 63% of bilateral debt owed to G20 countries in 2019. And China had been reluctant to agree to the DSSI, partly because its lending strategy is fragmented but also authoritarian: once President Xi agrees, then all Chinese companies follow suit.

China has been criticized for giving loans that are dispersed among various creditors with terms that are not clear to other international lenders. According to a report by the UN Economic Commission for Africa. “China, like the rest of the DSSI creditors, could enhance and expedite the support it has offered so far by providing a centralised venue – a one-stop-shop – where all debt to the Chinese government and [state-owned enterprises] could be negotiated.”

Meanwhile, an academic study has found that the global debt owed to China is far higher than reported:

“Despite the large size of China’s overseas lending boom, no official data exists on the resulting debt flows and stocks. China does not report on its international lending, and Chinese loans literally fall through the cracks of traditional data-gathering institutions.

Maybe more importantly, our analysis reveals that 50% of China’s loans to developing countries go unreported, meaning that these debt stocks do not appear in the “gold standard” data sources provided by the World Bank, the IMF, or credit-rating agencies. The unreported lending from China has grown to more than $200 billion USD as of 2016.

Sebastian Horn, Carmen M. Reinhart, and Christoph Trebesch, “How Much Money Does the World Owe China?” at Harvard Business Review (February 26, 2020)

The lack of clarity means a country may lend money thinking the borrower is in a better economic position than it actually is. Furthermore, the borrowed money may then go toward paying off Chinese creditors, whose terms often involve obtaining collateral in the case of default:

When adding portfolio debts (including the $1 trillion of U.S. Treasury debt purchased by China’s central bank) and trade credits (to buy goods and services), the Chinese government’s aggregate claims to the rest of the world exceed $5 trillion in total. In other words, countries worldwide owed more than 6% of world GDP in debt to China as of 2017.

Sebastian Horn, Carmen M. Reinhart, and Christoph Trebesch, “How Much Money Does the World Owe China?” at Harvard Business Review (February 26, 2020)
Is this strategic lending or “debt-trap diplomacy”?

Author and analyst Brahma Chellaney coined the phrase “debt trap diplomacy” in 2017 to describe how China leverages excessive debt for infrastructure projects in countries that are strategic centers for its Belt and Road Initiative (BRI). I have reported on the way China’s political stances in Central Asia revolve around the BRI. There are similar concerns about burdening certain countries in Africa with debt in order to control strategic locations for the BRI.

Kenya, for example, is a key location for the BRI. China has funded a railway, Mombasa-Nairobi Standard Gauge Railway, that will stretch from the port at Mombasa to Uganda. The railway was a marquee project for the BRI but has since proven a financial drain on the Kenyan economy. Reuters reports that the railway is losing $9.2 million per month. Kenya’s chairman of the Parliamentary Budget and Appropriations Committee, Kimani Ichung’wa, called for a renegotiation of loan terms because the country is under too much financial stress from COVID-19 to be able to make payments. If Kenya defaults on payments, China might be able to receive revenue from the Port of Mombasa as collateral, although the Chinese government has said it does not intend to do this. (September 28, 2020).

Some experts dispute the idea that the relationship is simply debt-trap diplomacy. One such critic is Deborah Bautingam of the China Africa Research Initiative at the Johns Hopkins School of Advanced International Studies. She says that China’s loans often favor the debtor and that accusations of exploitation are overblown. Many other countries also lend with self-interest in mind. She points out that Chinese loans are not the major cause of the economic problems in several of the countries that are struggling to pay for infrastructure projects.

How it plays out in Africa

Several African leaders admit that they appreciate the investments in infrastructure but they also have reservations. They are concerned that China’s lending strategies, along with Chinese migration and the formation of companies that don’t supply additional jobs for African workers, are part of a neo-colonialist agenda. They are thinking of the post-World War II era when the United States and Russia emerged as superpowers and Europe was left devastated. At that time, much of Africa was divvied up among the major European powers. The United Nations encouraged decolonization and implementation of self-government in European colonies, including those in Africa, the effects of which can be seen in many African nations today.

Meanwhile, according to journalist Howard W. French in China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa (2014), many Chinese nationals see Africa as an opportunity to pursue businesses without the problems of over-crowding, cost, and cutthroat competition. According to French, after de-colonization, the West largely ignored Africa, at the very time that China was seeking to be part of the global economy. For many Chinese people, he says, moving to Africa gave them an opportunity to start a new life: “Time and again, Chinese told me they did not fully realize how oppressive things were at home until after they had left. Living in Africa, they said, it felt as if a lid had been removed from a pressure cooker. Now they could breathe.” (p. 31)

While the governments of several African nations have welcomed Chinese businesses, French reports cultural clashes on the ground. Many Chinese business operators whom he interviewed described Africans as unteachable, lazy, and only interested in money. That, they explained, was why they brought Chinese migrants to work for them even though they were doing business in countries with high unemployment rates.

But the Africans French talked to, particularly in Zambia and Mozambique, offered a very different story. They regarded the Chinese as swindlers whose businesses offered terrible working conditions. Adding to the animosity was government’s tendency to favor the Chinese, even in the face of abuses. In Mozambique for example, the government would rather sell land to the Chinese than honor the traditional landholders, even though the land might have been in the family for many generations. In Zambia, the government turned a blind eye to workplace injuries and deaths from poor safety regimes in the Chinese-run businesses.

French’s picture is not all negative to be sure. He points out some of the positive results of Chinese–African partnerships, such as strong economic growth and increased enrolment in secondary schools.

To sum up, China and Africa have a long-running economic partnership, at times both mutually beneficial and dysfunctional, and a very complicated socioeconomic relationship. COVID-19 did not so much create new problems as it revealed the brewing tensions.

Here’s Part I: COVID-19 response exposes racism in China, amid harmony claims. The lid blew off when African leaders broke the accustomed silence imposed by their dependence on Chinese high-tech loans. Many African residents of Guangzhou feel they are targeted so that Chinese authorities can blame new cases of the virus on the African population.

Also: Why China leans hard on Central Asia: The region is critical to China’s ambitions, hence the generous offers of state-of-the-art surveillance technology (Heather Zeiger)

Heather Zeiger

Heather Zeiger is a freelance science writer in Dallas, TX. She has advanced degrees in chemistry and bioethics and writes on the intersection of science, technology, and society. She also serves as a research analyst with The Center for Bioethics & Human Dignity. Heather writes for bioethics.com, Salvo Magazine, and her work has appeared in RelevantMercatorNet, Quartz, and The New Atlantis.

China and Africa: Debt-Trap Diplomacy?