A wave of African
nations looking to restructure debt with China on the eve of a
major Beijing summit provides a reality check for the continent,
where most countries still view Chinese lending as the best bet
to develop their economies.
China has denied engaging in “debt trap” diplomacy, but
President Xi Jinping is likely to use next week’s gathering of
African leaders to offer a new round of financing, following a
pledge of $60 billion at the last summit three years ago.
Ethiopia and Zambia, heavy borrowers from China, have
expressed desire to restructure that debt, while bankers believe
Angola and Congo Republic have already done so, though details
of such deals are sparse.
Kenya also has a loan facility with Exim Bank China running into billions of shillings for infrastructure development.
The International Monetary Fund says Cameroon, Ghana and
others face a high risk of debt distress, as does Djibouti,
whose main source of foreign loans is China, the Fund says, and
which holds the majority of external debt.
But many countries, even those heavily indebted to China,
still say Beijing offers far better terms than Western banks,
and that European nations and the United States fail to match
“Especially when you go to multilaterals, it takes such a
long time,” Aboubakar Omar Hadi, chairman of the Djibouti Ports
and Free Zones Authority, told Reuters.
To develop its Doral Container Terminal, Djibouti borrowed
$268 million from seven banks at 9 percent over nine years, he
By comparison, its first Chinese loan was $620 million over
20 years at 2.85 percent, and it came with a seven-year grace
“Where is America?” he asked. “Where is the investment from
Europe? We are ready. Why are they leaving the whole continent
for China? They have themselves to blame if here they are out of
MORE LOANS BUT NOT “FREE MONEY”
Chinese officials have vowed to be more cautious to ensure
projects are sustainable.
China’s push to cut debt at home, and the cooling of its
economy, will affect “non-urgent projects”, said Yang Baorong,
an expert on African debt at the Chinese Academy of Social
“The overall trend will not change, but the scale will
certainly be different under the current circumstances.”
Chinese-backed infrastructure has not always translated into
the kind of economic growth that makes rising debt sustainable
and resource-based economies are reeling from a slump in global
commodities, said Martyn Davies, managing director of emerging
markets and Africa at Deloitte.
“The African states have this naïveté at times that this is
somehow free money,” Davies said.
From 2000 to 2016, China loaned around $125 billion to the
continent, data from the China-Africa Research Initiative (CARI)
at Washington’s Johns Hopkins University School of Advanced
International Studies shows.
It is the most significant contributor to high debt risks in
three African countries, Congo Republic, Djibouti, and Zambia,
CARI said this week.
In most other nations, traditional donors, multilateral
agencies and private creditors held significantly higher
portions of debt, it added. The last decade has seen a boom in
African Eurobond issuance.
Chinese officials say this year’s summit will strengthen
Africa’s role in Xi’s “Belt and Road” initiative to link China
by sea and land through an infrastructure network with southeast
and central Asia, the Middle East, Europe and Africa.
Beijing has pledged $126 billion for the plan.
“DEBT SUSTAINABILITY” DISAGREEMENT
China defends continued lending to Africa on the grounds
that the continent still needs debt-fuelled infrastructure
Much of the concern over Chinese debt stems from the
different measures of “debt sustainability” used by Beijing and
African nations versus Western governments and institutions such
as the IMF, said Cheng Cheng, a researcher at the Chongyang
Institute of Financial Studies at Beijing’s Renmin University.
“If you are trying to increase your GDP, a 25 percent
debt-to-GDP ratio is not enough for any country,” he said.
But the debt problem is driving a push to transform
financing to more investment over loans, he said.
“New instruments are being used to leverage finance from
elsewhere, because the Chinese government has long realised that
there is generally the debt problem everywhere.”
China’s attraction stems from its ability to offer financing
from state-owned enterprises or funds such as the China-Africa
Development Fund or its Silk Road fund, besides special purpose
vehicles that avoid sovereign debt on balance sheets.
Lubinda Habazoka, president of the Economics Association of
Zambia, said that after becoming eligible for heavily-indebted
poor country debt forgiveness under the IMF, multilateral
agencies advised it to go to the capital markets in future.
“Today, we have found we are spending so much for this debt
on capital markets,” he said. “The result is it has become very
difficult for countries like Zambia to meet payments for
China’s lower and longer-term rates make it more attractive
for debt refinancing, but the debt pressure has spurred Zambia
to seek renegotiation with Beijing, he said.
“We thought no, no, China was going to be soft on us. But
unfortunately, that’s not the case.”