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Why are African countries willing to accept Chinese loans when they are not seen as sustainable?

Many Chinese loans have higher extended interest rates and short maturities, with heavy collateral that includes commodities, or even important strategic foreign infrastructure.

The authors of the report note that China has started talking about being more transparent and sustainable on their loans in the future. But no clear evidence of this taking place has yet to materialize.

https://bigthink.com/politics-current-affairs/china-loans

Looking at the quote above, it seems that the terms of the loans are not very favorable, yet a lot of African countries are accepting these loans in mass, is there a reason for this? Why are countries willing to risk ending up in a debt trap?

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    One could draw a parallel with people taking mortgages, knowing they they will be unlikely to ever repay them. Oct 5, 2022 at 11:18

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What about looking at it through principal agent problem?

From country perspective decision seems bad. However, from politician perspective the decision seems good:

  • he may get some bribe or at least end up with a few companies that owe him a favour
  • he leaves a nice legacy in form of some construction - it stimulates economy (so makes people happy), leaves some nice infrastructure (so makes people happy)... Sure, it leaves also a pile of debt, but debt is a more abstract thing and is a bit harder to pinpoint blame on him. Moreover most of the debt repayment would happen long after he is gone, so he does not have to worry about it.
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Because failing to repay Chinese loans is nowhere as bad as Western propaganda makes it out to be.

In this working paper, we draw on data from the China Africa Research Initiative (CARI) to review evidence on China’s debt cancellation and restructuring in Africa, in comparative and historical perspective. Cases from Sri Lanka, Iraq, Zimbabwe, Ethiopia, Angola, and the Republic of Congo, among others, point to debt relief patterns with distinctly Chinese characteristics. In nearly all cases, China has only offered debt write-offs for zero-interest loans. Our study found that between 2000 and 2019, China has cancelled at least US$ 3.4 billion of debt in Africa. There is no “China, Inc.”: for interest-bearing loans, treatment for inter-governmental debt and Chinese company loans are negotiated separately, and often loan-by-loan rather than for the entire portfolio. While rescheduling by increasing the repayment period is common, changes in interest rates, reductions in principal (“haircuts”), or refinancing are not. We found that China has restructured or refinanced approximately US$ 15 billion of debt in Africa between 2000 and 2019. We found no “asset seizures” and despite contract clauses requiring arbitration, no evidence of the use of courts to enforce payments, or application of penalty interest rates. Although Chinese lenders have applied Paris Club terms to some rescheduling, on the borrower’s request, Chinese lenders prefer to address restructuring quietly, on a bilateral basis, tailoring programs to each situation.

Source

Also:

Our research shows that Chinese banks are willing to restructure the terms of existing loans and have never actually seized an asset from any country, much less the port of Hambantota.

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The other side of the debt-trap myth involves debtor countries. Places such as Sri Lanka—or, for that matter, Kenya, Zambia, or Malaysia—are no stranger to geopolitical games. And they’re irked by American views that they’ve been so easily swindled. As one Malaysian politician remarked to us, speaking on condition of anonymity to discuss how Chinese finance featured in that country’s political drama, “Can’t the U.S. State Department tell the difference between campaign rhetoric that our opponents are slaves to China and actually being slaves to China?”

Source

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    If, as you suggest, China is repeatedly refinancing debt and presumably increasing the total payment due (because that's what happens when you refinance a loan, you have to pay back more albeit over a longer period), that seems a more significant threat to a nation's prosperity than China claiming collateral that they have no way of repossessing short of a full-scale invasion.
    – Stuart F
    Oct 5, 2022 at 13:25
  • @StuartF you make it sound like people should never take loans.
    – Allure
    Oct 6, 2022 at 0:28
  • Or that people should take loans with the intention never to repay them unless the other side mounts a full-scale invasion.
    – Allure
    Oct 6, 2022 at 0:50

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