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I know the IMF imposed harsh austerity to ensure repayment and forced these countries to open up their markets to western countries.

But isn't China doing the exact same thing? They are also very strict about getting repaid in full. For ex. Entebee aeroport's revenues are being used to pay back the Chinese lender till date and Angola had to ensure access to oil.

So aren't these two models basically the same since they both indebt you and guarantee repayment? Why is China's model so much more successful? Is China just more open to restructuring debt? (they have done it many times)

Here is Gyude Moore describing how China has been a Net Positive for Africa: https://www.youtube.com/watch?v=P5uzxV8ub9k

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2 Answers 2

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Misplaced comparison with IMF (alone) aside, in general, the Chinese model has been "successful" (at least as far as disbursing funds) in relation to their Belt and Road initiative, but in other years lagged behind the US (alas the EU countries are not summed-up in this US-think-tank-provided chart):

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annual lending commitments to Africa peaked in 2013, the year the Belt and Road Initiative (BRI) was launched. By 2019, though, new Chinese loan commitments amounted to only $7 billion to the continent, down 30 percent from $9.9 billion in 2018 (see figure 1).

The Chinese model rests in part on securing those loans with raw resources. These would not be so useful to a Western country (since so much industry is in China nowadays). And institutions like the IMF are not allowed to lend like this (by their own charter etc.) Further, getting such resource-collateralized loans is not a guarantee one [country] would not need to ask for IMF assistance, that's why I put "success" in quotes:

The resource-backed lending model for financing infrastructure projects—in which the borrowing country commits future revenues to be earned from its natural resource exports to pay loans secured from Chinese creditors—still exists in countries like the Democratic Republic of Congo (DRC), Ghana, and Guinea. When the going is good, this model works. It helps a high-risk borrowing country secure needed financing; it assures the creditor of repayment since the export revenues are directly deposited in an escrow account with no risk of embezzlement by corrupt actors in the borrowing country; and it allows for the speedy completion of roads, bridges, and other infrastructure projects. When the going gets tough—especially in the event of a collapse of volatile commodity prices, as so often happens—some borrowers then turn to the International Monetary Fund (IMF) for emergency assistance. A fine but crucial point here is that the range of commodity price fluctuations is calculated in the resource-backed loan, and thus, the lender bears the risk of debt default if collateral is not sufficient. [...]

Angola, most prominently, experienced the full gamut of the highs and lows of resource-backed financing. In fact, this lending model was largely pioneered in that central African country when China became its lender of last resort: China thereby financed Angola’s postwar reconstruction projects from 2004 onward, including a $3.5 billion Kilamba Kiaxi satellite town in the outskirts of Luanda. Angola ran into problems when commodity prices crashed in 2015 and necessitated the negotiation of IMF stabilization assistance. [...]


Resource collaterals aside (which by the way, only make up some 25% of China's lending to Africa according to the next ref/link), the terms of the loans from the Chinese development banks (e.g. China Eximbank) are generally somewhat less favorable than those of the World Bank, on standard and easily comparable terms like maturity or interest. (There are substantive details at the link.)

So, given that, it is a good question why are Chinese development loans still preferred in some cases. One answer is that they may involve less paperwork and less scrutiny in some regards. E.g. loans to Ghana discussed in that latter paper had as condition acquiring 50% of project inputs from China. As I've had some first hand (albeit tangential) experience with some World Bank loans, they do make an effort e.g. to ensure that the loan recipient sets up some fair auctions which don't apriori favor some vendors over others, including country-wise. But if you're politically already set on (or perhaps even have a pre-market study that that is the most economical option of) Chinese companies building something in your country, it's probably easier/faster to get a loan from a Chinese development bank, than from the World Bank. In the Ghana example the leaders were quoted as saying something like, after breaking 6 months of negotiations:

"World Bank guys you are very slow, you have all these environmental and social safeguards and guidelines."

(Aside, but probably interesting: the latter paper mentions that China is the 3rd country by voting power at the Wold Bank, after US and Japan, with some 5% of votes.)

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  • "So, given that, it is a good question why are Chinese development loans still preferred in some cases." I read a news article recently that said that something like 90% of funding from Chinese loans spent on "social infrastructure" was spent building things in the core constituencies of the national leaders...
    – nick012000
    May 30 at 7:28
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IMF is not a development fund so it is not supposed to finance economic development. I don't know what's the idea behind China's policies but I assume they have growth in mind, while IMF has solvency in mind.

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  • I hope the primary question will be revised to be more clear but to me it implicitly refers to the Bretton Woods institutions as a whole. The IMF works closely in tandem with the World Bank which is very much focused on growth and development.
    – Brian Z
    May 28 at 21:06

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