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https://www.fmprc.gov.cn/eng/zxxx_662805/202208/t20220819_10745617.html

What benefits does China gain by waiving debt to African countries like this?

Second, we need to take concrete actions to promote common development. China keeps its word with real actions, and will continue to take meeting Africa’s needs as the purpose of our cooperation with Africa. We will work with Africa to fully implement the “nine programs” and advance high-quality Belt and Road cooperation. China will waive the 23 interest-free loans for 17 African countries that had matured by the end of 2021. We welcome and support the decision of Tanzania and Zambia to reactivate the Tazara Railway. China will continue to actively support and participate in the construction of major infrastructure in Africa through financing, investment and assistance. We will also continue to increase imports from Africa, support the greater development of Africa’s agricultural and manufacturing sectors, and expand cooperation in emerging industries such as the digital economy, health, green and low-carbon sectors.

I am guessing they want African countries to support them during UN resolutions, but I feel like they don't really need to waive those debts since China doesn't own much of Africa's debt anyway. Also, they specifically do this for African countries and not other countries. What are the pros and cons of waiving African debt like that?

Just to clarify what I said about debt ownership above in a response to a comment that's not relevant nor needed at all. The question has nothing to do with the alleged debt trap diplomacy.

https://www.youtube.com/watch?v=_-QDEWwSkP0

China doesn't have a lot of African debt in terms of % of total debt. The video above shows this to be true.

More research done on Africa and how China's total debt in the region is exaggerated by narratives, but this has nothing to do with the question, it was in response to a comment that is not really needed to answer to the question.

https://www.hbs.edu/faculty/Pages/item.aspx?num=59720

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3745021

https://www.theatlantic.com/international/archive/2021/02/china-debt-trap-diplomacy/617953/

Same thing, but for Sri Lanka:

http://www.srilankaguardian.org/2022/07/real-debt-trap-sri-lanka-owes-vast.html

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    "China doesn't own much of Africa's debt anyway". I dont' have the data right in front of me, but I seem to recall that in some African countries China does have a sizeable chunk of their debt. So answers might want to look at who those 17 African countries are and what their specific situation was. Commented Aug 20, 2022 at 18:12
  • youtube.com/watch?v=_-QDEWwSkP0
    – Sayaman
    Commented Aug 20, 2022 at 18:19
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    20 mins of data-free talk. Kinda impressive seeing that from Bloomberg. Also, saying there's no Chinese debt trap is not the same as saying there's no debt to China. They e.g. argue that the airport in Uganda is a totally legit project, not that it's not financed by China. Commented Aug 20, 2022 at 18:28
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    They do say later that Angola accounts for 1/3 of the debt owed to China by Africa, so my earlier comment wasn't entirely wrong. Commented Aug 20, 2022 at 18:37
  • Data free talk? They provided data. Also, this has nothing to do with the question. I never said there's no debt trap nor there was any debt owed to China. They didn't argue anything about the airport in Uganda, they just reported the official statements from both countries. What are you even saying?
    – Sayaman
    Commented Aug 20, 2022 at 20:30

2 Answers 2

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In my opinion, China is developing the capabilities of African countries so they can straighten their backs.

Why is that?

Firstly, China needs new allies in the world. The EU, OECD, EEA, G7, OPEC, etc., are already under US influence and/or presence. Central Asia is under Russian influence. Only Africa is left (and, to some extent, Latin America).

Secondly, No matter how poor the African countries are, they have votes in the UNGA and UNSC.

Thirdly, China needs new markets for exports. If Chinese subsidies propel their economies, they will be capable traders and markets for Chinese export products.

Fourthly, Africa has lots of minerals and other natural resources. Until the capacity is built, they can't be extracted efficiently to become raw materials for China's gigantic manufacturing ecosystem.

Finally, if a country with Chinese investments defaults or becomes bankrupt, China must either invest more money to bail them out or leave them there and get out. Both of these options are losing concern for China. Take Sri Lanka's example. China made some investments in Sri Lanka and left the scene. After a few years, Sri Lanka is now bankrupt. If China want to recoup its money, China has to pour in more money to get Sri Lanka going.

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  • Not my DV. This certainly explains China's long term strategy/focus on Africa, but not necessarily why they didn't give that money as pure non-refundable aid in the first place, i.e. why they were loans (albeit interest free) that later were then forgiven. Commented Aug 20, 2022 at 18:10
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    @Fizz, , i.e., why they were loans (albeit interest-free) that were later forgiven. --- the same reason. If a country defaults, China must either invest more money to bail them out or leave them there and get out. Take Sri Lanka as an example. China made some investments and left the scene. After a few years, Sri Lanka is bankrupt. China has to pour in more money to get Sri Lanka going.
    – user366312
    Commented Aug 20, 2022 at 18:17
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    This is a very comprehensive answer already thus I will only comment here as an add-up instead of writing my own answer. One of the important factor here is that most of these mortgages are used to pay for infrastructure construction projects, which usually ends up using Chinese material and done by Chinese contractors. So economically speaking these loans are more like a different form of governmental subsidies to Chinese market and contractors.
    – tweray
    Commented Aug 22, 2022 at 12:48
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Regrading the interest-free loans being forgiven (as in the bold-ed sentence from the Q), it seems to be good PR without forgiving much actual debt, if we trust WaPo with their assessment, which however might be based on slightly earlier data:

As Africa's largest bilateral creditor, China holds at least 21 percent of African debt — and payments to China account for nearly 30 percent of 2021's debt service, as shown in the figure below. Angola alone accounts for almost a third. [...]

China also wrote off the accumulated arrears of at least 94 interest-free loans amounting to at least $3.4 billion. However, interest-free loans make up less than 5 percent of China’s lending to Africa.

More (non-interest-free) loans to Angola were forgiven however:

Between 2020 and 2022, Angola will get $6.9 billion in debt relief, mostly from China.

Also (the British/multinational law firm) Pinsent Masons (which agrees with the 5% figure from WaPo/CARI) gives this further background:

Early zero-interest loan agreements often included the phrase: "if there is difficulty to repay when the loan is due, the repayment period can be extended after consultation between the two governments". This signalled China's willingness to work with borrowers in distress and many African countries benefitted from this, particularly during the 1980s and 1990s when many African economies experienced financial crisis. Over 85% of these early zero-interest loans were cancelled by China.

[...] 212 zero-interest loans with an aggregate value of approximately $3bn were granted by China, amounting to less than 5% of all Chinese loan commitments granted between 2000 and 2018. The limited availability of Chinese zero-interest loans makes it easier for China to work with borrowers in distress.

[...] These loans have an average size of $10 million and are typically made on extremely generous terms including 20-year maturities, 10-year grace periods and no requirement for counterpart funding from a commercial provider.

So, yeah, historically speaking, those interest-free loans given by China ended up being non-refundable a lot of the time, in the long run. So, I guess China gives them with that in mind.

Also, we can guesstimate the 23 loans forgiven (in the recent announcement) as amounting to $230 million.

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  • reuters.com/world/africa/… Chinese public and private lenders accounted for 12% of the continent's $696 billion external debts in 2020, while 35% was owed to other private creditors, according to an analysis of World Bank data by Debt Justice, a campaign group.
    – Sayaman
    Commented Aug 21, 2022 at 21:37
  • @Sayaman: I guess the only firm conclusion is that data on this varies quite a bit, depending on the source. N.B. the latter source also says "Six countries - Angola, Cameroon, Republic of Congo, Djibouti, Ethiopia and Zambia - sent over a third of debt payments to Chinese lenders in 2021". I do wonder if WaPo hasn't misstated that as all African countries. Commented Aug 21, 2022 at 22:28
  • Also, regarding the debt forgiven to Angola, SCMP said it was $4.9 billion (rather than $6.9 B as WaPo says) in the same period, so again I'm not sure whom to believe on that either. Commented Aug 21, 2022 at 22:35
  • @Sayaman I do wonder if WaPo/CARI isn't also including the so-called "hidden debt' brookings.edu/blog/africa-in-focus/2019/07/10/… "Globally, the authors estimate that 50 percent of Chinese foreign lending is not officially recorded by the World Bank’s International Debt Statistics database." That would pretty much explain the difference, it seems. Commented Aug 21, 2022 at 22:49

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