Tag Archives: Belt and Road Initiative

Africa-China Loans Facts

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This is from a CGD paper by Scott Morris, Brad Parks, and Alysha Gardner:

The World Bank’s portfolio is more concessional than China’s portfolio in every region of the world, and sometimes dramatically so. The overall concessionality of China’s portfolio demonstrates less variation from region-to-region, hovering between 15%-22% in all regions except Europe and Latin America. By contrast, the overall concessionality of the World Bank’s portfolio varies widely — from a low of 15% in Latin America to a high of 60% in Sub-Saharan Africa (which is also the region where Chinese lending volumes are highest). The differences between China and the World Bank are most stark in Sub-Saharan Africa. Whereas the overall concessionality of the World Bank’s portfolio in Sub-Saharan Africa is nearly 60%, China’s portfolio concessionality in the same region is only 22.5% All three measures of lending terms contribute to these differences in portfolio concessionality rates: China consistently has higher interest rates, shorter maturity lengths, and shorter grace periodsconcessionality

Notice that China is neck and neck with the World Bank across Africa, unlike in other regions where Bank lending dominates. What proportion of Chinese lending in Africa are concessional loans?

Whereas the overall concessionality of the World Bank’s portfolio in Sub-Saharan Africa is nearly 60%, China’s portfolio concessionality in the same region is only 22.5% .

Recall that, overall, China is the single largest creditor to developing countries:china creditor

What we should make of African states’ indebtedness to China? A lot of people have opined that China is engaging in debt diplomacy — intentionally trapping African countries with high interest non-concessional loans, after which it will demand all manner of concessions from them (perhaps UN votes, or other forms of assistance in aid of Beijing’s geo-strategic objectives). I have two thoughts on this.

First, the Chinese debt bonanza seen on the Continent over the last two decades was driven, in part, by local demand for infrastructure and other visible and attributable forms of “development.” And yes, intra-elite distributive politics and over-pricing was also involved. And Chinese firms, which often competed against each other, played along, too — perhaps because of the reasons Yuen Yueng Ang describes in her latest book (highly recommended). With this in mind, it is not entirely true to claim that Beijing pushed loans on African states. While it is true that some of the projects were driven more by the quest for kickbacks than for economic reasons, the fact is that individual country dynamics drove the demand for loans and projects. Some of those fit into China’s global geopolitical ambitions (like the Belt and Road Initiative). Others did not. 

Second, let’s think through the debt diplomacy game. Is the idea that China would ruin dozens of African states’ fiscal positions so much so that they would turn to Beijing for bailouts? How many Hambantota’s can China run across Africa? Does Beijing have the fiscal, military, or administrative capacity to do so?

The simple fact is that the use of gunboat diplomacy to settle sovereign debts is no longer kosher within the international system. My guess is that while Beijing certainly was out to buy influence with loans and other commercial relations, it also wanted to make money. Chinese officials were not running around peddling cheap concessional loans (see above). They were out looking for business for Chinese firms and banks. And so to the extent that African countries mismanaged their debt or invested in economically unviable infrastructure projects (even if in collusion with Chinese firms), that is on them.

Moving forward, it is clear that it will be in China’s best interest to make sure that its commercial relations in Africa do not stray too far from general economic viability. A strategic coddling of poor and weak allies will be very costly in the long run (see France in the Sahel). It will also likely turn African public opinion against China. For a long time, majorities of African publics have reported net favorable views of China. But this will most likely change if China morphs from a largely likable development partner building roads, power lines, and water works, to little more than a banker of tinpot tyrants in the business of building white elephants and saddling future generations with debt.

Is China Doomed to Fail in Africa?

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This is from Wilson VornDick, a commander in the U.S. Navy Reserve, writing in the National Interest: 

It is unclear whether China could handle the financial repercussions of a larger, more systemic default or debt-forgiveness program across the African continent. Seeking relief, debtors to China would likely overwhelm existing mechanisms, like international arbitration, or China-backed forums such as the Export-Import Bank of China , China Development Bank , and Asian Infrastructure Investment Bank . More importantly, debt restructuring, recoupment, and, in the more extreme case, seizure may not be viable, reasonable, or sustainable for Chinese interests or presence continent-wide. Just such a dire economic scenario might push China to use its nascent military force to protect or even seize its interests. Looking back at the previous period of Great Power Competition more than a century ago, leveraging military might to force repayment was commonplace. The U.S. military made multiple incursions into Caribbean and South American nations as did the Western powers in Africa and Asia.

It is reasonable to assume that China would have little or no experience in any dire economic contagion across Africa. The one primary example, the take-over of Hambantota Port, was an isolated incident during calmer times, before the financial uncertainty stoked by a slowing global economy or the current U.S.-China trade war. Moreover, the port takeover has now become a watershed moment in Chinese behavior that has attracted significant international scrutiny and ire.

More broadly, VornDick articulates the potential merits (from a U.S. standpoint) of a “Let China Fail in Africa” strategy as part of Washington’s Great Power global competition with Beijing. The whole argument is worth a read.

A glaring omission in VornDick’s analysis, however, is the interests and roles of Africans in this whole game (note that this is a gap in the “China-in-Africa” genre more generally).

chinafricaA key weakness that I see in the “Let China Fail in Africa” strategy is that it vastly underestimates the extent to which Africans will be willing to work hand in hand with China to make the Sino-African relationship work.

China’s forays in Africa is creating complex tapestries of personal and institutional relationships that will become ever harder to undo. For example, in both electoral democracies and autocracies in the region, citizens have come to expect political elites to provide public goods — many of them financed and built by China. Demands for more of the same will likely only get stronger. The desire to secure funding for more public goods will likely push African elites even closer to Beijing. Furthermore, at a time when the U.S. is working hard to signal that Africans are not welcome on its shores, tens of thousands of African students are earning degrees in Chinese universities. Many of these students will probably go back to their respective countries and maintain ties with Chinese business and academic contacts. These kinds of investments in soft power will matter in the long run.

Global diplomacy is not just about crass material interests. It is also about values and shared commitments to respectful mutual cooperation. If African elites become convinced that they are better off bandwagoning with China, they will do so.

And most importantly, having made that choice, they will make specific investments (whether deliberately or not) to make their nations ever more closely allied with China. They will adopt specific technologies. Establish specific market relationships. Acquire specific weapons systems. And yes, more of their students will learn Chinese and go on to earn degrees in China. The closer the military, economic and “soft” ties, the more African elites will be willing to make costly investments in order to ensure that their respective states’ relationships with China work.

A good lesson in this regard is francafrique. The relationship between France and its former colonies in Africa is not winning any awards soon. But for almost six decades African elites have remained committed to the relationship and worked to give the French military free rein in the region and French firms access to vast natural resources. The French state, in turn, has worked to prop up the same elites despite massive economic and political failings.

The point is: China’s failure in Africa (if it comes to pass) is not what will determine the future of Sino-African relations. What happens before any such failure will likely matter more.