BY VISHAL VIVEKANANDA –
In 1971 the United Nations (UN) considered General Assembly Resolution 2758 to determine the legitimate representative of China in the UN. Nearly half of the 35 votes to not recognize the People’s Republic of China (PRC) came from African countries. However, the vote breakdown of General Assembly Resolution 62/167 in 2007 (condemning the “Situation of Human Rights in the Democratic People’s Republic of Korea”) showed a very different political landscape with 43 African countries abstaining or rejecting the resolution alongside the PRC (who is an ally to North Korea).
In the 50 years following 1971, China and countries in Africa have developed strong economic and political relations. Trade between Africa and China increased by 700% during the 1990s, and as it stands China is Africa’s largest trading partner, surpassing the United States (US) in 2009. In 2000, the Forum on China–Africa Cooperation (FOCAC), designated itself to be an official forum to strengthen the relationship between the two parties. A key focus of the Forum has been the role of China in providing loans and investment for African countries.
China’s loan commitments in Africa from 2000 to 2019 have totalled to US$153 billion, making them the largest bilateral lender to Africa. Chinese lending is largely targeted towards the infrastructure sector (such as industry, construction, mining, energy, etc.) comprising more than 65% of lending. In contrast, traditional lenders from North America and Europe focus financial assistance towards social sectors such as health, education, population, and humanitarian aid. China’s President Xi Jinping stated that Chinese loans and aid come with “no political strings attached”. However Western powers particularly the US have remained sceptical and have raised concerns over the implications that China’s reach into Africa could have.
In August 2018, a bipartisan group of 16 US senators cited “the dangers of China’s debt-trap diplomacy” stating that “it is imperative that the United States counters China’s attempts to hold other countries financially hostage and force ransoms that further its geostrategic goals.” Is China providing debt to African countries as a means of obtaining valuable geostrategic assets or are they engaging in a mutually beneficial relationship that is in their economic and geostrategic interest?
Debt Trap Hypothesis
The Chinese government has loaned a staggering US$1.5 trillion to over 150 countries worldwide. This makes them the largest lender in the world, exceeding institutions such as the International Monetary Fund (IMF), the World Bank Group (WBG), and all the members of the Organisation of Economic Co-operation and Development (OECD) combined. Lending is expected to continue as China has planned numerous infrastructure projects including some as part of the Belt and Road Initiative (BRI). Proponents of the Chinese Debt Trap hypothesis would argue that China is burdening developing countries with unsustainable levels of debt that will be used as leverage for geostrategic concessions in the future.
This belief is further exacerbated due to China’s history of non-transparent lending practices. China has no centralised data on its loans and an estimated 50% of loans to developing countries may be unreported. Additionally, China’s loans are often more sophisticated and have stronger safeguards in place to ensure repayment. They are also often subject to confidentiality clauses which raise suspicion about the ethics of China’s lending practices. Loans from the IMF, the WBG, and almost all OECD governments are not held in such secrecy; this is important for other lenders as it allows them to better assess the risks and debt obligations that a country already has.
Finally, advocates of the debt trap hypothesis would highlight a few examples where China has seized assets in the event of debt distress. Most notably is the case of Hambantota, a port in Sri Lanka. Sri Lanka had borrowed money from China for the construction of the Hambantota port, however the port was an economic failure producing unsustainable returns, and because of debt distress the Sri Lankan government was forced to cede control to a Chinese firm on lease for 99 years. At the time, Vice President of the US Mike Pence called it “debt-trap diplomacy” and evidence of China’s military ambitions. Similarly, Attorney General William Barr raised the case to argue that China is “loading poor countries up with debt, refusing to renegotiate terms, and then taking control of the infrastructure itself.”
Another prominent case is in Djibouti. China has provided approximately US$14 billion of investments and loans to Djibouti for various infrastructure projects such as the Doraleh Multipurpose port in 2017, a railway line connecting Djibouti to Addis Ababa in 2018, and a gas pipeline between Djibouti and Ethiopia. However, this has resulted in a considerable debt being owed to China. It is estimated that close to 70% of Djibouti’s external debt is to China. The significant level of debt provided has strengthened Djibouti’s economic and political relationship with China and in 2015, China formally opened a military base in Djibouti. The US had blocked attempts at a Russian base in Djibouti but were “blindsided” by the approval of the Chinese base. Proponents of the debt trap hypothesis would argue that Djibouti had been ‘forced’ to approve China’s base due to the considerable level of debt that they owed to China. This base now grants China a significant foothold in the Gulf of Aden.
Similarly, Tajikistan owes approximately 75% of its debt to China. In 2011, Tajikistan after 130-year border dispute, ceded 1,322 km2 to China, some analysts have marked this as an “unofficial debt writing-off agreement.” Proponents of the debt trap hypothesis would again argue that the concession was made due to the high level of debt that Tajikistan owed to China.
Legitimate Lending
China does indeed lend to countries that are at risk of debt distress, but not that many. A Jubilee Debt Report found that China loaned money to 15 countries that were at risk of debt distress, but none of them at an unsustainable level. The average debt obligation of a country to China was approximately 15% of their countries’ total debt, however the median was 8%. Three outliers skewed this data: Djibouti, Zambia, and Cameroon. These countries had debt levels of 68, 30, and 29 percent respectively. However, China was already engaged in some form of debt relief for these countries. Moreover, in 2020 China joined the G20’s COVID Debt Service Suspension Initiative, pausing debt repayments from countries at risk of debt distress.
China has behaved similarly with other countries. China has written off [1] or renegotiated the terms of debts in numerous countries. In fact, in 40 cases of debt distress, the most common resolutions were either the debt being written off or restructured.
China has very strong incentives to invest in infrastructure in Africa. Simply, it is likely a good investment, African infrastructure projects have a lower default rate than in many developed market regions, and a significantly lower default rate than emerging market regions (such as Latin America or the Caribbean). Additionally, China has considerable expertise in infrastructure projects which increases the likelihood of profitability. Further, other countries are generally providing investment in other sectors which further strengthens China’s position in the financing of infrastructure projects, it also aligns with Xi Jinping’s ambitions with the BRI.
The cases of asset seizure in Sri Lanka, Djibouti and Tajikistan are not as nefarious as they seem. In the case of Hambantota, the suggestion of asset seizure was initially suggested by then-Sri Lankan President Mahinda Rajapaksa. The port of Hambantota was reportedly making a loss from its inception, and it is likely the Sri Lankan Government was happy to offload the liability. China’s actions have likely reassured other countries that Chinese loans are not intended to be predatory. The Djibouti Government owes considerable debt to China but as previously said China had engaged in writing off some of the debt. Further, Djibouti is already home to six foreign military bases including the US, France, and Japan. Thus, the establishment of a Chinese base does not prove economic pressure from debt. In Tajikistan, although China obtained 1,322 km2, it relinquished its claims over 28,000 km2 of Tajikistan territory.
Conclusion
The term ‘debt-trap diplomacy’, first developed in India to describe China’s predatory lending practices, has quickly circulated through the media, intelligence circles and Western governments. The fears of a debt-trap in Africa may have been exaggerated and exacerbated by the rhetoric that came from the Trump Administration. Deborah Bräutigam, an international political economy professor at Johns Hopkins University described the theory as more a “meme” that became quickly popular due to “human negativity bias” based on fear. Similarly, W. Gyude Moore, a senior policy fellow at the Centre for Global Development, stated that “[t]he language of “debt-trap diplomacy” … is rooted in anxiety about China’s rise as a global power rather than in the reality of Africa.“ The reality appears that China and Africa are engaged in a symbiotic relationship. Africa gains access to a very valuable source of financing and expertise, that will ultimately lead to greater development in some of the poorest countries in the world. Meanwhile, China can continue to maintain its GDP growth by investing in the growth of Africa. African countries present an opportunity for China to invest in manufacturing and natural resource exploitation, China has the chance to take advantage of the growth of a developing country, and all the while continue developing the BRI. In 2013, it was estimated that one million Chinese citizens were residing in Africa. and that 200,000 Africans were working in China in 2017. China, through its economic policy, has cemented itself as Africa’s ally of choice.
