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Chinese Money in Africa: Treasure or Trap?

Sep 02, 2022
  • He Wenping

    Research Fellow, West Asia and Africa Studies Institute of the China Academy of Social Sciences

U.S. Secretary of State Antony Blinken has visited Africa twice since taking office. Well, more attention to Africa’s development from the United States of America, the world’s superpower and largest economy, should be a good thing. However — probably arising from a mentality of great power competition — Blinken took every opportunity to remind African countries of the alleged Chinese debt trap.

Recently, with the G20 summit coming to Indonesia in November, some voices in the West seem to be hyping the same rhetoric. The aim, of course, is to blame China for the current financial crisis and even food and fuel shortages in Africa. In fact, the so-called Chinese debt trap is not only a false proposition but also a cliche that is trumpeted from time to time. As early as 2007, at the G8 finance ministers meeting, which set the tone for what was then a summit of the G8 (a group that also included Russia), the German finance minister warned that Chinese aid and loans to Africa dealt a blow to the Western creditors’ debt-reduction efforts, might trigger a new round of African debt crisis and were “irresponsible.” The Chinese had no idea that the zombie rhetoric about Chinese “new colonialism” and the “debt trap” would still haunt China-Africa cooperation 15 years later.

First, the data easily reveal the fallacy. Chinese aid and loans to Africa are much smaller than what has been provided by the West, in both size and share, which gives China fairly small influence or weight in addressing the overall debt crisis in Africa. A further look into the formation of the debt problem, China’s efforts to help address it, the actual effect of Chinese aid and loans and the welcome attitude of African countries in general toward Chinese investment and aid makes it difficult to jump to the conclusion that China has been irresponsible in aiding Africa or laid a debt trap. On the contrary, increased aid, investment, economic cooperation and trade from China have in the past 20 years played a positive role in promoting economic development on the continent. China’s investment and financing cooperation with Africa has been a treasure that boosted African development, not a trap.

Africa’s debt problem has a long history. The huge foreign debt of nearly $700 billion has become a formidable bottleneck restricting Africa’s economic development. As a matter of fact, the West owes much to its formulation. In the 1960s and 1970s, most African countries wanted money in the early stage of industrialization and took on massive foreign debt from Western countries and financial institutions under Western control.

However, as the prices of primary products dropped on the international market and Western countries set up trade barriers, the terms of export worsened significantly for Africa, leading to balance of payments disequilibrium and decreased solvency. Consequently, they had to incur new debts to repay old ones, which, coupled with high interest rates, resulted in a snowballing of foreign debt. The total foreign debt of African countries rose rapidly from $8 billion to $174 billion from 1970 to 1987.

According to the World Bank, of the total foreign debt of $696 billion of 49 African countries with available data, three-fourths is owed to multilateral financial institutions and private financial institutions (excluding China). A report released by British charity Debt Justice showed that 35 percent of African countries’ foreign debt came from Western private lenders, nearly triple China’s loans to Africa and with an average interest rate about double that of Chinese loans. Tim Jones, head of policy at Debt Justice, noted that Western countries blaming China for creating the African debt crisis was a deliberate distraction and that Western multilateral and private lenders remained the largest creditors.

Second, not only are the size and share of China’s credit small compared with that of Western creditors and other international financial institutions but Chinese investment and financing have mainly been used for infrastructure construction and productive sectors, greatly improving the self-restorative capacity of African countries.

Take the Mombasa-Nairobi railway in Kenya as an example. At a cost of $3.8 billion and operating for five years, it has transported containers totaling more than 1.77 million TEUs with an average of 16 freight trains daily. The railway service has created more than 70,000 jobs for Kenyans and contributes 1.5 percent to the country’s GDP growth. It has also promoted economic and trade exchanges within Kenya and across East Africa, increased the transport capacity of the entire sub-region and vigorously advanced regional connectivity and integration.

That’s why Kenyan President Uhuru Kenyatta has repeatedly said in Western media interviews that borrowing is not terrible. What is — and what really worries him — is using debt to pay running expenses such as wages and utilities. In his words, Kenya has borrowed money to invest in development and to close the infrastructure gap. These are future-oriented investments that will improve Kenya’s investment environment and business development, bring job opportunities to the younger generation and lay the foundation of industrialization.

In short, it is certainly the African countries themselves that have a right to say whether China’s investment and financing cooperation with Africa is a treasure or a trap.

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