China’s promise of loan write-offs for distressed African nations barely dents a much bigger debt crisis

Study finds no evidence of asset seizure by lenders or penalty on arrears, but researchers note a lack of transparency fuels suspicion of China’s intentions

China’s lending to Africa stood at US$152 billion between 2000 and 2018, much of which went to Belt and Road Initiative projects

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China cancelled interest-free loans to African borrowers amounting to US$3.4 billion between 2000 and 2019. But China’s overall lending to Africa was US$152 billion between 2000 and 2018. Photo: AFP

Published: 6:00am, 20 Jun 2020Updated: 6:00am, 20 Jun 2020

Chinese President Xi Jinping may have promised African countries to write off all their interest-free loans due this year – but those loans are just a small part of the continent’s debt problem.

Many African countries are in debt distress after a coronavirus-fuelled economic slump pushed them into recession. According to the International Monetary Fund (IMF), almost 20 African countries are in debt distress or at high risk of debt distress.

A new report, “Debt Relief with Chinese Characteristics”, was released on Thursday, a day after Xi met African leaders and promised to help them fight coronavirus. The report by the China Africa Research Initiative (CARI) at the Johns Hopkins University School of Advanced International Studies said that although Beijing had cancelled debt in the past, those had mostly been zero-interest loans which only accounted for less than 5 per cent of Chinese loans advanced to Africa.

The study said China had cancelled interest-free loans amounting to US$3.4 billion in debt in Africa between 2000 and 2019. But China’s overall lending to Africa stood at US$152 billion worth of loan commitments between 2000 and 2018. The zero-interest loans come from China’s Ministry of Commerce as part of intergovernmental economic and technical cooperation agreements and average about US$10 million per loan, according to the study.

On June 17, Chinese President Xi Jinping chairs the Extraordinary China-Africa Summit on Solidarity against Covid-19 and delivers a keynote speech. Photo: Xinhua

The rest of the loans are advanced by China’s policy banks – including China Exim Bank which had disbursed US$86 billion and China Development Bank’s disbursing US$37 billion – in most cases as part of the Belt and Road Initiative which seeks to open trading routes by sea and land with Southeast and Central Asia, the Middle East and Africa. Several other commercial banks and more than 20 Chinese companies have also extended loans to African governments and companies.

“In almost all of the countries where Chinese debt was cancelled – aside from high-profile cases in Iraq and Cuba – the cancelled debt was limited to mature, interest-free foreign aid loans that had gone into default,” Deborah Brautigam, a professor of international political economy and CARI founding director, said in the study.

China’s promise of loan write-offs for distressed African nations barely dents a much bigger debt crisis

Study finds no evidence of asset seizure by lenders or penalty on arrears, but researchers note a lack of transparency fuels suspicion of China’s intentions China’s lending to Africa stood at US$152 billion between 2000 and 2018, much of which went to Belt and Road Initiative projects

Study finds no evidence of asset seizure by lenders or penalty on arrears, but researchers note a lack of transparency fuels suspicion of China’s intentions

China’s lending to Africa stood at US$152 billion between 2000 and 2018, much of which went to Belt and Road Initiative projects