China's Writing Off Interest-Free Africa Loans Only Covers 5% Of Total Debt
The world’s poorest countries – many of them in Africa – face $35 billion in debt-service payments in 2022. Around 40% of that total is owed to China, the World Bank (WB), and news of China’s write-off of some interest-free loans in 17 countries are most welcome, Charlie Mitchell reported for African Business.
Photo Insert: Chinese lending to Africa peaked in 2016 at $29.5 billion.
“Beijing has been doing debt write-offs of interest-free loans for 22 years,” says Deborah Brautigam, director of the China Africa Research Initiative at Johns Hopkins, and “these interest-free loans come from China’s central government budget and have already been completely accounted for, like grants and unlike bank loans.”
Chinese banks are reluctant to cancel or reduce the principal on bank loans inside China; doing this abroad would be unpopular among Chinese citizens, Brautigam added. “Chinese banks want to be repaid in full.”
The boom times for African governments seeking Chinese loans appear to be over. AidData, a research lab, said that interest-free loans account for less than 5% of the $843 billion in Chinese loan commitments to 165 governments globally between 2000 and 2017.
In the past two decades, China has written off at least $3.4 billion of debt, almost all interest-free loans to African countries, according to researchers from Johns Hopkins University.
Hannah Ryder, chief executive of Development Reimagined, an African development consultancy in Beijing, has described interest-free loans as “the lowest-hanging fruit,” interest-bearing loans, which account for the vast majority of China’s lending, are quite another story.
Commercial loans can be restructured or reprofiled, but are almost never considered for cancellation, analysts say. They go through China’s banks, which insist on being repaid. And with the Chinese economy stagnating somewhat compared to a decade ago, due in part to Beijing’s “zero-COVID” strategy, which shut down whole cities, that is unlikely to change.
Chinese lending to Africa peaked in 2016 at $29.5 billion. By then, it had already fueled an infrastructure boom across the continent. As the leading external financier of infrastructure in Africa, Beijing built or upgraded 10,000 km of railway, 100,000 km of highway, 1,000 bridges, and 100 ports, according to Chatham House, not to mention power plants, hospitals, and schools.
Lauren Johnston, a professor at the University of Sydney’s China Studies Center, says Chinese lending on the continent was initially underpinned by tumbling interest rates following the global financial crisis and a search for new markets, as well as a desire by Beijing to foster global development.