Researchers at Chatham House have said China may have created a trap for itself with African lending as it could fail to recoup its money while maintaining its image as a friend to developing nations.
Chatham House, also known as the Royal Institute of International Affairs, is an independent policy institute headquartered in London.
China accounts for 12% of Africa’s $696 billion external debt.
In recent years, growing levels of debt, including loans from China, have raised concerns about an impending debt crisis in Africa.
From China’s perspective, China has supported Africa’s development for a long time, including through phases of essential infrastructure development.
Specifically, 2020 marked the 20th anniversary of the establishment of the Forum on China–Africa Cooperation (FOCAC).
Chinese government figures show that China–Africa trade amounted to US$208.7 billion in 2019 and Chinese direct investment stock in Africa accounted for US$49.1 billion, 20 times and 100 times more than 20 years ago, respectively.
During the 2018 Beijing Summit of FOCAC, President Xi announced that China will extend $60 billion dollars of financing to Africa in the form of grants, loans, and special funds.
Chinese companies were also encouraged to invest at least $10 billion dollars in Africa by the end of 2021.
What’s happening now:
The Chatham House researchers’ remarks come as much of the African continent is seen heading toward debt distress.
African governments and SOEs owe China more than $150 billion and COVID-19 eroded their ability to repay.
Options Available:
Some believe that China will seize assets belonging to defaulting partners.
China has been open to debt cancellation and restructuring in the past to help African countries fill financing gaps and ease their burden in debt repayment. Zambia is one of the countries that benefitted from debt cancellations and or debt restructuring.