China’s Debt Diplomacy Dilemma Will Extend Beyond Africa

CHINA’S DRIVE TO secure from Africa commodities, farmland and infrastructure construction contracts has made it the largest bilateral lender to the continent over the past two decades, racking up a tab of some $150 billion to governments and state-owned companies. One of every five dollars borrowed by African governments is owed to a Chinese lender.

The Covid-19 pandemic is raising questions about African capacity to repay, or even to keep current on the interest payments on that debt.

The continent is facing its greatest contraction in GDP in the post-colonial era. That will increase debt service as a percentage of government spending when countries will need funds to stabilise their economies.

On November 13, Zambia, where Chinese firms have copper mining interests and some previous, is likely to become Africa’s first sovereign default in a decade. China has at least as much debt there as the $3 billion owed to the eurobond holders who saw a coupon repayment skipped earlier this month.

There are eight African countries that each owe Chinese lenders at least $5 billion, and barely one that does not owe something. Beijing’s deep pockets and willingness in contrast to multilateral lenders not to become involved in domestic politics, have won it ready borrowers across the continent. However, the price of non-conditionality has tended to be high interest rates and low transparency.

Debt-service relief and fiscal support from multilateral organisations and G20 donors will offer some limited breathing room to African debtors. It may not be sufficient to prevent a liquidity crisis from developing into a debt crisis. However, Beijing has proved reluctant to go along wholeheartedly with the debt relief plans of other international lenders.

The G20 has extended its debt service suspension initiative for loans by its members to the world’s 73 poorest countries to June 2021 with the repayments spread over six years. China is the biggest contributor to the initiative, suspending $1.9 billion in repayments due this year, according to an internal G20 document seen by the Financial Times. That accounts for more than one-third of the total suspended debt service.

However, China is due to receive a further $11.5 billion this year from loans to countries covered by the initiative, with more than $3 billion due from Angola and nearly $1 billion from each of Ghana and Kenya. It is unclear how Beijing will handle that.

The Angola number does not include a further $6.7 billion of debt service payments due this year to China Development Bank, China Export-Import Bank and ICBC that are reportedly being renegotiated directly with the lenders.

This points to a separate track that Beijing is pursing — a debt relief plan of its own. One aspect of that emerged in June when President Xi Jinping announced the cancellation of interest-free debt due to mature by the end of this year for some of the countries that participate in the Forum on China-Africa Co-operation.

A further risk for Beijing is that rising interest rates could make dollar- and euro-denominated debt prohibitively expensive for African countries, pushing them to turn even more to Beijing for help in refinancing their maturing debt. That could test both China’s capacity and, more so, willingness to lend when the quality of Chinese banks’ loan books is of growing concern to authorities at home.

This debt dilemma is the flip side of the commercial diplomacy that has advanced China’s national interests in Africa. However, for Beijing, the predicament is not limited to Africa, which contains only half of the world’s poorest countries. World Bank figures show China’s share of bilateral debt owed by the world’s poorest countries to G20 members rose to 63% last year, up from 45% in 2015.

Angola Deports Suspected Chinese Gangsters

This is one of the darkest sides yet of China’s commercial push into Africa. Angola, China’s biggest trading partner on the continent and home now to more than 250,000 Chinese, has deported 37 Chinese nationals accused of kidnapping, armed robbery and running extortion rackets and prostitution gangs.

The alleged gangsters, both men and women, have returned to China in the custody of a special police unit that Beijing sent to Luanda in July. The picture above is from TV footage of their disembarkation, handcuffed and with their faces partially masked. They will now face trial at home. They are said to have preyed on other Chinese, including businessmen they held hostage for ransom and women they brought to Angola on the promise of well-paid jobs but then forced into prostitution. Ministry of Public Security officials say the special police unit broke up 12 such Chinese gangs operating in Angola. A further 24 accomplices were arrested in Fujian and Anhui.

The scale and violence of the gangs’ activities in Angola, which included killing five of 14 kidnapped businessmen last year and burying some of them alive, had started disrupting Chinese firms’ business operations, and tarnishing Chinese businesses’ already less than shining reputation with locals, to such an extent that Beijing felt it necessary to exert the long arm of its law half way around the world. It is the first time police have undertaken such an action in Africa. This Bystander suspects it won’t be the last.

Anti-Chinese Backlash Spreads To Angola

The high-profile two-day China-Africa cooperation forum at the start of November was held in the Egyptian resort of Sharm el-Sheikh on the continent’s north-east corner, a spot as pleasant as it is distant from the ugly edge of the China’s growing business and diplomatic push into Africa. As this Bystander has noted before, there are approaching one million Chinese now working in Africa. From Algeria to Zambia relations have been fractious at times, turning violent on occasion, in a backlash against a tendency for expat workers to arrive along with the investment cash from China, taking low-wage manual jobs from locals in places where unemployment is often high.

We now see reports of some of the most systematic attacks yet on expat Chinese workers in Africa. In Angola, where there are tens of thousands of Chinese working on post-civil war reconstruction, Chinese are being beset upon in a series of violent robberies. In one, in the capital Luanda, where Shanghai Urban Construction Group is building a new football stadium or the 2010 African Cup of Nations, a Chinese man was killed in September as he resisted an attack. BBC quotes Xu Ning of the local Chinese Business Council as saying that many more attacks have gone unreported. Shanghai Urban’s head, Eddie Zhang, told the BBC that the growing number of attacks were planned “mafia-style”. What used to be something that happened perhaps once a month has become a daily occurrence, Xu is quoted as saying by Afrik.com. The Chinese embassy in the city has advised its citizens not to travel alone at night.

In Sharm el-Sheikh, prime minister Wen Jiabao pledged to give Africa $10 billion in concessional loans over the next three years, plenty more seed money for local discontent.