Tag Archives: Zambia

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.

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Zambia Sees The Ugly Side Of China’s African Investment

From Algeria to Zimbabwe, relations between Chinese companies in Africa and their local employees are often uneasy. Violence has broken out before at Zambia’s mines. This time it turned deadly.

A Chinese supervisor was killed at the weekend, and two others injured, after a riot broke out over pay at the Collum coal mine in the south of the country. Striking miners were angry that the company had ignored last month’s increase in the minimum wage introduced by the Zambian government. The mine is owned and run by Chinese investors from Jiangxi.

The supervisor died after a mine trolley was pushed at him as he and his colleagues fled underground. A dozen miners and local villagers have since been arrested in connection with the death. (Update: police said on Aug. 7th that one miner had been charged with murder and 11 others with rioting and theft.) Two years ago, Zambian police charged two Chinese supervisors at Collum with attempted murder following the shooting and wounding of 13 miners in an earlier pay dispute. The charges were subsequently dropped. Long before that, some 500 Zambian copper mine workers were sacked in 2008 after rioting and attacking a Chinese manager whose injuries required hospital treatment.

Despite its recent high-level charm offensive towards Africa–and state media making much in its reports of the weekend’s incident of the benefits Chinese investment has brought Zambia, is all this really what Beijing likes to claim are the “win-win partnerships” it strikes in its natural-resources-for-infrastructure deals with African nations?

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A Bruising Week For China’s Multinationals

It has been a bruising week in the court of public opinion for Chinese companies working overseas. First anti-corruption campaigner Transparency International said that Chinese multinationals, along with their Indian counterparts, were most likely among companies from 28 countries involved in foreign direct investment to offer bribes to win business. Now the human-rights group, Human Rights Watch has accused China’s four copper miners operating in Zambia, all subsidiaries of the state-owned China Non-Ferrous Metals Mining Corp., of flouting local and international labor and safety standards. While acknowledging that there had been some improvement, Human Rights Watch’s most pointed comment was that China’s copper miners in Zambia treat their workers just as they do at home.

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Zambia Election Brings New Challenges For Chinese Miners

Beijing has lost a friend in Africa. Rupiah Banda has conceded defeat in Zambia’s presidential election to opposition leader Michael Sata, a man known as King Cobra for his venomous tounge which he has used to criticize China’s often contentious mining investments in the north of the country. The election is likely to affect the way Zambia awards new mining contracts, bring tighter enforcement of safety and labor regulations and higher mine wages, and to see the reimposition of a 25% windfall tax on all foreign mining companies operating in the country. President Banda had scrapped the tax and during the election campaign, he had highlighted the economic growth spurred by Chinese investments. There were reports, denied by Banda’s Movement for Multiparty Democracy, that Chinese firms had contributed heavily to his reelection campaign. It remains to be seen how much of Sata’s populist rhetoric will be tempered by the practicalities of office in the face of such a significant source of foreign investment.

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Zambia Mine Shootings Likely To Resound Into 2011

Two Chinese managers of the Collum coal mine in southern Zambia, Xiao Li Shan, 48, and Wu Jiu Hua, 46, have been charged with attempted murder following a shooting incident at the mine that left at least 11 workers injured. The shootings happened during a protest by miners on Friday over pay and conditions. The two managers allegedly opened fire on the protesters though whether they were shooting at or over the heads of the crowd is unclear.

China has invested heavily in Zambia’s mining industry. As in other African countries, those investments have been accompanied by rising tensions between locals and Chinese expatriates who arrive along with the investment cash from China. Some 500 Zambian copper mine workers were sacked in 2008 after rioting and attacking a Chinese manager whose injuries required hospital treatment. However, the tensions are more politicized in Zambia than anywhere else in Africa; it was a campaign issue in the presidential election in 2006 following an earlier shooting that had left five Zambians wounded by managers during pay riots at the Chinese-owned Chambishi mine the previous year.

With a general election due next year, this latest incident is likely to remain politically prominent for a while with opposition parties using it as a stick to beat a government they feel they can unseat after five consecutive terms of office. This will cause an extended and trickily public relations problem for Beijing.

Update: From the Foreign Ministry’s Oct. 19th press briefing:

[Foreign ministry spokesman Ma Zhaoxu] said the matter was largely resolved but China would keep cooperating closely with Zambia to ensure any outstanding issues were settled according to law and safeguard the security and legitimate interests of Chinese companies and personnel.

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Chinese Farmers Seek To Till African, South American Soil

Yesterday’s post on the drought in the wheat lands of the northern plain prompted an e-mail (always welcome, but please also free feel to share as a comment) asking whether anything happened about Beijing’s plans to lease farmland in Africa and South America.

This was a hot topic of conversation a year back before the commodities boom — and everything else, come to that  — went bust. Just as China needed to secure strategic supplies of energy and raw materials by investing at the source in supplier nations, so the same logic was applied to food. Last May, the agriculture ministry proposed making supporting overseas land acquisitions by domestic agricultural companies official government policy, similar to the support given to state-owned banks, manufacturers and oil companies to undertake their foreign direct investment.

China’s demand for commodities has slumped since, but that for food hasn’t. With only 7% of the world’s arable land (and shrinking thanks to urbanization), plus calorie intakes rising, food imports have inevitably been growing. China is only able to pay lip service to its policy of food self-sufficiency, and has been for some years.

Regardless of official policy, Beijing has quietly encouraged Chinese enterprises to invest in agricultural ventures in relatively unexploited regions of Africa and Latin America, and that would at the same time appeal to countries’ development needs.  China is also funding ten new agricultural training centers across Africa to raise the continent’s overall farm productivity. It has discussed with various countries leasing land to be worked by Chinese farmers, much as Chinese labor has been shipped into Chinese funded construction projects overseas.

The largest existing example of that we’ve heard of is more than 6,600 hectares in Brazil farmed by 30 Chinese families, who export the soybeans they grow directly back to China. In Africa, some 350 Chinese are successfully farming 4,000 leased hectares in Uganda. Tanzania, Zimbabwe and Zambia, too, have Chinese-leased farms on a smaller scale.

In 2007, the head of the Export-Import Bank, Li Ruogu, pledged his support for Chinese farmers migrating to Africa. He also told an audience in  Chongqing that more than 12 million farmers from the surrounding area would have to leave their land by 2020. Finding work in Africa, he thought, would be easier than finding a new job at home.

Chinese investment could certainly raise Africa’s agricultural productivity and build much needed farm infrastructure like storage silos and irrigation systms. But there are deep sensitivities that could be hurt. Foreign-run farms and plantations are historically closely connected with colonialism in Africa, one reason that many African nations still restrict land ownership by foreigners.

Given the political sensitivities in likely recipient countries, the agricultural ministry’s proposal last May, as far as we know, remains just that. But certainly no official is likely to stand in the way of any Chinese farmer looking to till foreign soil.

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