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July 9, 2020
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How is China Going to Approach the Debt Crisis in Africa?

Exterior of the Chinese Ministry of Commerce headquarters in Beijing. Image via CGTN.

 

One of the big questions around the burgeoning debt crisis in Africa is how will China respond? With an estimated $152 billion of outstanding loans on the continent, Beijing is by far the continent’s largest bilateral creditor.

No discussion about meaningful debt relief in Africa is complete without factoring the Chinese response.

Aside from some general statements about negotiating equitable settlements with individual countries and support for the G20’s multilateral effort, Chinese officials have been characteristically tight-lipped about if/how they plan to reschedule some or all of its African loan portfolio.

So, in looking for clues that might give some insights into this mystery, it’s worth taking a second look at a column by Song Wei, a mid-level official in one of the Ministry of Commerce’s think tanks in Beijing, published last month in the Global Times newspaper.

These kinds of articles are often easy to disregard at first glance because they frequently feel like propaganda. But this one has some really interesting nuggets that potentially offer insights as to how Song’s bosses in MOFCOM are thinking about the debt issue in Africa.

Key Highlights From Song Wei’s Column on African Debt Relief

  • DEBT CANCELLATION IS OUT OF THE QUESTION: Right at the top, Song makes it clear that there is no appetite for an outright cancellation of Chinese debts to Africa: “What China could do to help is bring projects funded by loans back to life and realize sustainable profits, instead of measures as simple as offering write-offs.”
  • NOT ALL CHINESE DEBT IS THE SAME: Song echoes sentiments from U.S.-based experts like Deborah Brautigam and Yun Sun by stating that only certain kinds of Chinese debt will be eligible for rescheduling: “The preferential loans (low-interest concessional loans) are not applicable for debt relief and are more complex with regards to any difficult debt problems.”
  • IF THEY CAN’T PAY, THEN WHAT? If rescheduling the debt is still too burdensome, Song shed light on some of the alternatives open to Chinese officials: 1) Beijing provides grants to revive projects, 2) the Chinese employ a potentially sensitive debt-to-equity swap that could expose Beijing to accusations of “debt-trap diplomacy” and 3) a Chinese firm would “assist” (read assume control) of a project. #2 and #3, however, would both be very politically sensitive in the current geopolitical environment.

The article first appeared on The CHINAFRICA PROJECT

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