The
China Debt Trap Lie that Won’t Die
By
Conor Gallagher
June
27, 2023:
Information Clearing House
--Secretary of the Treasury
Janet Yellen talks about the Chinese debt trap
nearly
every
time she
speaks.
National security advisor Jake Sullivan delved
into the topic in his big economic vision
speech. And recently the Associated Press ran a
long
piece entirely
devoted to the falsehood.
The
criticism all claims that Chinese loans to poor
nations drive these countries to instability and
are designed to seize assets offered as
collateral. The problem is it is all untrue.
Deborah Bräutigam, the Director of the China
Africa Research Initiative at the Paul H. Nitze
School of Advanced International Studies, has
written that
this is “ a lie, and a powerful one.” She wrote,
“our
research shows
that Chinese banks are willing to restructure
the terms of existing loans and have never
actually seized an asset from any country.”
Even researchers at Chatham House
admit that’s
not the case, explaining that the lending has
instead created a debt trap for China. That is
becoming more evident as nations are unable to
repay, largely due to the economic fallout from
the pandemic and the US proxy war against Russia
in Ukraine.
Are You Tired Of
The Lies And
Non-Stop Propaganda?
Could there be something more to the US’
obsession with this talking point? Gong Chen,
founder of Beijing-based think tank Anbound,
says that if
countries are unwilling or unable to repay their
debts to China, it could be devastating for
Beijing:
Widespread debt evasion and avoidance would
have a significant impact on China’s
financial stability,” he said, “and we are
concerned that some countries may try to
avoid paying back their debt by utilizing
geopolitics and the ideological competition
between East and West.
While
Beijing certainly seeks influence in countries
where it lends, it also usually builds
infrastructure. And while those roads, train
tracks, ports and more are also usually
beneficial to Chinese operations, their
construction also helps the host country. It’s
also way more than the West offers in terms of
infrastructure.
The US
possibly had the opportunity to join with China
in its Belt and Road Initiative (BRI), one of
the largest and most ambitious global
infrastructure projects ever, but declined:
While
China’s initial instinct has been to try and
tackle debt repayment issues at a bilateral
level, typically by
extending maturities
rather than accepting write-downs on loans, it’s
increasingly getting involved in multilateral
talks that include US-backed institutions like
the IMF. Take the case of Zambia, which got a
$1.3 billion loan from the IMF in September.
From
The Diplomat:
Zambia will shift its spending priorities
from investment in public infrastructure –
typically financed by Chinese stakeholders –
to recurrent expenditures. Specifically,
Zambia has announced it will totally cancel
12 planned projects, half of which were due
to be financed by China EXIM Bank, alongside
one by ICBC for a university and another by
Jiangxi Corporation for a dual highway from
the capital. The government has also
canceled 20 undistributed loan balances –
some of which were for the new projects but
others for existing projects. While such
cancellations are not unusual on Zambia’s
part, Chinese partners account for the main
bulk of these loans…
While some of these cancellations may have
been initiated by Chinese lenders
themselves, especially those in arrears,
Zambia may not have needed to cancel so many
projects. Since 2000, China has canceled
more of Zambia’s bilateral debt than any
sovereign creditor, standing at $259 million
to date.
Nevertheless, the IMF team justified the
shift because they – and presumably Zambia’s
government – believe that spending on public
infrastructure in Zambia has not returned
sufficient economic growth or fiscal
revenues. However, no evidence is presented
for this in the IMF’s report.
Zambia
and its government creditors, including China,
reached a deal last week to restructure $6.3
billion in loans, which the IMF approved. Full
details of the deal weren’t announced, but
according to the AP:
French officials said Zambia’s debt would be
reorganized over 20 years, with a three-year
grace period. It also includes a clause
aimed at ensuring that Zambia gets similar
treatment from private creditors, who hold
an additional $6.8 billion in loans to
Zambia, but it wasn’t clear that those
private creditors could be required to do
so.
The IMF
deal last year was also an effort to relegate
China to the backseat, as it allows for 62
concessional loan projects to continue, only two
of which will involve China. The vast majority
of the projects will be administered by
multilateral institutions and involve recurrent
expenditure rather than infrastructure-focused
projects.
In
August, China announced the forgiveness of 23
interest-free loans for 17 African nations,
while also pledging to deepen its collaboration
with the continent. Despite that gesture and its
efforts to extend maturities, the West continues
to hammer home the message that Beijing is
engaged in debt-trap diplomacy with Yellen
claiming multiple times that Beijing has become
the biggest obstacle to “progress” in Africa.
While
Beijing offers imperfect
infrastructure-for-minerals deals, the US,
offers up worthless token items like cultural
ties (as Biden
said
at last year’s US-Africa Leaders Summit, the US
has a significant population of African
Americans. “I might add that includes my former
boss,” he said.) and stuff like this:
Regardless of what the US says and no matter how
many times its officials repeat this debt trap
talking point, it doesn’t change the fact that
countries now prefer arrangements with the
Chinese. Ken Opalo
writes at An Africanist Perspective
about how the US cannot compete with China
economically in Africa:
The
fact of the matter is that if you want to do
anything serious in the region within a
tight political business cycle and need
financing, calling Beijing is typically the
smart option. This is especially true if you
happen to be an incumbent in a competitive
electoral democracy like Kenya or Zambia (I
hope Washington sees the irony here).
According to Nikkei Asia,
China has invested 2.5 times more in African
infrastructure development than all Western
countries combined.
The same dynamics obtain in the private
sector. Whether you are looking for
machinery or cheap imports (and increasingly
markets), China is often the best option.
Trends in trade volumes demonstrate this
fact.. In 2022 Africa-US trade (under $40b)
was less than a fifth of Africa-China
volumes.
It’s
hard to beat something with nothing as Nigerian
Vice President Yemi Osinbajo explained during
his
March 27 remarks at King’s
College in London:
China is Africa’s largest bilateral trading
partner and about $254 billion in trade in
2021. China is the largest provider of
foreign direct investment, supporting
hundreds of thousands of African jobs. This
is roughly double the level of U.S foreign
direct investment and China remains by far,
the largest lender to African countries.
Chinese companies have also taken the lead
in exploiting minerals in Africa, many now
in lithium mining in Mali, Ghana, Nigeria,
DRC, Zimbabwe and Namibia. Most African
countries are in my view, rightly
unapologetic about their close ties with
China. China shows up where and when the
West is reluctant to show up. And many
African countries are of the view that the
“beware of the Chinese Trojan loans” advice
from the West is wise, but probably
self-serving.
Africa needs the loans and the
infrastructure and China offers them. In any
case, the history of loans from Western
institutions is not great. The memory of the
destructive conditionalities of the Breton
Woods loans is still fresh and the debris is
everywhere. And the preoccupation of Western
governments and media with the so-called
China debt trap might well be an
overreaction.
In
the arguments about the Chinese death traps
(as it is called sometimes) and the large
amounts of loans to African countries, I
think that what is clear is that the Chinese
have proven to be quite responsible in the
giving out of these loans. There are always
arguments about whether you get the best
deal all the time, but the real question of
Africa and African governments is who else
is offering these loans? Who else is
offering the support? It is not a question
of here or there, it is really a question of
what is available and it seems to me to make
sense to take what is available.
What
about World Bank and IMF debt traps? Yellen and
Sullivan don’t talk about that, but African
countries, for example, currently
owe three times more debt
to Western institutions compared to China, and
they’ve received far less in return. African
political economists, including Grieve Chelwa
write
about how it is actually the western
institutions trapping poorer nations in a cycle
of debt and austerity:
In
the early months of the pandemic in 2020,
the IMF offered to open up new windows for
borrowing that they said would come without
conditionalities. The
G20 Debt Service Suspension Initiative and
other such offers to pause debt payments
suggested that the poorer nations would
receive assistance to prevent total economic
collapse and to gain access to vaccines.
However, Oxfam found that thirteen of the
fifteen IMF loan programmes during the
second year of the pandemic (2021) required
‘new austerity measures such as taxes on
food and fuel or spending cuts that could
put vital public services at risk’. The
Commitment to Reducing Inequality Index
reveals that fourteen out of the sixteen
countries in West Africa planned to cut
their budgets by a total of $26.8 billion in
2021 to contain haemorrhaging national debt
crises and that these policies have been
encouraged by the IMF’s COVID-19 loans.
The
evidence is clear: the IMF not only
engineers austerity-driven debt crises, but
its policies are designed to ensure and
manage a permanent debt crisis, not to erase
debt.
They
are also hopeful that China’s public and private
debt forgiveness during the pandemic will apply
pressure on western financial institutions to
“rethink the harshness of their debt
repayment-austerity governance model.”
But it
appears that rethinking has led to a strategy to
amplify the China debt trap myth rather than
offering something on par or better than the
Chinese.
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See
also
The
Chinese ‘Debt Trap’ Is a Myth:
Research shows that Chinese banks
are willing to restructure the terms of
existing loans and have never actually
seized an asset from any country
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