At the end of last week, as the Belt and Road Forum was concluding in Beijing, the New York Times published an opinion piece (porous paywall) by Deborah Bräutigam. She is the director of the China-Africa Research Initiative at the Johns Hopkins School of Advanced International Studies, and the author of The Dragon’s Gift: The Real Story of China in Africa, among other books and publications.
Bräutigam addresses the accusations that China is using the Belt and Road Initiative (BRI) as a cover for “debt-trap diplomacy” or, in the words of U.S. national security adviser John R. Bolton, that China is making “strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands.” Bräutigam and other scholars say this just isn’t happening:
Yes, debt is on the rise in the developing world, and Chinese overseas lending is, for the first time, a part of the story. But a number of us academics who have studied China’s practices in detail have found scant evidence of a pattern indicating that Chinese banks, acting at the government’s behest, are deliberately over-lending or funding loss-making projects to secure strategic advantages for China…
…The idea that the Chinese government is doling out debt strategically, for its benefit, isn’t supported by the facts. Many of the would-be borrowers gathering in Beijing this weekend are likely to carefully scrutinize the costs and benefits of Chinese loans; some may be poor, but that doesn’t make them unaware or unsavvy. China’s BRI isn’t debt-trap diplomacy: It’s just globalization with Chinese characteristics.
Researchers Agatha Kratz, Allen Feng, and Logan Wright of the Rhodium Group came to similar conclusions in a new report based on a review of 40 cases of China’s external debt renegotiations with the aim of understanding “the broad patterns of outcomes, and to explore whether asset seizures as occurred in Sri Lanka are typical or exceptional.” They summarize their conclusions thusly:
Debt renegotiations and distress among borrowing countries are common. The sheer volume of debt renegotiations points to legitimate concerns about the sustainability of China’s outbound lending. More cases of distress are likely in a few years as many Chinese projects were launched from 2013 to 2016, along with the loans to finance them.
Asset seizures are a rare occurrence. Debt renegotiations usually involve a more balanced outcome between lender and borrower, ranging from extensions of loan terms and repayment deadlines to explicit refinancing, or partial or even total debt forgiveness (the most common outcome).
Despite its economic weight, China’s leverage in negotiations is limited. Many of the cases reviewed involved an outcome in the favor of the borrower, and especially so when host countries had access to alternative financing sources or relied on an external event (such as a change in leadership) to demand different terms.
In related news, the world will soon have a new case study on how China deals with countries that owe it money, in the Republic of the Congo — the smaller Congo north of the Democratic Republic of the Congo. Agence France-Presse reports:
When the plunge of global oil prices in 2014 blew a hole in the Congolese government’s finances, it was China that stepped in to help. But despite the recovery of oil prices, the country, also known as Congo-Brazzaville, has had trouble getting back on top of its finances and has asked the IMF for help.
The IMF places conditions on its loans to force governments to take measures to boost their finances. Also, as the IMF can lend only if it judges that a country’s debt load is sustainable, a bailout may be accompanied by a restructuring of government debt.
“It’s certainly the first time China has found itself confronted with this kind of situation,” said a specialist in relations between China and Africa who asked her name not be used as the discussions with IMF were still under way. “The Republic of Congo is seeking IMF protection to avoid a possible default on its payments,” she said.
“China, which holds more than a third of its foreign debt, is not really comfortable with that.”
Congo’s debt is around $2 billion.