By Tunde Obadina
China’s growing economic relationship with African countries has received much negative media coverage in recent years. Critics of the fast-rising Asian economic superpower present the Chinese state as the new imperialist threat to Africa. As did yesterday’s European colonisers, China is today seeking to capture Africa’s vast natural resources and exploit its labour-force for the aggrandisement of the world’s most populous nation, so say the critics.
A strategy purportedly being deviously used by Beijing to capture African resources is debt. Critics see China as offering cheap loans to African governments, hoping they will default on repayment, enabling the Asian giant to gobble up assets used as collateral. China’s Belt and Road Initiative, a global infrastructure development strategy, is described by the critics as a debt-trap diplomacy, part of a campaign for global hegemony.
Concerns over the safety of Nigeria’s struggling economy in the face of the envisaged encroaching dragon led the country’s House of Representatives in May to launch an investigation into all China-Nigeria loan agreements since 2000. The lawmakers want the contracts reviewed and where necessary, cancelled. The legislator who spearheaded the action said there is widespread global concern about the alleged fraudulent, irregular, and underhand characteristics of Chinese loan contracts with African nations, which have resulted in a new form of economic colonialism foisted by China.
Many of the concerns of opponents of China’s financial ties with African governments stem from a lack of understanding of how debt works. That a creditor applies the contractual terms for dealing with non-payment by defaulting borrower does not make the lender an imperialist or an exploiter. It is a standard condition that when a borrower defaults on a loan the debtor loses the property pledged as collateral and the creditor become the owner of the property, unless he or she forgives or restructure the debt. Collateral protects lenders. Without it, they can only rely on the decency of borrowers to uphold their obligation to repay long after they have consumed the credit. Few lenders would lend solely based on trust.
Before the global Covid-19 pandemic outbreak, many African countries were struggling with servicing their public debts. With the devastation caused by the disease, cash-strapped administrations are piling up more debt to deal with the health crisis and keep afloat fragile economies. The worry of critics of Chinese lending to Africa is that unlike in the first decade of this century when rich-nation official creditors cancelled large chucks of debts owed by poor nations, lenders today are likely to be less forgiving when dealing with the unfolding debt crisis. China, having in recent decades achieved remarkable economic growth without reliance on foreign philanthropy, may not be very sympathetic to pleas for debt forgiveness from African governments that have squandered their resources. Besides, Chinese people are not burdened by any legacy of colonialization in Africa and are not nursing any feelings of historical guilt to tender with reparation payments to Africans.
The prospect that China might demand its pound of flesh from defaulting profligate African governments is understandably scary for the affected regimes, but arguably a positive realisation. The tendency has been for Africa’s ruling elites to view foreign financing, both investment and debt, as an entitlement that wealthy nations routinely provide to aid the development of the so-called Third World. They see it as part of a morally driven endeavour to close the prosperity gap between the rich and poor. This view has been encouraged by the World Bank and other western-based international agencies seeking to end global poverty and inequality by channelling financial grants and concessional loans to poor-nation governments.
The flow of capital between countries, as with movements within nations, is not driven by philanthropy. Capital is not a gift of nature that is freely available. Its production involves costs paid for someone. When a charity gives money freely to a poor-nation government or institution, the donation came from the savings of those who funded the benefactor. Someone sacrificed for the act of charity to occur.
Critics of Chinese overseas lending complain that the loans are conditional on recipients using the money to purchase Chinese goods and equipment and use Chinese managers and workers. The criticism stems from a misunderstanding of loan conditionality. The low interest rates and generous repayment terms associated with Chinese loans to poor-nation governments do not stem from altruism or third-world solidarity. It is the cost of stipulating that the funded infrastructure projects benefit China’s economy directly by fostering demand for its manufacturers and workers. Similarly, the conditionality is a cost recipients pay to borrow at interest rates below rates charged by commercial lenders who attach no usage requirements.
Conditionality is not unique to Chinese loans. Western development institutions impose political and economic policy reform conditions on debtor governments. The borrowers accept the strings attached because the loans are cheaper than capital available from commercial lenders. It may be helpful to view the concessional interest rates associated with development financing as discount. It secures for the lender benefits such as market access or political intervention, while the borrower gains by acquiring capital at below commercial market price.
The assumption that the relationship that China is fostering with other developing regions stems from ambition to dominate the world lacks a base. There is no sign that Beijing is using foreign investments and loans to extend its rule to Africa or other underdeveloped regions of the world. China acts in its self-interest and wants to be a major economic force in the world, able to influence the terms of an evolving new chapter of globalisation.
China’s foreign policy includes forging access to markets and natural resources abroad for its growth-hungry firms, but it is not doing this by dispatching forces to foreign lands, nor is there evidence that it is engaged in fraud. It is trying to win friends and allies by delivering infrastructure such as railways, roads, and power stations to countries in return for access to resources and markets. It is absurd to use terms implying conquest, such as imperialism, colonisation, and empire-building, to describe transactions between sovereign states.
Chinese funding of African projects stems from market transactions, even though at least one party is an authoritarian regime professing socialist ideology. After decades of dealing with its so-called western development partners, African governing elites should have realised that aid is rarely free. It invariably comes with strings, even if the conditions are not always material.
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