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China's Africa loans raise worries about debt burdens in poor countries

Published on 9th February 2007

DAKAR, Senegal (AP) - Chinese President Hu Jintao, wrapping up an eight-nation African tour this weekend, has promised billions in no-interest loans -- but has barely mentioned the question of repayment.

Also absent from Hu's funding are requirements for privatization or economic policy changes -- a conditions-free approach to lending that African nations have welcomed, including many poor nations that recently completed complicated, multiyear processes to qualify for the cancellation of massive debt to Western donors.

But China's offers have raised the question of whether its loans are just a new path to unwieldy debt for poor countries -- with weighty names like World Bank President Paul Wolfowitz and European Investment Bank President Philippe Maystadt issuing warnings about the easy money from Asia. Yet some at organizations that designed the debt forgiveness process say China's investment is needed, and probably more is as well.

"There is such a huge gap ... between what is needed in Africa to boost development and what has been supplied by traditional donors or the bona fide private sector," said Harry Broadman, a World Bank economist and author of "Africa's Silk Road: China and India's New Economic Frontier."

Broadman argues that impoverished nations are not abandoning World Bank economic policies for free money from China, but often taking the economic policy advice even as they look for funding from a multitude of sources. Moreover, the Chinese don't want to see their money taken by corrupt governments any more than the West, he said.

"From my discussions with the Chinese, they are trying to learn the lessons of the past," Broadman said. "They certainly don't want to waste resources."

Trisha Rogers, director of the Jubilee Debt Campaign that helped push for debt relief for poor countries, said grants from the West or China would obviously be better, but those have been slow to come.

Rogers added that she expects those countries that have gone through the process of having their debt canceled to be more careful than others in taking on new loans.

"It has been very painful for some of them, particularly a country like Sierra Leone," she said, explaining that the West African country had to make austere changes in economic policy to qualify for debt relief just as it was emerging from years of war.

And China is also forgiving debt owed to it by some of Africa's poorest countries -- including Liberia andCentral African Republic.

China has agreed to forgive loans to 33 African countries that came due in 2005 by the end of this year, according to the Xinhua news service, while promising US$3 billion (euro2.3 billion) in preferential loans.

Senegal, one of the countries that has qualified for debt relief, has said it prefers to take loans from China and other Asian countries over those from the U.S. and Europe.

"With the Asian countries it's fast and it's direct ... Africa doesn't have a lot of time and it's a cooperation that's faster," President Abdoulaye Wade told reporters last year.

Over the next three years, China has said it will double grants and interest-free loans to African countries. Rogers welcomed the investment, and China's approach of letting governments set their own policy -- even if that includes lending to highly criticized regimes in Sudan and Zimbabwe. And the possibility that loans from China could have strings attached down the road?

"They just need to look carefully at the small print on each loan," Rogers said.

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