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Briefing Papers

Integrating China into Multilateral Debt Relief: Progress and Problems in the G20 DSSI

By: Deborah Brautigam and Yufan Huang (Briefing Paper 09/2023)

Deborah Brautigam and Yufan Huang provide the first in-depth evaluation of China’s participation in a major multilateral experiment in sovereign debt management: the G20’s COVID-19 Debt Service Suspension Initiative (DSSI). Through analysis of available data, more than 100 interviews, and fieldwork in Angola, Kenya, and Zambia, we argue, with some caveats, that the DSSI was a success. First, it succeeded in providing a pathway for China, the world’s largest bilateral creditor, to negotiate debt treatments together with the Paris Club in the Common Framework. Second, China fulfilled its role fairly well as a responsible G20 stakeholder. In the 46 countries that participated in the DSSI, Chinese creditors accounted for 30 percent of all claims, and contributed 63 percent of debt service suspensions. Finally, the DSSI pushed the Chinese government to align interests among fragmented banks and bureaucracies with conflicting goals. This process, still underway, is a necessary step toward full acceptance of the necessity for debt restructuring in the post-pandemic era.

Evolution of Chinese lending to Sri Lanka since the mid-2000s: separating myth from reality

By: Umesh Moramudali and Thilina Panduwawala (Briefing Paper 08/2022)

Sri Lanka’s April 2022 default has brought renewed attention to Chinese lending on the troubled island. Our new briefing paper, based on Freedom of Information requests by two Sri Lankan economists, shows that loans from Chinese banks now constitute 19.6 percent of public debt, much higher than the often quoted 10 to 15 percent. All this debt was duly reported to the World Bank’s International Debt Statistics. Interest rates on Chinese loans averaged 3.2 percent – higher than Japanese, World Bank, and ADB loans, but significantly lower than Eurobonds (6.9 percent). While much commentary has charged China with “asset seizure” in the case of the lease of Hambantota Port, debt service for the Port came to only 2.4 percent of Sri Lanka’s total payments in 2017, the year the port was leased. There was no default on the port loans in 2017. Loan contracts obtained by the authors show no evidence of the port serving as collateral for the Chinese loans.

In putting together this paper, we relied to a large extent on publicly available government documents. But there were limitations in providing further detailed context to Chinese lending to Sri Lanka through these alone. Therefore, we relied on the ability to gain access to data and documents via Right to Information (RTI) requests made to several public institutions. Many of these documents should be publicly available for anyone to easily access. As per the RTI Act, the information obtained via RTI requests are considered public information. Thus we share the information we have obtained using RTI requests for the benefit of any researcher interested in Chinese lending, here.

Montenegro, China, and the Media: A Highway to Disinformation?

By: Laure Deron, Thierry Pairault, and Paola Pasquali (Briefing Paper 07/2021)

On June 21, 2021, the French public television channel France 2 aired a report in which it was stated that Montenegro, a heavily indebted nation, was at risk of “having to cede some of its land to China” as a result of its inability to pay back a loan for the construction of a highway. According to reporters, Montenegro’s Port of Bar could be annexed by China “completely legally,” thanks to an “extraordinary contract” that had been “never seen before in Europe (...).” In reality, reporters erroneously presented a standard sovereign immunity waiver as evidence that China is entitled to seize land in Montenegro in the case of a payment default, reflecting their lack of understanding of normal international legal practice. Deron, Pairault, and Pasquali argue that criticism of problematic Chinese lending practices must be based on facts, not unfair and misguided denunciation.

What is the Real Story of China’s “Hidden Debt”?

By: Deborah Brautigam and Yufan Huang (Briefing Paper 06/2021)

On September 29, 2021, AidData, a research lab at William & Mary, released a detailed overview of their new data on China’s global lending, “Banking on the Belt and Road.” The report has generated much commentary. In this briefing paper, Deborah Brautigam and Yufan Huang examine the data underpinning the AidData conclusions. While they agree with many of AidData’s points, the authors’ own analysis of the data puts a very different spin on their headline conclusions. Brautigam and Huang argue that by providing averages, not discussing outliers, and allocating the entire Chinese loan for joint ventures to only the host government partner, the AidData report is unduly alarmist.

Zambia’s Chinese Debt in the Pandemic Era

By: Deborah Brautigam and Yinxuan Wang (Briefing Paper 05/2021)

Zambia's debt difficulties hit headlines in November 2020 when the country defaulted on its Eurobond payments. In August 2021 a new president, Hakainde Hichilema, took office, facing a debt burden that had never been fully transparent to Zambia’s public and the world. This paper is CARI’s contribution to public understanding of Zambia’s Chinese debt. The authors use CARI data and research on loan disbursements and repayments to estimate Zambia’s outstanding external public debt to all Chinese financiers, official and commercial: approximately US$6.6 billion. This figure is more than double that of the most commonly cited figure for Chinese debt in Zambia (US$3 billion).

Twenty Years of Data on China’s Africa Lending

By: Kevin Acker and Deborah Brautigam (Briefing Paper 04/2021)

China’s lending to Africa remained significant in 2019, but its nature is changing. Chinese financiers have committed US$ 153 billion to African public sector borrowers between 2000 and 2019. At least 80 percent of these loans financed economic and social infrastructure projects: mainly transport, power, telecoms, and water. In 2019, Chinese financiers committed US$ 7 billion to African borrowers, down 30 percent from US$ 9.9 billion in 2018. We expect this dip to continue through 2020, reflecting the impact of the pandemic and associated economic dislocation. Yet we do not predict a sustained drop in Chinese lending to Africa. Like other lenders, Chinese banks are interested in the profits available in emerging and frontier markets.

• Down but not out. China’s loan commitments (2000- 2019) in Africa now total US$ 153 billion. New Chinese loan commitments of US$ 7 billion dipped 30% in 2019 compared with 2018.

• Avoiding risk. Countries where China reprofiled, restructured, or refinanced existing debt between 2015 and 2019, including Angola, Cameroon, Djibouti, Ethiopia, Mozambique, and Republic of Congo, received far less Chinese finance in subsequent years. In 2019, China’s top borrowers were Ghana, South Africa, Egypt, Côte d’Ivoire and Nigeria.

• Changing creditors. In 2019, CARI data included over 30 Chinese banks and other lenders. Lending from China Eximbank, China’s only source of concessional loans and preferential export credits, peaked in 2013. Commercial loans from China Development Bank and other banks have filled the gap.

• Resource-backed finance is evolving. Although accounting for only 8% of total Chinese lending to Africa (aside from Angola), the controversial resource-backed infrastructure financing model is not dead; it lives on in Ghana and Guinea.

This briefing paper is published in partnership with Boston University’s Global Development Policy Center. Visit https://www.bu.edu/gdp/publications/ for a full list of the GDP Center’s publications.

Risky Business: New Data on Chinese Loans and Africa’s Debt Problem

By: Deborah Brautigam, Yufan Huang, and Kevin Acker (Briefing Paper 03/2020)

From modest beginnings in 1960, China has recently become a highly visible actor in Africa’s lending landscape. African borrowers have built roads, installed electrical grids, and modernized their airports with Chinese finance. Yet when commodity prices and growth rates began to tumble in 2015, the specter of a new debt crisis arose. These fears expanded sharply with the impact of the COVID-19 pandemic.

Are the African countries most vulnerable to debt distress those with high Chinese debt? Who are the Chinese lenders in Africa and how do they manage lending in risky environments? Is China a bigger lender than the World Bank? What kind of terms do we see on Chinese loans in Africa? Why have Chinese banks lent so much in risky environments? How often are loans collateralized with natural resource exports? Do Chinese banks require property as collateral for loans to African governments or their state-owned enterprises (SOEs)?

1. New data show that China makes up 22% of public debt stock (2018) and 29% of debt service (2020) in low income Africa. Yet China’s role should not be overestimated. In over half of the 22 countries facing debt distress, China is a small lender. Their debt problems are not made in China.

2. In seven of these 22 countries, China accounts for a quarter or more of all public and publicly guaranteed debt: Angola, Djibouti, Cameroon, Republic of Congo, Ethiopia, Kenya, and Zambia. Four of these countries negotiated debt restructuring with Chinese lenders in 2018 and 2019.

3. Chinese banks’ “project-by-project” analysis may have disregarded the overall debt risk in borrower countries. Only a quarter of Chinese lending is secured by natural resource exports.

4. Borrower government should plan their projects better before they borrow. A large portion of Chinese loan commitments are slow to disburse, partly due to borrowers’ inability to meet their share of project responsibilities. Delays hurt the bank, the contractor, and the borrower government.

Assessing Chinese Manufacturing Investments in East Africa: Drivers, Challenges, and Opportunities

By: Ying Xia (Briefing Paper 02/2019)

In a three-part series comprising two working papers and a briefing paper, Ying Xia dives deep into the investments driving the manufacturing sector as well as agricultural investments in Kenya and Tanzania. The briefing paper offers a honed-in look at the key takeaways while each working paper gives detailed insights into what the industry looks like on the ground.

Key takeaways:

1. The author found a considerable disparity between official registration information and on-the-ground investment activities. Neither MOFCOM nor investment authorities in Kenya or Tanzania have been able to monitor small investment projects that are “flying under the radar” or keep track of any subsequent changes to investment plans.

2. Chinese investments in the manufacturing and agricultural industries in Kenya and Tanzania are dominated by private, migrant entrepreneurs, who have mainly been driven by market considerations, such as production cost and market proximity, rather than government incentives in home or host country.

3. Business strategies and decision-making are usually contingent on entrepreneurs’ prior experience in China and African countries.

The Path Ahead: The 7th Forum on China-Africa Cooperation

By: Janet Eom, Deborah Brautigam, and Lina Benabdallah (Briefing Paper 01/2018)

The 7th Forum on China-Africa Cooperation (FOCAC) will be held in Beijing from September 3 to 4, 2018. Since 2000, the FOCAC has been held every three years. It serves as the official summit between the Chinese president and African heads of state, and results in major policy and financing announcements. This CARI briefing paper analyzes progress on commitments made during the 2015 FOCAC, and the trends we expect to emerge from the 2018 FOCAC. These will shape the China-Africa relationship in coming years. This paper by Janet Eom, Deborah Brautigam, and Lina Benabdallah makes four points:

1. We find that Chinese loans are not currently a major contributor to debt distress in Africa. Yet many countries have borrowed heavily from China and others. Any new FOCAC loan pledges will likely take Africa’s growing debt burden into account.

2. The 2018 FOCAC will likely pledge additional loans for infrastructure and investment for manufacturing. But the outlook on Chinese trade with Africa, which has slowed, is uncertain.

3. Capacity building as well as peace and security are emerging as more prominent parts of the China-Africa relationship, and serves to diversify engagement on both sides.

4. New areas of cooperation at the 2018 FOCAC may include renewable energy and the Belt and Road Initiative. It may also be influenced by US-China trade tensions and the creation of a national development agency in China.

Challenges of and Opportunities from the Commodity Price Slump

By: Lucas Atkins, Deborah Brautigam, Yunnan Chen, and Jyhjong Hwang (Economic Bulletin 01/2017)

The first edition of the China-Africa Economic Bulletin provides a comprehensive overview of the key channels of China-Africa economic engagement over the last decade, with a focus on shifting economic trends in the past five years. The collapse of global commodity prices beginning in 2014, tied with the domestic slowdown in China, has significant implications for the tenor and nature of China’s economic relationship with African countries going forward. This bulletin provides more information on trends in bilateral trade, Chinese outward direct investment to Africa, Chinese labor and contract values, and Chinese loans to African governments.