China is often accused by the US and others of exploitative behavior in developing countries but the facts point to the true source of the problem: the West
An aerial view of the Padma Multipurpose Bridge and railway project in Louhajang, about 40 kilometers from Dhaka, capital of Bangladesh, in June. (MUNIR UZ ZAMAN / AFP)
The United States and other Western countries often accuse China of leading developing countries into so-called debt traps, but studies show that if anyone is creating such traps it is Western countries and financial institutions, analysts say.
In an opinion piece in The New York Times on Aug 16 the Sri Lankan writer Indrajit Samarajiva said his country's economic and political collapse had largely been the result of Western debt traps.
Belt and Road Initiative finances are not a debt trap that nations may fall into, but through the BRI finances African nations are getting out of the trap of no development.
Ehizuelen Michael Mitchell Omoruyi, executive director of the Center for Nigerian Studies at the Institute of African Studies at Zhejiang Normal University
Western media have accused China of luring Sri Lanka into a debt trap, he said, "but from where I'm standing, ultimate blame lies with the Western-dominated neoliberal system that keeps developing countries in a form of debt-fueled colonization".
And despite Western claims of Chinese predatory lending, only 10 to 20 percent of Sri Lanka's foreign debt is owed to China, Samarajiva said, noting that most is "owed to the United States and European financial institutions or Western allies like Japan".
"We died in a largely Western debt trap," Samarajiva said.
Ehizuelen Michael Mitchell Omoruyi, executive director of the Center for Nigerian Studies at the Institute of African Studies at Zhejiang Normal University, said that in Africa in recent decades China has made many commitments to cancel the debts of borrowing countries.
This month China announced that it will waive 23 interest-free loans for 17 African countries that had matured by the end of last year.
"For countries that have failed to pay their debts in a timely manner, China has offered a variety of debt restructuring options to help African countries tide over their difficulties, rather than using asset seizures and other means to require borrowers to pay off their debts," Omoruyi said.
He cited a report of the China-Africa Research Initiative at Johns Hopkins University that said China restructured or refinanced about $15 billion of African debt between 2000 and 2019, without asset seizures that countries such as the US have criticized when they talk of debt traps.
"While some contractual provisions call for arbitration against the borrowing country in the event of failure to repay the debt in a timely manner, there is no evidence that China has actually resorted to court enforcement of payments or the use of penalty rates," Omoruyi said.
Following the outbreak of COVID-19 the World Bank and the International Monetary Fund urged the G20 to establish a Debt Service Suspension Initiative. Since it entered into force in May 2020, countries eligible for the debt moratorium, most in Africa, had taken part in the initiative before it expired at the end of last year.
Those involved in the initiative have shown a diversity of creditors in recent decades, Omoruyi said. Overall, borrowing has been mainly from Paris Club official creditors as well as private banks and multilateral institutions, and China.
In 2020 China was the most significant debt relief country in this initiative. It suspended $5.7 billion in debt payments, contributing to more than half of the total global debt moratorium. Through this action, 45 percent of debts owned by the poorest countries to China were suspended. In contrast, the United Kingdom suspended no payments on its commercial loans and recovered $3.2 billion in debt from countries that applied for the debt standstill initiative.
Yuan Wanfu, project manager for the East Ring Road expansion project in Nairobi, examines an engineering drawing at a construction site in April. (LONG LEI / XINHUA)
Omoruyi said: "China is being blamed by the West for allegedly doing exactly what some Western financial institutions have been doing for decades: providing unsustainable loans to nations in need to further plunge them into debt, weaken state capacity and open up national economies to international investors (primarily from Western countries)."
China seeks to differentiate itself from the prescriptive and hierarchical approach of other external actors by emphasizing political equality and mutual benefit, he said.
"As such, Belt and Road Initiative finances are not a debt trap that nations may fall into, but through the BRI finances African nations are getting out of the trap of no development."
A report issued by Tsinghua University in Beijing this month said that from 2023 to 2025 African countries will enter a bond repayment peak with hundreds of billions of dollars in bonds maturing, and they face default risks, affecting dozens of low and middle-income bond-issuing countries, because of the "reckless operations" of large European and US investment institutions in Africa.
Tang Xiaoyang, a professor in the Department of International Relations at Tsinghua University, said the US subprime mortgage crisis of 2008 coupled with the European debt crisis, had led to the diversion of large amounts of private financial capital from the West to developing countries. Such funds, when the economies are facing downward pressure, could be problematic.
"At that time, capital that did not find a growth point in Western countries hoped to grow from developing countries, so they greatly encouraged developing countries to issue bonds and profited from them."
The report found that in just 12 years after 2008, the stock of sovereign bonds (mainly Eurobonds) of all low- and middle-income countries rose nearly 400 percent to $1.74 trillion in 2020, accounting for more than 50 percent of these countries' external debt.
"This is the first time they have issued bonds, so they are inexperienced, and under such circumstances they feel that everything is very good when the economy is on the rise," Tang said. "I borrow more money, but I did not expect the economy to fall, and the prices of resources and commodities have dropped."
Issuing bonds has helped solve some short-term problems for some developing countries that have vulnerable economic structures and lack financial risk management experience, but it may be difficult to deal with the adverse impacts of a global economic downturn.
The report, Reality Check: Falsehoods in US Perceptions of China, issued by the Ministry of Foreign Affairs of China in June, said that the so-called Chinese debt trap is a narrative that the US and some other Western countries use to defame and smear China and disrupt its collaboration with other developing countries. An article in The Atlantic in the US last year said the debt-trap narrative is a lie some Western politicians have fabricated, and a powerful one at that.
Western capital constitutes the largest creditor of developing countries. According to recent World Bank figures on international debt, 28.8 percent of Africa's outstanding external debt is owed to multilateral financial institutions and 41.8 percent to commercial creditors mainly composed of Western financial institutions. These two types of institutions together hold nearly three-quarters of the debt, making them Africa's primary creditors.
The debt issue is, in essence, a development issue, the report said, and the key to resolving it is in ensuring that the loans deliver real benefits, the report said.
According to preliminary figures, between 2000 and 2020 China helped African countries build more than 13,000 kilometers of roads and railways and more than 80 large-scale power facilities, funded more than 130 medical facilities, 45 sports venues and more than 170 schools, and trained more than 160,000 professionals across various fields in Africa.
The Nairobi Expressway project built by Chinese companies in Kenya through a public-private partnership has created more than 6,000 local jobs and benefited more than 200 subcontractors and several hundred local suppliers. The Kenyan government speaks highly of the project, commending it as an important manifestation of mutually beneficial collaboration between Kenya and China, the report said.
China also attaches great importance to the debt sustainability of projects. In 2017 it signed the Guiding Principles on Financing the Development of the Belt and Road with 26 countries taking part in the BRI. In 2019 China unveiled the Debt Sustainability Framework for Participating Countries of the Belt and Road Initiative. The framework, based on the debt situation and the repayment ability of debtor countries, and following the principles of equal-footed consultation, compliance with laws and regulations, openness and transparency, aims to strengthen monitoring and assessment of the economic, social and livelihood benefits of the projects, and channels sovereign loans into areas with high yields, to ensure the long-term returns of the projects. China has also endeavored to reduce the burdens of debtor countries.
Mostak Ahamed Galib, director of cross-cultural communication and the BRI research center at Wuhan University of Technology, said Western countries are making groundless accusations of China creating a debt trap.
There are two main ways for developing countries to obtain international help, he said, one being technical assistance and the other financial assistance. In terms of technical assistance, China is leading in international engineering, procurement and construction contracting projects.
"About seven to eight of the top 10 companies listed by the Engineering News Record, widely considered as the most authoritative academic research and ranking in the field of engineering and construction, over the past 10 years are Chinese companies," he said.
"So it is not surprising that there are more opportunities for Chinese companies when it comes to engineering contracts."
It is also worth noting that when Chinese companies conduct international projects they usually bring in local companies as subcontractors to work with them so the local company can gain experience and technologies to take part in big projects and then be able to gradually undertake big projects themselves, he said.
Financial assistance usually includes grants, soft loans, commercial loans and hybrid loans. Apart from grants, on which interest is not paid, other loans require recipient countries to pay a certain rate of interest and repay the loan within a certain time. However, no matter what kind of loan agreement is signed, it is fully based on mutual negotiation between the lender and the borrower, and there is no possibility of a so-called debt trap and deliberate deception.
To those who accuse China of engaging in colonialism based on debtors being unable to repay loans, Galib said that is also a smear.
"In port construction, for example, if the debtor countries find themselves unable to repay the loan on schedule, the port may be carried out within a certain time in the lease. This is not colonialism but is similar to a commonly seen project contracting model switching from the build and transfer mode to the build, operate and transfer mode."
Those leveling the debt trap allegation deliberately ignore the fact that a lot of China's lending is in the form of grants or soft loans, Galib said.
"China itself is still a developing country, but there is debt relief for other borrowers who cannot repay on time."
The Belt and Road Initiative is not creating debt traps but opportunities for collaboration and development, he said. Countries involved should seize opportunities the BRI provides to improve their infrastructure construction, strive to become industrial and commercial centers in the region, and use the convenience of connectivity to improve their economic and trade levels and people's living standards.
He cited the China-built Padma Multipurpose Bridge in his country, Bangladesh, which opened to the public in June, cutting travel times from parts of the southwest of the country to the capital Dhaka from seven to eight hours to as little as 10 minutes.
The bridge is expected to raise Bangladesh's GDP by more than 1 percent a year, benefiting about 30 million people in 21 southwestern districts of the country, the Centre for Policy Dialogue, a think tank in Dhaka, said.
For Clayton Hazvinei Vhumbunu, a research fellow in International Relations at the University of Pretoria in South Africa, figures are more eloquent than Western talk of debt traps.
He cited a report last month by Debt Justice in the UK based on computations from the World Bank International Debt Statistics Database revealing that just 12 percent of African governments' external debt is owed to Chinese lenders, and 39 percent is owed to multilateral institutions, while 35 percent is owed to private lenders, excluding Chinese private creditors.
The Debt Justice calculations also show that the average interest rate on private sector loans is 5 percent, compared with 2.7 percent on loans from Chinese public and private lenders.
"Progressive discussions on the African development and debt discourse should transcend beyond narrow arguments on debt relief, debt restructuring, debt forgiveness, debt cancellations, debt swaps or debt haircuts," Vhumbunu said. "Rather, the focus and emphasis should be on how African countries can adopt strategic socioeconomic development models that sustainably transform their economies into industrialized, modernized and prosperous countries."
Xinhua contributed to this story.
