27/05/2007 – by D+C | E+Z
[ By Helmut Reisen ]
China’s President Hu Jintao has gone on a second Africa trip within a year, heralding a new round in Beijing’s charm offensive. Before setting off on an eight-nation tour in February, Hu promised Africa another $ 3 billion in fresh loans on preferential terms. China also wants to double its aid and interest-free loans over the next three years. There is just one condition: access to commodities China urgently needs. Most of the time, Beijing is proposing comprehensive projects for infrastructures, including funding, delivery and training of staff. These projects often only cost a fraction of what European companies would charge.
‘Old’ donors are watching China’s action with suspicion. They accuse China to free-ride on the development efforts deployed by the international community. Poor African countries are only largely debt-free today because of two multilateral debt relief programmes. Some of the countries that benefited most have recently begun anew to incur massive debts, with China their most important creditor. While the terms of China’s loans are not well known, their rapid rise and characteristics (such as contingency and foreign-exchange clauses) may impair debt sustainability in low-income countries.
Furthermore, critics say, Beijing does not shy away from places where dictatorship and corruption prevail, supporting regimes the West decided not to cooperate with. It is further stated that the People’s Republic is not interested in sustainable development for Africa, but rather only wants to secure access to commodities, without any concern for social or environmental standards.
While there is some substance to these arguments, they sound like sour grapes. Beijing is supporting healthy developments in Africa. Let us not forget that an important goal of the debt-relief programmes, was to restore African credit-worthiness, thus encouraging new investments and boosting economic potential. There rarely has been such rapid and intense investment in African infrastructure as is going on today. With a look back at Latin American debt in the 1980s, the G8 should have realised that China would take advantage of offering new loans. Had they wanted to prevent Beijing’s engagment, they should have involved China in their debt-relief initiatives.
Meanwhile, Africa is benefiting from Chinese money. The continent is no longer a chasse gardée, and competition is stimulating. Recent trends may bother Western companies and their public co-financiers, but established donors’ new rivalry with China is doing more to promote African development than any high-flying governance rhetoric – the credibility of which, by the way, has not exactly thrived on recent corruption scandals at Western companies British Aerospace, Siemens, Halliburton, or Lahmeyer (see page 137).
Moreover, China will also have to reconsider governance issues in partner countries. In February, the Chinese government deleted Nigeria and Sudan from its list of resource-rich countries it is encouraging companies to invest in. The next step should be to share common loan criteria and to commonly develop recommendations for a potential Debt Transparency Initiative that could imply both DAC and non-DAC official lenders as well as private lenders.
China’s loans are making it more difficult for Western donors to influence African policy-making in economic affairs. The World Bank and the International Monetary Fund are facing the same challenge. The competition now faced by Western financial institutions may strengthen the competion across economic-policy paradigms, with recipient countries free to choose. Ultimately, reform ownership and accountability may thus be strengthened. As power slips away from the old donor cartel, new opportunities for real competition between different policy-approaches will arise. And that will be healthy.