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von Hans Dembowski

China’s aid lending is neither entirely good nor totally bad

Earlier this week, China’s President Xi Jinping pledged $60 billion in support of African development in the next three years. The Forum on China-Africa Cooperation in Beijing has thus rekindled the debate on the merits of aid efforts made by the People’s Republic. I’d like to weigh in with a few thoughts.

The Chinese government wants to extend its international influence. One way of doing so is to help other nations build infrastructure. In view of the dramatic need to build such infrastructure, Chinese funding is welcome in principle. Most of it comes in the form of loans, some of which include concessional elements such as low interest rates. This sense it does not differ substantially from the official development assistance (ODA) provided by established donor nations.

While it makes sense to finance infrastructure with loans, debt can cause huge problems. That happens when the debt burden becomes excessive. Western powers and many developing countries learn this lesson the hard way in the 1980s and 1990s. Poor countries became over indebted, couldn't service their loans, were granted fresh credit in return for austere macroeconomic policies, still couldn't service their debts, so eventually after a painful downward spiral and deepening poverty debt relief became necessary. Our recent focus on the lessons of structural adjustment dealt with this depressing chapter of recent global history.

At the time, the People's Republic had begun to set up special economic zones, was inserting itself in the global economy and beginning to rise to world power. It was neither involved in the debt problems of the 1980s and 1990s, nor was it affected much. Accordingly, China has little experience in debt issues. Problems are likely to arise again, and Chinese lending is likely to contribute to those problems. To handle debt crises, multilateral cooperation will be essential. Whether such global cooperation comes about, will not depend on China alone. In contrast to the Trump administration in the USA, one cannot blame the regime in Beijing of hostility towards coordinating policies in multilateral settings. Western governments would certainly be well advised to keep nudging Beijing towards multilateralism.

The Chinese government is fond of claiming that it does not tie its lending to political conditions. It pretends that this approach is more generous in the one of western governments who tend to consider governance issues important. Such rhetoric is misleading. It neglects experiences made. The point is that development credits are more likely to be used well and then repaid in places where governments act responsibly and enjoy legitimacy in the eyes of their people.

It is true of course that democracy does not per se guarantee stability, but authoritarian rule is inherently unstable and illegitimate. This is especially so in Africa where one party regimes and military dictatorships failed to bring about development.

In East Asia and South East Asia the picture is not quite as obvious because strongmen regimes did start industrialisation and initiated modernisation in several countries. Indeed, that was the case in China under Deng Xiaoping in the 1980s and 1990s. To a large extent, however, the countries concerned have become democracies. China is an obvious exception. That President Xi’s regime is becoming more repressive, indicates that it does not trust its people. That in turn shows that frustration is growing, disparities are widening and the regime’s legitimacy is weakening.

Regardless of China’s domestic politics, I don’t think it is useful to consider China’s international engagement binary terms. It is neither totally good nor perfectly bad. Whether African countries make meaningful use of the opportunities that Chinese aid offers depends on their governments to a large extent. African leaders must pay attention to what kind of deal they strike. They must assess carefully what kind of projects will drive development and what kind of debt burdens their countries can bear.

It has been argued that China is systematically ensnaring African countries in debt traps and thus threatening western security. I think that argument has some merit, but must not be exaggerated. Dealing with an over-indebted client is not easy. Defaults mean that a lot of money is lost, and it may well prove impossible to claim anything valuable in return. China does not have the military muscle to enforce its will all over Africa. If it tried to do so, the experience would probably be very painful. The most likely scenario is that Chinese troops be dragged into long-lasting and devastating civil wars.

I think is unlikely that China will be able to use debts to set up military bases all over Africa. Lacking the soft power of western governments, those outpost wourld face even more animosity that western military bases do - and typcially, the Chinese bases will be in countries were NATO military is present too. I worry much more about what financial crises may lead to. In my eyes, China would probably want to expand its military reach to Africa, but will be far more interested in handling econmic turmoil in a way that does not execerbate crises.  

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