China’s huge lending deals in Africa have been a matter of global discussion, commonly known as «debt trap diplomacy». This refers to the term that China makes massive loans to African nations that could drive them to debt difficulties and China, thereafter, gets to utilize its strategic advantage as these countries approach repayment challenges.
China launched its Belt and Road Initiative (BRI) in 2013 with the vision of enhancing world connectivity by investing in infrastructure on a massive scale. Africa has been the major target under the initiative, and Chinese lending has been financing the majority of projects from ports, railways, roads, to energy infrastructure. Between 2000 and 2017, China lent around $143 billion to African states and state-owned entities.
Example of Kenya and de Djibouti
In Kenya, the $4.7 billion Standard Gauge Railway initiative to connect the Mombasa port to Uganda and further suffered enormities of delays. The venture stalled midway and in halfway infrastructures imposed enormous financial burden upon the nation and brought forth an alarm for concern over debt viability and the overall economic sense for such large initiatives.
Djibouti has similarly seen extensive Chinese investment, including the establishment of China’s first overseas military base in 2017 and $1.4 billion of infrastructure lending from 2012-2020. This had built up public external debt of over 70% of GDP by 2020, over half of which had been owed to China, and caused debt distress and sovereignty issues.
Controversy around «debt trap diplomacy»
The «debt trap diplomacy» thesis has been questioned by analysts and experts. Research has concluded that Chinese banks have been accommodating in restructuring loans outstanding and have not seized assets from any country. Between 2000-2019, China wrote off at least $3.4 billion and restructured or refinanced as much as $15 billion worth of African debt, and this is less hard-hearted than the debt trap thesis implies.
In response to criticism and changing global economic dynamics, China has been adjusting its approach to engaging with Africa. At a recent Beijing summit, President Xi Jinping pledged $50 billion in new investment to African nations, and greater focus on manufacturing investments and job creation, compared to merely large-scale infrastructure projects. This reflects an effort to create more balanced and sustainable economic relationships.
The «debt trap diplomacy» controversy testifies to the need for African nations to subject foreign investments to careful conditions scrutiny and for China to promote open and mutual benefit cooperation.
