MA XUEJING/FOR CHINA DAILY

China strives to provide long-term remedies for the treatment of African countries' pandemic-induced debt problems

The Chinese government has provided a large amount of much-needed development funds for African countries through foreign aid, export credit, development finance, equity investment and other means, effectively alleviating their financing pressure and gradually becoming one of the most important sources of financing for African countries.

This funding has helped African countries make significant progress in infrastructure construction and contributed to their intrinsic growth momentum.

Before 2020, China handled debt issues with other developing countries mainly through bilateral channels. During the debt crisis and economic crisis of African countries in the 1980s, China negotiated with African countries on solving the debt problem — mainly by extending the repayment periods. For example, China extended the repayment period for the Tanzania-Zambia Railway project several times. From 1983 to 1990, China lengthened the repayment period for a dozen African countries, including Cameroon, Chad, Ghana, Mozambique, Tanzania, Rwanda and Sierra Leone.

Since 2000, the Chinese government has been providing debt relief for African countries by canceling interest-free loan debts that matured and could not be repaid.

Between 2000 and 2019, China canceled at least $3.4 billion in African debt. It has provided large-scale debt cancellation for Zambia, Ethiopia, Ghana, Sudan, Cameroon, Tanzania, Mozambique, Mali Guinea and other African nations. After the outbreak of the COVID-19 pandemic, China announced that it had written off interest-free loans for 15 African countries that matured in 2020. Later, at the Eighth Ministerial Conference of the Forum on China-Africa Cooperation, China announced that it would exempt the least developed African countries of debt incurred from interest-free loans matured at the end of 2021.At the follow-up video conference held in 2022, China announced that it had waived 23 interest-free loans for 17 African countries which had matured by the end of 2021.

For concessional loans, preferential buyer's credits and commercial loans, China tends to treat them without reduction of principal. Although the debt treatment method in each case is different, the main way is to reduce the net present value of the debt by lowering the interest rate, extending the grace period and significantly extending the repayment period.

Between 2000 and 2019, Chinese lenders restructured or refinanced approximately $15 billion of debt in Africa, of which $4.378 billion was restructured. Of that, after 2014, in the wake of the global commodity price plunge, China actively carried out debt restructuring with African countries to help them cope with the unfavorable international environment. In 2016, China provided $7.5 billion in new financing to Angola, making Angola one of the largest beneficiaries of China's outbound investment and financing loans in Africa. From 2017 to 2019, China has carried out debt restructuring with Chad, Mozambique, Ethiopia, Niger, Republic of the Congo, Cameroon and other African countries.

From the perspective of debt forgiveness for Africa, China's governance plan, which emphasizes "bilateral channels" and adherence to the principle of "noninterference in internal affairs", is different from that of the Western providers such as the International Monetary Fund and the Paris Club.

Generally, China does not simply offer debt forgiveness, and loans are made on the basis of a project's future earnings rather than short-term economic conditions. This is because China believes that debt write-offs only solve problems on the surface and do not guarantee long-term debt sustainability. If the debtor has difficulties in paying on time, China will consider helping the project revitalize through such means as rescheduling and increasing the grant, or hiring a Chinese company to assist operations. China aims to ensure the interests of both parties by increasing the "blood-creation" capability, to help the project get back on track and earn profits.

Since the outbreak of the COVID-19 pandemic, the debt sustainability of African countries has once again come under the global spotlight. Facing the rising possibility of debt defaults, China has been actively participating in the treatment of African countries' debt problems and providing African countries with solutions based on a long-term perspective.

China has actively carried out debt moratorium and debt restructuring with African countries through bilateral and multilateral channels to reduce their debt repayment pressure. In this process, China has fully considered the development needs of African countries and is committed to promoting their long-term sustainable development.

China's participation in the G20 Debt Service Suspension Initiative and the Common Framework for Debt Treatments marks the beginning of China's transition from a bilateral approach to a multilateral approach in addressing debt problems.

In 2020, China and the other G20 members jointly launched the DSSI and the CF.China has actively coordinated the joint negotiations of official bilateral creditors, which is not only the improvement and upgrading of China's debt governance concept, but also a reflection of its integration into the international sovereign debt governance system.

Two official bilateral creditors, the China International Development Cooperation Agency and the Export-Import Bank of China, started to provide G20 DSSI to countries worldwide in April 2020. Other Chinese banks including the China Development Bank and Industrial and Commercial Bank of China also provided debt relief to other countries outside the G20 program.

China ranks first among the G20 members in terms of debt deferral amounts under the DSSI for African countries. As of October 2021, China had suspended $5.7 billion of debt service payments for 26 countries, more than all the Paris Club members combined and accounting for around half of the world's total debt service suspension. China is also a major bilateral creditor for the three CF debt relief applicants — Chad, Ethiopia and Zambia.

In the process of providing development financing to Africa and dealing with the corresponding debt problems, providing debt relief is only a stopgap measure for solving the urgent need, but not a long-term solution. The international community should take measures to innovate the development financing mechanism, improve the economic structure of African countries, upgrade the mode of economic growth, and form a virtuous cycle between debt and economic development to fundamentally avoid a debt crisis.

Based on respect for African countries and African people, China will continue to cooperate with African countries in infrastructure, trade and investment through China-Africa cooperation and the Belt and Road Initiative, to promote the long-term stable development of African countries and fundamentally improve their development capacity and debt repayment capacity.

Huang Meibo is a professor and director of the International Development Cooperation Academy at Shanghai University of International Business and Economics. Zhang Yuning is a PhD student at the School of International Business at Shanghai University of International Business and Economics. The authors contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.

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