Africa’s debt crisis worsens with Chinese high-interest loans

Beijing’s aggressive strategies in its peripheral regions often create a false perception of its growing global stature. Far from being considered a superpower, China is viewed as an adversarial power by most, if not all, of its prominent neighbors. A valuable metric to gauge Beijing’s global influence is the number of countries it can actually call upon as allies in moments of crisis and conflict. That number is decreasing. Apart from a few countries, China has ongoing conflicts with important nations that can dent its superpower ambitions. Besides the increasing number of adversaries, China seems to be losing allies too.

A major part of this conundrum—of increasing adversaries and decreasing allies—is of Beijing's own making. China, once considered to have the economic might to mitigate developmental challenges facing the underdeveloped and developing world, chose instead to exploit resources and extend high-interest loans with promises of not repeating the West’s economic mistakes. With these fundamentals as its flag, Africa and other developing partners were quick to reach out towards Beijing’s enticing offers. From developmental loans promising infrastructure revolution to redrawing financial structures driven by host country priorities, the initial presentation of Chinese friendship seemed fruitful. However, lessons from a Chinese embrace have been learned the hard way. The Belt and Road Initiative (BRI) project alone has burdened lower and middle-income countries with hidden debts amounting to around $385 billion, a figure expected to far exceed in the coming years.

Perils of Africa’s Partnership with Beijing

Beginning with Africa, high-interest loans have shaken the economic foundations of the underdeveloped world. Hidden debts veiled under infrastructure contracts and false revenue estimates promoted by Chinese contractors have heavily cost host countries. Many African nations have accumulated significant debt from Chinese loans for infrastructure projects with high interest rates and stringent terms, leading to debt distress. Over the years, Beijing has become the largest bilateral creditor to African countries, providing financial loans for developmental projects to over thirty African partners, including Angola, Ethiopia, Kenya, Djibouti, Cameroon, Zambia, and the Republic of Congo, among many others.

Under the pretext of developmental projects extended as an ally, China has masked its economic assistance to financially volatile nations. Countries like Zambia, Congo, Ethiopia, and Kenya have been pushed into economic crises due to high-interest loans granted by China’s developmental banks.

An All-Weather Partnership that Sinks an Economy

For Pakistan, the closest ally to China in the region and home to its largest investment in the form of the China-Pakistan Economic Corridor (CPEC), the impact has been most severe. According to a prominent study conducted by Aid Data, China has been financing these infrastructure projects through loans from Chinese developmental banks, increasing Pakistan’s total external debt. This has also led to Pakistan's trade deficit widening significantly since the initiation of CPEC. With high-interest rates and opaque terms, Pakistan's ability to repay its debts and the risk of debt dependency on China have led to various projects failing to meet deadlines for completion.

In a classic example of China’s unreliability as a partner, the economic heavyweight refused to assist Islamabad in its request to renegotiate power purchase agreements, further distressing the country’s already struggling economy. This has not only cost in terms of a dwindling economy but also resulted in cracks among both allies. With the current scenario looming large over all Chinese investments in Pakistan, it seems only viable to deem the CPEC a disastrous failure. The inability of Pakistan’s political establishment to assess China’s failed bet on developmental projects has resulted in a lose-lose situation for both allies. Expecting any form of all-weather friendship to further engage in cooperation would be a misjudgment among analysts.

Thus, a Chinese embrace for friendship has dearly cost Beijing’s allies across the globe. By using its partners as testing grounds for poorly conceived economic policies and leveraging their political influence in international forums, Beijing has neglected fundamental principles of international relations—being a reliable and trustworthy partner. This strategy has alienated its allies, resulting in the loss of crucial partners to the West and strengthening adversarial fronts. Hence, for the developing world that looks to Beijing as a superpower enduring for the Global South, a lesson must be learned: a Chinese embrace for partnership is as detrimental to their economies as it is for their development.