Beijing’s Waiver of African Loans Reveals Its Deceptive Nature in Foreign Lending: Experts

Recently, the Chinese Communist Party (CCP) made an attention-grabbing announcement that it plans to waive 23 interest-free loans, made to 17 African countries, and that matured at the end of 2021.

However, experts pointed out that the announcement was made to downplay the economically destructive consequences of the deceptive Belt and Road Initiative (BRI), as the waived loans would, at most, amount to a minuscule portion of Beijing’s loans to African countries, according to research institutes.

The announcement was made by CCP Foreign Minister, Wang Yi, at the Forum on China-Africa Cooperation on Aug. 18. It is noteworthy that he did not specify the total amount of the 23 loans or name the 17 countries involved.

However, according to an estimate made by the Boston University Global Development Policy Center using its Chinese Loans to Africa (CLA) Database, the “forgiveness to Africa could amount to $45 million to $610 million, overall constituting a small portion of China’s lending to Africa.”

The research center also noted that “the highest estimation of $609.57 million is only 1 percent of the $53.79 billion [due at the end of 2021] in overall loan commitments between 2000 and 2012.”

In a Sept. 14 interview with The Epoch Times, Frank Tian Xie, John M. Olin Palmetto Professor in Business at the University of South Carolina Aiken, believes that the announcement is just another of the many deceptive practices the CCP has used in the past.

“The practice of the Belt and Road Initiative was certainly unethical, and as the Western world criticizes the CCP for knowingly lending to countries that cannot repay the debt, the CCP decides to undertake some actions of ‘kindness,’ such as debt relief, to counteract the criticism.

“However, the fact is that the amount waived was extremely small, and those loans were the ones with basically no hope of repayment,” said Professor Xie.

According to the research paper titled, “How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments” (pdf), co-published in March 2021 by AidData and three other prominent research institutes, Beijing had committed an estimated total direct lending of $560 billion to countries in Asia, South America, and Africa between 2000 and 2017.

The research was based on 100 of the more than 2000 loan agreements that China’s state-owned lenders have signed with developing countries since the early 2000s.

In particular, despite the image in which the CCP advocates itself to be a promoter of friendship and economic prosperity, the research paper highlighted three common types of clauses in the CCP loan agreements that Beijing could use to exert influence in developing nations.

The three types of clauses highlighted in the research paper, in simple terms, include the following: confidentiality clauses that bar borrowers from revealing the terms and existence of the loan; clauses prohibiting borrowers from seeking assistance from other international organizations; clauses that allow Beijing to retain the right to cancel the loan and demand immediate repayment under a wide range of circumstances.

Additionally, the CCP requires a portion of the borrowers to open and maintain a “special bank account” to secure repayment. However, these accounts, usually located in China, would withhold all revenues from the project financed by the lender and all other cash flows funded by the loan, and require the borrower to maintain a minimum account balance set by the lender.

For example, in the contract between the borrower, the Venezuelan Economic and Social Development Bank (BANDES), and the lender, China Development Bank (CDB), CDB is “entitled at any time and without notice to BANDES” to use all or part of the balance in the special account for repayment. However, any withdrawal by BANDES, that would violate the minimum balance or any other terms, was prohibited.

Furthermore, 90 percent of the contracts collected contained clauses that would allow the CCP to terminate the agreement and demand repayment if the borrower’s government policy changed.

The research paper also found that 50 percent of the contracts with the CDB contained clauses that would allow the lender to demand repayment if the borrower’s actions harmed the interests of the CCP.

Additionally, about 75 percent of the contracts collected contained “No Paris Club” clauses, which means that the borrower cannot seek restructuring initiatives from creditors, like the Paris Club, or other institutions, in case of payment difficulties.

In particular, the Paris Club is a key international platform for helping to find sustainable solutions to payment difficulties experienced by debtor countries.

Lending With Deceptive Purposes

According to the research paper co-published by AidData and other research institutes, the CBD lent $1 billion to Ecuador in 2010 for the country to finance infrastructure and purchase goods and services from Chinese contractors.

However, the clauses within the contract required Ecuador to sell “at least 380,000 barrels of fuel oil per month and 15,000 barrels of crude oil per day” to the CCP over the entire validity period of the agreement.

Furthermore, the payments made by the CCP for such purchases would be deposited in the “special bank account” opened in China under the CBD, and Ecuador was not allowed to withdraw any amount except to the extent permitted by another unknown agreement.

The research paper also mentioned that almost 40 percent of the arrangements for these “special bank accounts” required funding from, for example, sources unrelated to the financed projects, such as Ecuador’s and Venezuela’s export revenues from oil; Ghana’s bauxite; and revenue from Costa Rica’s financial assets, such as bank deposits, stocks, bonds, or loans.

In extreme cases, such as the upgrade and expansion of Queen Elizabeth II Quay in Freetown, Sierra Leone, the research paper found that the contract included pledges of shares and unknown physical assets from Sierra Leone in case of financial difficulties.

Other examples, such as the leasing of the Hambantota International Port to the CCP for 99 years by the Sri Lankan government, also indicated the existence of asset pledges in the Chinese loan agreements.

The research paper also reported that the China Export-Import Bank and CDB provided approximately 94 percent of the 1,046 loans Beijing made to 130 countries between 2000 and 2014, citing a study from the Center for Global Analysis.

According to another study titled, “Grading China’s Belt and Road” (pdf), published by the Center for a New American Security, many of the BRI projects completed “have been unable to generate enough revenue to justify the initial investment, arguably leaving the recipient country in worse financial shape than before.”

John Lee, one of the foremost experts on economic and national security issues, said at a Hudson Institute conference hosted on Sept. 9 that the strategic purpose of the BRI is to build a “regional Sino-centric infrastructure” in which Beijing, playing a dominating role, could put itself in a powerful position to negotiate the conditions for any deal or economic arrangement using its economic and political leverage.

“The grander strategic purpose is to ensure that all roads, rail, ports, cables, digital networks, infrastructure begin and end in Chinese provinces, and importantly, operate on terms favorable to Chinese interests,” he said at the conference.

Professor Xie also believes that the BRI was politically motivated to bind those countries in support of the CCP in the UN and other international human rights organizations.

“The fact that those countries owe huge debts to the CCP means these [BRI] weren’t genuine investments meant to foster economic prosperity,” he told The Epoch Times.