How China leveraged foreign credit and how Africa can

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By Fred Okechukwu


China’s broad cooperation with Africa which have provided huge support for the continent to overcome the existential bottlenecks of funding shortage, infrastructure deficit and inadequate manpower has become the object of vicious attack, from quarters that were unwilling to touch Africa with a long spoon in regards to investments, trade, loans and other such activities that could boast the aggregate growth of the economies of the region.

China herself is not a stranger to the use of concessional loans as a funding mechanism for her own economic modernisation.

At the outset of her modernisation programme in March 1978, China announced an ambitious 10-year plan that focused on 120 key modernisation projects, including 30 electric power stations, six trunk railroads, eight coal mines, 10 new steel plans, five harbours, nine non-ferrous metal complexes and 10 new oil and gas fields.

According to the account of Professor Deborah Brautigan, a sober and keen China watcher, “by the end of 1978, Chinese officials have signed 74 contracts with Japan to finance turn-key projects that would form the backbone of China’s modernization; all would be repaid in oil and coal”.

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With the signing of the treaty of friendship between China and Japan in 1978, Japan agreed to provide large five-year loan packages to China. The first yen loan package (1978-1983) totalled 330 billion Yen. The second tranche of the yen loan package between 1984 and 1989 amounted to 470 billion yen, with the third loan package between 1990 and 1995 totalling 800 billion Yen. Yet for all Japan’s loan assistance, the Chinese leadership maintained unassailable prerogative on its major policy decisions – domestic, foreign and even defence policies.

Apart from loans, trade and investments also between Beijing and Tokyo flourished in the period which coincided with the time of China’s intense modernisation drive that has borne the fruits of country’s contemporary national aggregates and global pre-eminence.

In fact, despite tension over domestic politics, security policy and history, economic interdependence between China and Japan remained a powerful force. Total trade between the two countries grew from $18.2 billion in 1990 to $66.2 billion in 1999 while Japanese foreign direct investment into China rose from $438 million in 1989 to $4.5 billion in 1995.

Against the foregoing, the hype about Chinese loans, investments and trade morphing to debt trap or surrender of sovereignty of African countries is a hogwash concocted and designed by its peddlers to starve countries in the continent, the veritable and indispensable financial oxygen that is necessary to generate sustainable economic growth and the wider socio-economic development and even political stability.

What the leadership of the various countries in Africa needs to do, is to harness loan and investment flows to critical and strategic national priority, build integrated national economic structures and work it up to the global value chains. The strategy of scare-mongering African countries with the hype of “Chinese debt trap” is essentially to prevent the rise of Africa, as such efforts, though, of different type was desperately deployed to prevent the rise of China.

From the earlier insinuations from the same quarter that China is a “hollow” power that has nothing tangible to offer to Africa except rhetoric, the tune has changed that China wants to compromise the sovereignty of Africa countries through debt trap.

But if China was not entrapped by Tokyo despite generous loans, investments and trade, how is Africa destined to become a vassal of Beijing because of loans, investment and trade, except only on the assumptions that Africa, her people and leadership are incapable of securing her own interests? This, in itself, reflects the unreformed bigotry of how Africa is viewed from the West.

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In many instances, the reference of the Hambantota port in Sri Lanka leased to Chinese company, China Merchants Port Holdings for 99 years have been cited as typical of the “debt trap” and compromise of national sovereignty allegedly embedded in Beijing’s strategy. But despite the sustained hoopla about Chinese loans and the alleged debt trap, the London based Economist magazine said that these “investments funded by Chinese are not in China” and that the best Beijing can do in respect of government defaults on its loans is to reduce the amount of money that debtors have to pay, adding that “countries with longer records of lending to poor countries often do the same,” citing the example of the “Paris Club of creditors formed in 1956 to devise ways of reducing defaulters debt loans.”

If the media high priest of western liberal order has the above to say about the “myth of China’s debt trap” there is little to add except for Africa “to shine her eyes,” as it is used in local parlance to commend someone to a sober reflection.

It has been more than 40 years, when China embarked on crossing the river by feeling the stones, navigating through the uncharted path and waters that defied any known economic orthodoxy, to drive its iconic modernisation effort through reforms and opening up and consequently exploding on the world as the most enigmatic human experiment with the exponential returns of pulling more than 700 million people out of poverty in the shortest period in all human history.

The Chinese experience teaches that there is no ready-made model but in ceaseless and confident experimentation of crossing the river by feeling the stones with only the cautious and natural impulse of careful examinations of any particular step taken to either reduce or increase the pace but never standing still or turning back.

Forty years of relentless drive of China’s modernisation through reforms and opening up have proved that difficult but independent choices made, from understanding one’s real national condition, engaging it realistically and constant evaluations of contradictions, with its inbuilt mechanisms for fact checks can guarantee the steady flow of capabilities and capacities to drive sustainable and inclusive development.

Persisting in reform and opening up in the past 40 years has equipped China with a steady momentum of inclusive growth, opened the prospects to attain a moderately prosperous society and provided the impetus for China to enter into a new era of greater material improvements and cultural advancement of the Chinese people and also more importantly, greater role for China in shouldering more global responsibilities and engage more actively in improving the quality of global governance.

The core lesson for Africa is that to break out on a sustainable economic modernization, huge investment must be on critical and core infrastructure like transport networks and foreign loans , grants and other forms of financing are inevitable in the long term investment in this foundational area of economic take off.

The context of China-Africa cooperation has similarly but exponentially grown from shared history of brutal colonial assaults, epic collaboration and solidarity against colonial domination to now comprehensive strategic partnership in engaging the practical issues of core developmental concerns, especially the critical and enabling inventories, necessary to translate Africa’s famed potentials into actual gains for improvements in the quality of the lives of the people of the continent.


  • Okechukwu is an international affairs analyst based in Abuja.