China’s Financial Pledge to Africa Falls After Criticisms of Debt Traps

(Bloomberg) -- China's financial pledge to Africa fell for the first time in over a decade, as the world's second largest economy tried to avoid criticism about saddling developing nations with unsustainable debt. 

President Xi Jinping pledged $40 billion to the continent in a video address to the eighth triennial Forum on China-Africa Cooperation held in Senegal on Monday. The money will be evenly split among credit lines to African financial institutions, investment from Chinese firms, trade financing and International Monetary Fund special drawing rights. 

That marked a 33% drop from the $60 billion committed at the same summit in 2018, when China only matched the previous event's pledge. Prior to that, China had doubled its financial commitment to the continent every three years since 2006 at the two-day forum, which is Beijing's main vehicle for managing its relationship with the continent.

Beijing has hit back against criticism of “debt trap” diplomacy in recent years, saying no foreign asset has ever been seized by China to repay a Chinese loan. Earlier this week, local media reported the Ugandan government was seeking to amend a Chinese loan agreement to avoid losing control of the nation's only international airport, a claim Beijing called “made up.”

China has emerged in the past decade as the world's largest non-commercial international creditor, with its state-owned policy banks lending more to developing countries than the IMF and World Bank. That lending has also been subject to international scrutiny, which intensified as the pandemic caused dozens of countries to suspend debt repayments. 

Vaccine Diplomacy

As well as the $40 billion, Xi pledged an additional 1 billion doses of desperately needed vaccines to the world's poorest continent as it battles the new omicron variant. That would help the African Union achieve its goal of vaccinating 60% of the African population by next year, Xi said.

“We need to put people and their lives first, be guided by science, support waiving intellectual property rights on Covid-19 vaccines, and truly ensure the accessibility and affordability of vaccines in Africa to bridge the immunization gap,” Xi told the forum.

He also pledged that China would hit $300 billion worth of imports from Africa over the next three years, a modest goal given the country's current import trajectory. 

Xi said China would open green lanes for African agricultural exports, speed up inspection and quarantine procedures, and increase the scope of products with zero-tariff treatment to help achieve the goal. 

Beijing will also exempt Africa's least-developed countries from debt incurred in the form of interest-free Chinese government loans due by the end of 2021, the same pledge China made at FOCAC in 2018. 

Hannah Ryder, chief executive officer of Beijing-based consultancy Development Reimagined, said the FOCAC pledge didn't represent a pullback from the continent. It reflected that China was listening to African governments' request for a different type of engagement, she said. 

This is the “sort of commitment needed from a development partner,” she added.

©2021 Bloomberg L.P.

With assistance from Bloomberg