Why the Belt and Road is no debt trap

Chinese President Xi Jinping delivers a keynote speech at the opening ceremony of the Belt and Road Forum (BRF) for International Cooperation in Beijing, capital of China, May 14, 2017 PIC: XINHUA/MA ZHANCHENG
Chinese President Xi Jinping delivers a keynote speech at the opening ceremony of the Belt and Road Forum (BRF) for International Cooperation in Beijing, capital of China, May 14, 2017 PIC: XINHUA/MA ZHANCHENG

As a solution pivotal to China's efforts to promote economic openness, free trade and a rules-based multilateral trading system, the Belt and Road Initiative (BRI) has garnered global support since its launch in 2013.

However, some skeptics in the West accuse China of trying to induce countries, notably the African ones, into borrowing unpayable loans. The aim is for the Asian country to build political and strategic clout on the growing continent.

The accusers seem to have intentionally confused the debt dangers of a company with that of a country, ignored China's risk as a creditor, and excluded such factors as the impact of the 2008 financial crisis, dives in commodity prices and U.S. interest rate hikes on loans to developing countries.

As a matter of fact, Western countries and major international institutions lend more money to African nations than China does.

In 2018, Africa owed some 36 percent of its total external debt to the International Monetary Fund (IMF) and the World Bank (WB). Between 2000 and 2016, the debt from China to the continent was merely 1.8 percent, showed a study by the China Africa Research Initiative at John Hopkins University.

Also, most of Chinese loans are concessional, with long maturities and low interest rates, and are not attached to political conditions. They are primarily aimed at helping jumpstart the continent's economic take-off and long-term development, rather than pursuing short-term steep returns.

Moreover, Africa's debt issue is to some extent overblown. Although it is certainly right to be cautious, exaggerating it is unnecessary and counterproductive.

"Let me be very clear: Africa has absolutely no debt crisis," African Development Bank President Akinwumi Adesina said, citing a regional debt-to-GDP ratio of 37 percent in 2017.

In comparison, that index in some developed countries and emerging-market economies is 70 percent to 80 percent; in Japan it's a whopping 250 percent.    What African nations need now are means to spur economic growth and social development.   

China and Africa are in similar phases of development. Therefore, it is natural for China to have a better understanding of Africa's needs. The BRI can offer Africans much-needed funds, technologies and expertise.

More importantly, China has never tried to force other countries into the initiative, and always tried to align the BRI with local development strategies so that related programs can better serve the needs of China's BRI partners.

   Also, the initiative's infrastructure projects can help reduce costs to distribute goods and services, promote productivity through better access to resources, and lay the groundwork for even stronger development.

Thus, there is no need to scare the countries of Africa away from reasonable borrowing.

China is Africa's true development partner. As Chinese President Xi Jinping said at the FOCAC summit last year, not only has China always respected and supported Africa, but it also welcomes all initiatives that meet the continent's interests.

Without a doubt, Africa will -- with support from the broader international community -- be able to manage its balance sheet and create its own economic miracle. And China will stand by its side through it all. (Xinhua)

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