China’s debt recovery from developing world is uncertain

China’s foray into the developing world has always been associated with its tactics like debt trap, shifting of hazardous industries, unfair trade and dumping. Equally important to note are China’s lending practices, which give it the enhanced ability to interfere in the affairs of nations, simply because they have lent so much money that they take repayment in other than cash!However, some significant aspects of growing Chinese dominance including the strategy and business practices employed by their firms, while operating overseas is not so well known. These practices relating to employing their own security firms and personnel deserve greater scrutiny because of their long-term impact on host countries. 

China and Economy

To this point we shall return a little later in the discourse. To begin with, attention is drawn to the fact China today finds itself holding a significant sway over the financial futures of many developing nations. The flip side is that Beijing also knows that the huge sums of money that countries owe to it may actually never get repaid. According to the International Monetary Front, three-fifths of the world’s developing countries are now having considerable trouble repaying loans or have already fallen behind on their debts. Notably, more than half the world’s poor countries owe more to China than to all Western governments combined. How did this situation arise? In the past decade, China became the lender of choice for many nations by generously doling out money to governments to build bullet trains, hydroelectric dams, airports and highways. For some time, the honeymoon continued but subsequently, inflation climbed and national economies were weakened.

Many borrowed heavily; in Pakistan for instance, the overall public debt has more than doubled in the past decade, with loans from China growing fastest. In Kenya, public debt is up nine-fold and in Suriname, tenfold. Debt is one part of the challenge; the nature of Chinese loans is another. China issues far more of its loans at adjustable interest rates than Western governments or multilateral institutions. However, with global interest rates rising swiftly, debt payments are soaring when nations can least afford topay. This is compounded by weak currencies which makes it even more costly for many countries to repay China’s loans, almost all of which have to be repaid in dollars. China today has the power to lend more or, in some cases, chose to forgive small portions of their debts. Economic distress in developing countries is telling today, given the aftermath of the Covid pandemic, coupled with increased food and energy prices after Russia’s invasion of Ukraine.

In the past, China had lent additional funds to some countries, including Argentina, Ecuador and Pakistan, so that they could continue to make payments on existing loans. This approach helped these countries afford imports of food and fuel,but leaves them with ever more debt. The sheer scale of China’s lending, until very recently, allowed many governments to keep racking up debt. Sri Lanka is a prime example. Even after the pandemic began and tourism dried up, China took four more large Chinese loans from March 2020 through August 2021, to help keep Sri Lanka solvent. Then China stopped providing loans, exacerbating an economic and political crisis. Violent street protests toppled President Gotabaya Rajapaksa in July 2022.

These conditions also mean that Chinese banks are reluctant to lend more to countries, including under the Belt and Road Initiative (BRI), China’s policy framework for developing countries. Such contracts dropped 5.8 percent in the first eight months of 2022 from the same period last year. Countries are also being buffeted by macroeconomic forces as central banks around the world raise rates. Many nations took out adjustable-rate loans from China that initially seemed manageable when rates were low — and are now stuck with ballooning payments. Their loans are typically calculated by adding several percentage points to an interest rate in London that was 0.3 percent at the start of this year but is now around 4.2 percent.

BRI in Africa

At this stage, it is necessary to go back to the point made at the beginning about other ways adopted by China to control the political and security landscape of developing countries. This relates to the Chinese insistence of African nations using only their security apparatus and human resource.This involves the placement of personnel and security equipment on various construction or project sites from Chinese firms only. Some estimates say the rapid growth of Chinese operations has led to deployment of about a million Chinese nationals, with more than ten thousand Chinese companies in Africa.

China’s justification for the massive usage of Chinese security firms hinges on its large infrastructure projects in Africa. Apart from infrastructure, the country has sizeable stakes in mining projects across the continent. Moreover, the growing Chinese zeal in Africa is believed to be fuelled by the vast natural resources of the continent. The market for Chinese security services has increased significantly since the launch of China’s BRI in Africa. This practice has been officially backed by the Chinese government (2018)creating security regulations for companies working overseas. The regulations cover the security of Chinese companies, institutions and personnel operating overseas by outlining training requirements, security assessments and risk mitigation procedures. They also address procedures on data sharing and reporting on local security developments.

Of far greater significance is the fact many Chinese companies have acquired sophisticated capabilities of collecting intelligence and conducting surveillance against potential threats. Some of them are also even seen working closely with local institutions including armed forces. However, their rising intervention in local issues is leading to many law and order problems in host countries. In 2018, two Chinese security contractors were arrested in Zambia for allegedly providing illegal training and supplying uniforms & military equipment to a local security company. In particular, three countries, viz., Congo, Sudan and South Sudan are believed to be facing law and order issues due to the activities of Chinese agencies. The problem may also spread to other countries as many Chinese firms are trying to establish security partnerships in Mali, Djibouti, Egypt, Ethiopia, South Africa and Tanzania. Though the Chinese security agencies have gained considerable influence in African countries and made inroads into their institutions, their acceptance among the local population is still a long draw. Their continued exploitation of local people and disregard to environment and culture of these countries are serious roadblocks in further penetration by Chinese companies. 

China thus has made inroads into several countries, but the negative outcome of such ingress is there for all to see in myriad ways. Societies impacted by Chinese labour and materials realise that money comes, but with a catch. Jobs are promised but given only to Chinese people. Profits are there for grabs but only for Chinese companies. Further, as seen above, security companies operate with much greater latitude in parts of Africa and have become states onto themselves. This then makes it far more difficult for countries to protect their sovereignty than before. However, as seen in many countries, popular discontent has led to a certain reticence among national governments to hand over everything to China. As we go along, one can visualise problems for China as they will face a reducing return on debt and while they will continue to pull some strings, it may not be as easy as they may think.