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The rich countries seem overly worried over China's inroads in the long neglected dark continent - Africa and its attempts as well to build the much-needed physical infrastructure in the poorer Asian countries which so far had remained burdened with mounting debt from the rich world. The so-called experts in the developed countries accuse Beijing of loaning development finances to its target countries at a very high cost, believing that the recipients would not be able to repay in time thus enabling China to make strategic gains in these spaces ousting in the process the global leadership of the rich countries.
Washington and other capitals of the rich world have viewed Africa all these years as a dark continent having no strategic potential, nor even any economic possibility. Therefore, until China went in, the dark continent had remained dark, for all intents and purposes for the rich world all these years.
Besides, except for those Asian countries which the rich countries had turned into their sweat shops in the decades of the 1980s and 1990s pulling them out of poverty and turning them into export power houses, the rest of Asia minus China and India has been turned by these rich countries and their multilateral aid agencies into victims of mounting debt.
Indeed, out of each dollar loaned by the so-called donors, bilateral as well as multilateral, 99 cents normally go back to the rich donors in the shape of consultation fees, high cost imports from donor countries, transfer pricing and use of donor countries' shipping again at a cost much higher than the market rates. This has over the years caused the recipient countries to continue to agonise under ever mounting debt burden.
Of course, in the first place the flood of capital from China helped prevent the global economy from plunging into depression following the bankruptcy of the Lehman Brothers and the ensuing financial crisis.
For some, the billions of dollars from China are a welcome contribution to helping many underdeveloped regions in Asia and Africa expand infrastructure. But according to other worried Western experts, the loans from Beijing have forced half the world into economic and political dependency on Beijing.
China's foreign assets are now worth $6 trillion. The data, according to Bartholomäus Grill, Michael Sauga and Bernhard Zand(Vast Chinese Loans Pose Risks to Developing World-World Bank publication), shows that many countries in the poorer regions of the world have accepted far more credit from China than previously known. And the loans frequently come with onerous conditions that are strongly oriented toward Beijing's strategic interests and increase the risk that many countries in the developing world could plunge into financial crisis.
According to this study, China exports more capital to developing and emerging countries than all other industrialized countries put together. Moreover, numerous conditions are said to be attached to the loans that, it is wrongly believed, weigh heavily on their recipients.
The study misleadingly claims that whereas Western governments and multilateral organizations generally attach low interest rates and long repayment periods to their loans, China tends to impose short periods and higher rates. To ensure that the loans are paid back, the contracts guarantee Beijing a number of rights, such as access to foodstuffs, raw materials or the profits of state-owned companies in the recipient countries. Frequently, the Chinese government is said to direct the money straight to Chinese companies that have been contracted to build airports, ports or dams, an approach that is believed in Western countries to create a closed financial loop without the involvement of a single foreign account.
In addition, more than 75 percent of the direct aid loans provided in recent years are said to have come from two state-run financial institutions: the Export-Import Bank of China and the China Development Bank. This is falsely interpreted to mean that the government is constantly informed of every phase of their aid projects and when crisis befalls creditor countries, China is well-positioned to grab its collateral ahead of other creditors. The study notes that China has developed a new form of development aid in which state loans are provided at commercial terms.
That can result, the study wrongly believes, in ugly conflicts when projects fail to proceed as planned. In Sri Lanka, for example, China took control of a port after the government ran into difficulties servicing its debt. In Ecuador, Beijing secured 80 percent of the country's oil revenues to compensate for the costs associated with an enormous dam project. In Zambia, which owes China an estimated $6 billion, regime critics are concerned that Beijing will take over the state energy supplier Zesco.
Fears are also said to be growing in South Africa, where President Cyril Ramaphosa is thought to have negotiated loans and subsidies worth 370 billion rand (the equivalent of around 24 billion euros) during a state visit to Beijing last fall. The opposition party Democratic Alliance is concerned that South Africa could become mired in a debt trap and that Beijing may, for example, take control of the struggling state-owned electric utility Eskom.
The study outlines the scope of that attempt. It argues that many payments from Beijing are masked because they go straight to state-owned companies operating in recipient countries. The balance sheets of those companies, though, are frequently not accounted for in official financial statistics. The study found that the amount of foreign debt held by China is around 50 percent higher than is documented by official statistics.
Because the Beijing government, it is believed, tends to charge high interest rates, many emerging and developing countries suffer, according to the study, from "growing annual debt service obligations." That means their interest rate payments continue to rise, which increases the danger that they may ultimately default
The authors of the study note that the situation is reminiscent of the late 1970s, a time when large banks from the US, Europe and Japan provided billions in loans to Latin American and African countries rich in commodities - credits that flew under the radar of international monitoring agencies. When prices for many raw materials crashed, countries like Mexico could no longer service their debts and much of the developing world slid into a debt crisis that set them back for years.
Today, the situation is said to be hardly any different. Once again, many developing countries have accepted huge loans. And once the hidden money flows from China are included, as the study shows, the debt loads being carried by many countries are said to be again as high as they were in the 1980s. The authors write that the situation looks "strikingly similar."
But there is said to be no end in sight to the flow of Chinese credit. It is believed that the economic advantages for China are simply too great, as are the political benefits, particularly in Africa.
Whereas the West has largely seen the continent as little more than a source of a steady stream of catastrophes, Beijing has viewed it as a place of untapped future potential. Around 1.5 million Chinese are thought to be living and working in Africa, a group that includes entrepreneurs, IT experts, technicians and merchants.
They have expanded infrastructure in Africa at an impressive pace, building dams, airports, train lines and industrial parks across the continent. In return, China has secured access to natural resources and African markets.
Beijing is delivering precisely what Africa needs, says Rwandan President Paul Kagame. He belongs to a growing number of African strongmen who are seeking to emulate the successful Chinese model of developmental autocracy, often with the support of their citizens. According to a survey conducted by the pollsters at Afrobarometer in 36 African countries, 63 percent view China's engagement in a positive light.
Whereas official Chinese government statistics often only list small loan totals, the real numbers are said to be far higher, as the new study shows. The small country of Djibouti, for example, is said to be carrying a Chinese debt load equivalent to 70 percent of its annual economic output. In Congo, it is said to be 30 percent and in Kenya, 15 percent. It is vastly more than the governments owe to Western countries. This is wrongly considered to be the 'Chinese style of colonialism'.
The Western experts believe the situation isn't likely to change anytime soon. "Many of the Chinese projects have been beneficial for the recipient countries. After all, many countries in Africa are in dire need of modern infrastructure."
Furthermore, some recent studies from the US have painted a less alarming picture of Chinese development loans. The economist Deborah Bräutigam of Johns Hopkins University in Baltimore found that of 17 African countries stuck in a debt crisis; only three of them received loans from Beijing. The analysts from Rhodium Group, meanwhile, argue that China is not nearly as heavy-handed as many believe. In examining 40 of Beijing's projects, the institute found that the Chinese government is willing to make concessions on repayment deadlines should it become necessary.

Copyright Business Recorder, 2019

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