The China Development Bank’s Debt Deferral in Zambia is a Good Start, But It’s Not Enough

China Africa Project

29 October 2020 -- The China Development Bank’s (CDB) announcement yesterday that it will allow Zambia to push back an interest payment that was due last Sunday to next April was an unexpected development.

After all, we haven’t seen China’s powerful policy banks publicly demonstrate this kind of flexibility in their dealings with African borrowers. So, we should commend this development in the hope that it’ll encourage them to be even more forthcoming in the future.

But, let’s not overstate the issue either.

Just like the G20’s paltry six-month extension of its Debt Service Suspension Initiative for the world’s poorest countries, the CDB’s deal with Zambia is nothing more than the bare minimum.

I mean, let’s be serious here: we’re talking about a single loan where the Chinese creditor is still going to get repaid in full, just a few months later than what was expected. That’s not exactly momentous, right?

The fact is that the Chinese insistence on negotiating debt relief their way, bilaterally and in secret, is causing immeasurable pain and suffering to millions of the poorest people in Africa and in other developing regions. Collectively, the lack of transparency related to China’s negotiations with borrowers, an accurate accounting of the true amount of Chinese debt and the terms of those loans, sends a signal to the market that directly contributes to the exceptionally high risk premium that African sovereigns encounter when they need to borrow money.

Without access to capital, the liquidity crisis in Africa worsens, contributing to inflation that pushes up prices and eats away at what’s left of consumers’ disposable income.

While China’s not entirely responsible for that higher cost of borrowing, Beijing needs to be held accountable for its contribution to the problem.

We’ve heard over and over again from private creditors, African finance ministers, and international financial leaders including the World Bank’s David Malpass and the IMF’s Kristalina Georgieva that China’s refusal to work collectively and transparently with other debt stakeholders is an impediment.

And what’s most perplexing about this whole situation is that Chinese officials really don’t seem to grasp that transparency would actually help them enormously in their broader geopolitical agenda.

Assuming that their lending practices are, in fact, not as egregious as their critics contend, opening the books could undercut one of U.S. Secretary of State Mike Pompeo’s main points of attack when he accuses China of engaging in “debt-trap diplomacy” and “predatory lending.”

It would also help rebuild China’s tarnished reputation with large swathes of African civil society who are firmly convinced that Beijing’s opacity masks sketchy dealings with corrupt leaders.

And in a world where the Chinese government really doesn’t have a lot of friends these days, being more open about its financial dealings in less skeptical regions in the Global South will help it build the kind of coalition it’s going to need as relations with the U.S., Europe, and some Asian countries further deteriorate.

But if the Chinese continue with their current methods, there’s no doubt this isn’t going to end well, either for them or for Africans.