New Delhi: Chinese President Xi Jinping may come under more scrutiny at his own home turf as he announced writing off all interest-free loans extended to African countries that were to mature in 2020.
While the African leaders and think-tanks expressed joy over Xi’s decision, the future and efficacy of the much-hyped debt diplomacy is being questioned by others.
Xi announced his decision while delivering the keynote speech via video at the Extraordinary China-Africa Summit on Solidarity against the coronavirus pandemic.
Xi’s problems do not end here as many other countries such as Pakistan, Laos and Kyrgyzstan could seek similar relief.
China has invested billions of dollars in infrastructure projects like roads, railways, ports and power under its ambitious Belt and Road Initiative (BRI) in African and Asian countries.
“When you lend, you do it with a purpose; you have to get the money back. If the money does not come back, it can have a severe impact. In this case, it is not one country or two countries; most countries that China has lent to are under severe economic strain and repayment will become a cause for worry,” an analyst told IN.
“China has become a major global lender, with outstanding claims now exceeding more than 5 per cent of global GDP,” the Harvard Business Review said. The lending is done both directly by the government and the state-controlled entities.
According to the report, the Chinese state and its subsidiaries have lent about $1.5 trillion in direct loans and trade credits to more than 150 countries around the globe.
As the pandemic-induced global recession hit most countries, there are concerns over huge cost overruns and delays.
VOA News quoted Yun Sun, the director of the China programme at the Stimson Center, a Washington-based policy research centre, as saying that the Chinese economy could take a huge hit from the pandemic. “The Chinese economy is taking a heavy hit from Covid-19,” he said.
“That’s absolutely going to dampen the Chinese ability to disperse financing or continue to support infrastructure projects in developing countries including Africa, at a rate that did before,” he was quoted by the news organisation.
Many analysts have also opined that China could be getting trapped in its own debt diplomacy as many countries may default in repayment, leading to further economic disruptions. At home, unemployment rate has significantly increased and with export orders drying up, many businesses are already struggling.