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China's Loans to Africa Won't Cause Debt Crisis
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By He Wenping

Africa's development has once again become a hot topic on the eve of the G8 Summit.

Some Western media and politicians are pointing their fingers at China on the issue of providing aid and loans to Africa.

German Finance Minister Peer Steinbrueck said at the G8 finance ministers' meeting, convened earlier this month to set the tone for the summit, that China's aid to Africa impacts Western creditor nations' efforts to reduce African nations' debts and could trigger a new round of debt crisis.

Careful study of the issue, however, does not support their conclusion.

As a matter of fact, Chinese aid and loans to Africa are much smaller in sum than those from Western countries, so have less impact on the debt issue.

This does not include a host of other factors such as the origin of the debt issue, China's efforts at resolving the debt problem, and the effects of Chinese aid and credits on African countries.

All taken, it is hard to reach the conclusion that China's supposedly irresponsible aid to African nations could trigger a new debt crisis.

As a matter of fact, Chinese aid, investment and economic cooperation with African nations have contributed significantly to the strong rebound of the African economy in recent years.

The debt issue in Africa began decades ago. The astronomical US$300 billion debt constitutes the bottleneck of Africa's economic development.

Western countries are in fact responsible for the debt. Many African countries, feeling the pinch of capital shortfalls in their efforts to industrialize, borrowed heavily from abroad in the 1960s and 70s.

However, the climate for African countries' exports deteriorated over the last two decades or so, owing to the plummeting of prices for primary products and trade barriers erected by Western countries.

This has led to payment imbalances and the weakening of African nations' payment capabilities. As a result, many African countries have to borrow -- creating new debts to pay off old ones. The problem is compounded by high interest rates.

Although China is a minor creditor country compared with Western creditor nations and monetary institutions - and at the same time a debtor developing nation itself - the country still makes efforts to help resolve the African debt issue.

At the First China-Africa Cooperation Forum in October 2000 in Beijing, the Chinese government pledged to write off African countries' 156 overdue debts totaling 10.5 billion yuan (US$1.3 billion) in two years. The pledge was fulfilled ahead of schedule.
At the Third China-Africa Cooperation Forum last November in Beijing, the Chinese government again pledged to forgive the government interest-free loans of more than 10 billion yuan (US$1.3 billion) overdue by the end of 2005. These were loans made to the most heavily in debt and least developed of the African countries with diplomatic ties to China.

China started providing aid to Africa in 1956. During Premier Zhou Enlai's visit to Africa in the early 1960s, the Chinese government established eight principles for offering aid to foreign countries.

These principles clearly state that the Chinese government does not attach any conditions to its aid nor demand any privileges; that China provides aid to the recipients in the form of interest-free or low-interest loans and will reschedule repayment if necessary; that Chinese aid is aimed at helping the recipients embark on the road to economic independence and self-reliance rather than increasing their dependence on China; that China promises to help the recipient countries master the technology in its technical aid; that China will try to provide the best possible equipment and materials it makes and that Chinese experts sent to the recipient countries should be treated the same as local experts, without special privileges.

Under these principles, China has provided African countries with a total of 44.4 billion yuan (US$5.55 billion) in aid as of May 2006. It has helped build textile mills, hydropower stations, sport venues, hospitals and schools, more than 800 projects in all.
The Tanzania-Zambia Railway was built with Chinese aid in the 1970s when China itself was facing economic difficulties. Some 50,000 Chinese laborers and engineers worked side by side with local workers in constructing the 1,860-kilometer railway. And 64 gave their lives.

The Chinese economy's rapid growth has helped raise the prices of primary products on the world market, which, in turn, increases the foreign-exchange income of the African countries engaged in exporting primary products. It improves their foreign trade climate and strengthens their payment capabilities.

Now that the African economy has been growing at a rate of 5 to 6 percent annually, some credit should go to the Chinese factor.

For example, the once war-torn Angola has been enjoying double-digit economic growth in recent years because China helped build the country's infrastructure. It also made large investments in the country. Last year, the Angolan economy grew at a rate as high as 17 per cent.

Stopping aid and loans to Africa is not the right prescription to avoid a new round of debt crisis. The countries urgently need development capital.

Instead, attention ought to be paid to raising the impact of the aid and loans so that African recipients can improve their own payment capabilities through economic progress and step out from the vicious cycle of piling on new debt to pay off existing debt.

Africans themselves see this clearly. After last year's G8 Summit, finance ministers of many African countries made it clear that Africa urgently needed loans and investments from China.

Abdoulaye Diop, Senegal's finance minister, said that the loans provided by the World Bank, the International Monetary Fund and the African Development Fund are slow in coming and weighted down with numerous conditions.

In contrast, aid and loans from China come through quickly with no conditions attached. And African countries don't have to sacrifice their sovereignty and dignity in acquiring these loans and aid. So, African nations widely favor Chinese aid and credits.

The author is a researcher with the Institute for West Asian and African Studies, Chinese Academy of Social Sciences.

(China Daily June 6, 2007)

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