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Letter to the Editor: A Critique of 金中夏’s (“Chinese Summer in Finance”) Views on Chinese Debt in Africa

Dear China-Global South Project Editors,

I read the China-Global South Daily Brief of 8 November 2022 and came across the paper by Jin Zhongxia whose name 金中夏prompted the title of this letter to the editor. I, of course, agree with the summaries given by the CGSP editors of this brief as well as Ma Tianjie’s summary in his BRI Notebook of 15 November. However, for my part, I would probably have insisted on the underlying purpose of this text which is to exonerate China from any responsibility for the indebtedness of over-indebted countries.

Jin bluntly states that some countries misuse loans and do not invest them in productive projects, unlike what is supposed to happen when China lends to them. Well, I won’t go into all the misadventures that China is involved in with ill-conceived loans. But I will admit that Jin’s narrative is more astute than many of the “righteous indignation” of other Chinese officials and leaders. Let’s remember Ning Jizhe’s “killer” argument just from the back of the first-grade playground (Ning is Deputy Director General of the National Development and Reform Commission and Director General of the National Bureau of Statistics of China). He argued that it was not China’s fault that some countries were in debt, they had already incurred debts with other countries when China gave them a loan:

“Some of these countries have a high debt burden, but they have been borrowing heavily from other countries and international financial organizations for a long time. China is a latecomer.”

Is being a “latecomer” (i.e. the latest lender) really a valid excuse? Wouldn’t it be more of an aggravating factor to have continued to lend to countries in such circumstances? The debt burden only becomes unbearable once a certain threshold is reached, regardless of how this threshold is calculated because it is in terms of margin that it must be considered. The first N billion dollars of debt may be bearable, but it is the N plus one dollar that will make it unsustainable. Currently, two out of every three dollars lent to sub-Saharan Africa as bilateral debt is the result of a Chinese government loan.

Jin Zhongxia is quite right to highlight the role played by “private creditors” in the public and publicly guaranteed debt and the opacity of their transactions. However, he does not provide a definition of what these “private creditors” are in the World Bank’s parlance. In addition to “manufacturers, exporters and other suppliers of goods” (China is the leading supplier in sub-Saharan Africa), “private creditors” include private banks within which China ranks centrally supervised Chinese state-owned banks, but also bondholders thus including Chinese institutional and individual speculators. So “private creditors” do not mean “Western creditors” as some commentators would have us believe, Chinese commentators as well as others like Yungong Theo Jong, Head of Programmes at the African Forum and Network on Debt and Development.

According to data from Sebastian Horn, Carmen Reinhart and Christoph Trebesch, the four main Chinese banks (the Bank of China, the Agricultural Bank of China, the China Construction Bank, and the Industrial and Commercial Bank of China) are holding about $30 billion in developing countries – including sub-Saharan Africa – via Hong Kong. To this amount, $10 billion should be added for “panda bonds”, i.e. renminbi-denominated bonds raised directly on the Chinese market. In an AidData Working Paper of August 2022, Kathleen Brown using recently released data found half of the Chinese loans in Sub-Saharan Africa are missing from sovereign debt records. African governments hide these loans to avoid violating World Bank debt sustainability thresholds.

Both numbers and words have a role to play. Jin Zhongxia discusses the role of Eurobonds but deliberately confuses the issue. He refers to “European bonds” 欧洲债券, i.e. bonds issued by European countries, instead of “euro-denominated bonds” 欧元债券 which are bonds issued in euros mostly outside the European Union at the request, in this case, of African governments. Jin Zhongxia is currently Executive Director for China at the International Monetary Fund. He majored in international finance at the University of Hawaii and has held various positions at the People’s Bank of China. The confusion can only be intentional. Actually, Jin’s pitch sounds like a broken record: China should not be held accountable for the situation, but the West should be. But, whatever the Western perverse role (past or present), would that be enough to vindicate China? Paragraph 47 of the Monterrey Consensus in 2002 (long before China was a major lender) states that:

Sustainable debt financing is an important element for mobilizing resources for public and private investment. National comprehensive strategies to monitor and manage external liabilities, embedded in the domestic preconditions for debt sustainability, including sound macroeconomic policies and public resource management, are a key element in reducing national vulnerabilities. Debtors and creditors must share the responsibility for preventing and resolving unsustainable debt situations.

Every creditor, even a Chinese one, bears a significant responsibility. It is the job of a sterling lender to ensure the viability of the project it is financing. If not, both lender and borrower suffer the evil consequences.

The graph below, based on World Bank data, shows the evolution of the main funders from 1979 to 2020. Statistics have been converted to constant dollars to ensure comparability of funding over time. For the first twenty years or so (1979-2003) the European Union and EU countries were by far the largest funders to sub-Saharan Africa, only very gradually did the World Bank reach the same level. But in the meantime, the trend began to turn around. In 1996, the IMF and the World Bank launched a debt relief initiative for 41 heavily indebted poor countries (HIPC), including 33 countries in sub-Saharan Africa.

Source: World Bank

Given the poor results and following the Jubilee 2000 campaign (which brought a petition of 17 million signatures to the G7 in Cologne in June 1999), it was decided to launch a reinforced initiative, the results of which became clear with the collapse in 2005-2006. From then on, taking advantage of the vacuum caused by the debt relief initiative, China along with bondholders began providing more and more significant funding to sub-Saharan African countries. The World Bank stepped into the top three with them. In 2020, 30% of the public and publicly guaranteed debt of sub-Saharan African countries is owed to bondholders, 20% to the World Bank, and 17% to China. The three of them, therefore, manage two-thirds of the sovereign debt of sub-Saharan Africa.

The World Bank and other multilateral financial institutions seem to have realized that they cannot only provide funding but should also provide consulting services to ensure that projects are not only economically and technically well-designed but also financially well-put together. In other words, the key problem is not the actual debt amount as described just above, but rather two other factors. Firstly, it is the project’s capability to generate the necessary income to repay the loan it requires. Secondly, it is the adequacy of the loan conditions to the project: financing a 50-year or more amortizable project with a 15- or 20-year loan is likely to result in an unsustainable debt however low the interest rate. For all these reasons, China became aware some time ago that its lending policy towards African countries (Angola, Djibouti, Ethiopia, Kenya, Nigeria…) could be problematic for both China and those countries. Chinese scholars meeting in May 2022 argued that China’s commercial and financial relationship with Africa was used as a “ballast” for its political relationship, or as Yao Guimei implicitly suggests, to buy their votes. They claimed that by simply instrumentalizing Africa, China has become disconnected from the economic reality of the African continent and has a very poor understanding of the actual needs and capabilities of its 54 countries. Today, they added, if China wants to compete successfully with the “West, led by the United States”, it must redefine its strategy towards the African continent and make Africa the pivot of a new system of development cooperation with the developing countries. Under these conditions, Chinese loans to sub-Saharan Africa might escape the criticism they may be subject to.


Thierry Pairault, Emeritus Research Director at France’s National Centre of Scientific Research (CNRS) and at the EHESS Research Centre on Modern and Contemporary China (CECMC)

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