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China vs. the Multilateral Development Banks

There was a major breakthrough this week in China’s months-long standoff with the World Bank, IMF and other multilateral creditors when Beijing agreed to fully back Sri Lanka’s debt restructuring. The move now clears the way for Colombo to secure $2.9 billion in emergency IMF funding and to put the South Asian country on the path toward recovery.

Now, everyone wants to know whether China will extend a similar offer to Zambia, Ghana and Ethiopia that are also in the midst of similar debt restructuring talks or will it stick to its hardline position that multilateral lenders must also agree to accept losses on their loans to these countries.

Yunnan Chen, a research fellow at ODI, a think tank in London, and Gyude Moore, a senior policy fellow at the Center for Global Development in Washington, two of the world’s leading experts in this field, join Eric & Cobus to discuss China and the debt crisis in a number of African countries.

Show Notes:

About Yunnan Chen and Gyude Moore:

Yunnan Chen is a research fellow in the development and public finance program at ODI global affairs think tank. Her work centers around the development finance architecture, development finance institutions, and the role of global China. She holds a specialist interest on the role of Chinese development finance, overseas lending and debt architecture, as well as the role of national development banks and DFIs in Africa. Previously, she was a researcher at the SAIS China Africa Research Initiative (CARI), and a Ph.D. Candidate at Johns Hopkins School for Advanced International Studies. She has been a Global China Initiative Fellow at the Global Development Policy Centre at Boston University, and a pre-doc fellow at the Center for Global Development (CGD). Her research and commentary have been published in academic journals, as well as policy briefings and magazine articles, and she features regularly in media commentary on development and China-Africa affairs, including the FT, Reuters, Bloomberg, Der Spiegel, and Neue Zürcher Zeitung, among others.

Gyude Moore is a Senior Policy Fellow at the Center for Global Development (CGD). He previously served as Liberia’s Minister of Public Works with oversight over the construction and maintenance of public infrastructure from December 2014 to January 2018. Prior to that role, Moore served as Deputy Chief of Staff to President Ellen Johnson-Sirleaf and Head of the President’s Delivery Unit (PDU). As Head of the PDU, his team monitored progress and drove delivery of the Public Sector Investment Program of Liberia—a program of over $1 billion in road, power, port infrastructure, and social programs in Liberia after the civil war. As one of the President’s trusted advisors, he also played a crucial role in supporting President Sirleaf as Liberia responded to the West Africa Ebola outbreak and shaped its post-Ebola outlook.


Eric Olander: Hello, and welcome to another edition of the China in Africa Podcast, a proud member of the Sinica Podcast Network. I’m Eric Olander, and as always, I’m joined by Cobus van Staden, China Global South’s Managing Editor, who joins us today, as usual from Johannesburg, South Africa. A very good afternoon to you, Cobus.

Cobus van Staden: Good afternoon.

Eric: Cobus, it has been a very lively week this week in the standoff between China and the multilateral development banks. Those are the World Bank, the IMF, and this whole question about Chinese debt in developing countries. A big breakthrough came on Monday when the Chinese government, through the China Exim Bank, sent a letter to the Sri Lankan government saying that it would fully back Sri Lanka’s debt restructuring plan with the International Monetary Fund. Now, the reason why this is surprising is because, back in January, the China Exim Bank sent a letter saying that it would offer a two-year debt moratorium.

And that was not enough, especially when you compare it against to what the Paris Club lenders were offering, and India, which was 10 years of debt repayment and another 15 years of debt restructuring. On top of that, China’s two-year offer came up short and did not meet the IMF’s requirements. So, what we had was this big standoff between the Chinese, the multilateral development banks, and the Paris Club. Now, the problem is, is the Chinese have said that they do not want to participate in debt restructuring until the multilateral development banks take what is called a haircut. Now that means losses on their loans. Now, that’s something that the multilateral development banks say they don’t do. And the reason why they say they don’t do it is because they take the loss, what they say at the front end by getting very, very cheap loans.

And then they are what’s called a preferred creditor. So, at the back end, if there are problems, they are above the fray and don’t take losses. The other fight that the Chinese are having on this is they want commercial creditors, those are the bond holders, to also accept losses. And now they’ve said they will, but the bond holders don’t want to take any losses until they see what the Chinese are doing. Cobus, it’s this situation where everybody’s got a gun pointed at everybody else and nothing gets done. Now, this is why the breakthrough in Sri Lanka is so interesting. It also begs the question as to whether or not what happened in Sri Lanka is now going to apply to Zambia, Ghana, and Ethiopia that are also now in the debt restructuring process.

Zambia, of course, has been in this now for what? Almost a year if not longer. And so there’s a real question as to whether or not we’re going to see progress in Zambia. So, Cobus, that’s a long wind up for we just don’t know what’s going to happen. Something is happening right now. We just don’t know what the true extent of it is.

Cobus: Yes, I mean, obviously the people, the people in Sri Lanka and other debt distressed countries must be on tenterhooks. It must be such a stressful situation, particularly as they are slowly kind of running out of foreign currency, which then affects things like the importation of medicine. I think one of the big issues here is that I think we are in a real kind of historical inflection point, particularly as regards to how the development financing system is going to work in the future.

So, sure, at the moment, this tends to be a fight between China and Western led entities like multilateral development banks and the Western private sector. But there’s a bigger issue involved, kind of a north south fight involved here too, in relation to how these countries are supposed to pay for development, particularly as climate change is barreling down on all of us. I think this is going to be one of those moments where you look back and you’re like, “Oh, okay, this is one of those kind of, kind of crossroads moments.”

Eric: Well, that great power fight was on full display in Beijing this week. On Tuesday, Chinese foreign minister, Qin Gang gave his first press conference on the sidelines of the National People’s Congress. That’s part of the two sessions event that happens every year. That’s the big legislative gathering in China. And boy, that was a fiery press conference, mostly directed at the United States. We won’t go into the details of the U.S. portions of it, but he did talk quite a bit about the Belt and Road, and he even raised the debt issue. And that makes it very interesting to consider the timing of what happened in Sri Lanka, and maybe it’s coincided with this press conference.

Again, we’re all trying to read through the tea leaves here to figure out what’s going on, but just something for us to consider. Let’s try and sort this out. And what I wanted to do today with our show was invite two people who follow this as closely as anybody else does, to see if they can shed some light and get their perspectives on it in order to better understand what’s going on so we can try again and forecast and think about what’s going to happen in Africa.

Yunnan Chen is a research fellow at the Overseas Development Institute in London. Last year, regular listeners of the show will remember, she joined us to talk about the fascinating paper that she wrote with her colleague, Chris Humphrey — China in the Multilateral Development Banks: Evolving Strategies of a New Power. So, she has some real insights on China’s relationship with the MDBs, and we’re thrilled to have you back on the show again today, Yunnan.

Yunnan Chen: Thanks so much, Eric. Hi Cobus. Really, really, really delighted to be here.

Eric: Well, it’s great to speak with you again. And we’re also thrilled to have our old friend, who we’ve had quite regularly on this show, Gyude Moore, who’s a senior policy fellow at the Center for Global Development in Washington. He and I have been chatting in the back channels for several weeks on trying to figure out what’s going on. He also wrote a fascinating blog post on the CGD website, I’ll put a link to this in the show notes — Will China Play its Part in Addressing African Debt Distress? Gyude, a very good morning to you in Washington.

Gyude Moore: Thank you, Eric. And good morning to you and Cobus. Hi, Yunnan. Great to be here.

Eric: And it’s a reunion of Gyude and Yunnan. Yunnan used to work in CGD in Washington as well, and so it’s wonderful for everybody to be back together. Thank you both for joining us and helping us try to sort through what’s going on. Yunnan. Let’s try and start with you to get a little bit of background in terms of China’s relationships with the multilateral development banks. Up until this year, I wouldn’t have thought that this was a contentious relationship. Based on reading your report last year and the history, China seemed to have a rather collaborative relationship, not only with the World Bank and the IMF, but also with regional development banks as well, like the African Development Bank. Can you give us a little bit of the background to set the stage for our discussion today about China and the MDBs based on the research that you’ve done in this space?

Yunnan: Sure. I mean, I think first thing to say is that China’s relationship with the MDB system is one that’s been evolving and changing, sometimes quite dramatically, over the last several decades. And in the words of a colleague on this, [Yue Yu 0:07:08], China has had a sort of a shift from a romanticism to a greater realism in its relationship and attitude to the MDBs. I mean, when it first joined the World Bank and the IMF at the end of the 1970s, beginning of the 1980s, and then in the process also joined some of the bigger regional banks, this was very much prioritizing its own developmental needs. It needed capital for its own domestic investment, its own economic growth, but it really valued these institutions as centers of knowledge and learning and saw them as opportunities for its own capacity building, and also, as it was growing as a donor and development partner as well, as a model to perhaps learn from in how it does development overseas as well, in managing foreign exchange reserves, for example.

But throughout these decades, China has really been trying to seek greater voice in these institutions. And in the last 20 years, this has really been a painful and challenging process. We see it as particularly at the World Bank, where there were shareholding negotiations that began in 2003 to try and increase the voting power of not just China, but also other developing country and borrower countries. And whilst there were some reforms in 2010, and then in 2018, China’s shareholding still doesn’t reflect its economic weight. It sits at around 6.1%. And so, this has contributed to this perception that China will never fully be represented at these MDBs and, in some ways, they will remain a policy bank of the West. And having an American selected head consistently for the World Bank has also, say, contributes to net perception.

Eric: That’s not a perception, though, that’s a reality. If you’re saying that they haven’t gone up in share, given the fact that China today is the second-largest economy in the world, there’s some truth to that criticism, right?

Yunnan: I would say so. There’s been also a strong record of collaboration with the World Bank in many ways. The Ministry of Finance has put in money into trust funds in the World Bank. China has a significantly increased, although the overall contribution is small, the speed at which China has increased its contributions to IDA. It shows it is a willing contributor to the World Bank. However, this relationship has been a little bit more volatile in recent years. And in 2021 as well, there was a significant controversy around the World Bank doing business report, which was one component in this sort of growing rivalry that we’ve seen between the U.S. and China playing out in the multilateral stage.

Cobus: Gyude, you spent a lot of time in Washington, D.C., and obviously American officials have, I’ve recently been really kind of leaning into blaming China as a key barrier to debt renegotiation. In private conversations, do you get a sense that American officials like acknowledge this power imbalance that China’s chafing against? Or is everyone simply kind of framing it as China being a spoiler in a system that actually works well?

Gyude: Again, thank you. And this is the piece. What I’ve been trying to do for the last couple of weeks is simply inject another thread of narrative into this. So, on the one side, you have what like Yunnan has spoken about, we have a system. And I’ve said this again that in most systems, you have rule takers and you have rule makers. In 1945, China, India, Brazil, were all rule takers. But over time, as their economic power has grown, they have chafed at the idea of remaining permanently rule takers. They want to be rule makers, but they’ve been prevented from doing so, as Yunnan just pointed out, especially when it comes to this multilateral agencies. So, the suspicion then from China and that the multilateral agencies development banks are simply extensions of Western policy and consequently Western policy banks.

But that’s not the only narrative here. And you have the West on this side arguing that they’re guarantors of the international system as it is. And consequently, these structures need to remain as they are. There are other participants in this structure, though, who do not share that view, whether on the Western side or on the Chinese side. So, for example, people in Africa. Here in Washington, the conversation really has become subsumed in a bigger grid power competition. And it is my view, at least listening to Western policy-makers here in Washington, and also in Europe, that in a lot of ways, they’re using the debt issue as sort of a cajole  to pound China. They see a weakness for China here, and they’re pressing an advantage.

And China itself is resisting this because it doesn’t want to be forced to make these kinds of concessions. However, it comes back to this third option and this third threat in the narrative that it isn’t just the West and China in great power competition. It’s that thing that we say in Africa that when two elephants fight, it is the ground that surfers. Well, the ground wants to be able to have us say, the grass wants to be able to have a say here. And my hope is that over the course of our conversation, I can, at the very least, inject that thread into the narrative.

Eric: Yeah, we definitely want to talk about that. Yunnan, can you respond to what Gyude is saying in terms of that this isn’t really about debt, this is about great power competition. Is that how you’re seeing it also in London?

Yunnan: Absolutely. I mean, from my perspective, this kind of embedding of the debt issue into a bigger political issue is supremely unhelpful to the borrowers, the debt distressed sovereigns whose economies and their own future growth prospects are at stake. I mean, it’s quite ironic and depressing to see how the future of Zambia can be so influenced by a scandal around a balloon, for example. It’s an unfortunate reality that debt has become one of the facets within this amphitheater of U.S.-China rivalry that sits, unfortunately, below some of these bigger issues, including how the U.S. perceives China’s interventions in the Russia-Ukraine conflict, for example.

And I think until some of these bigger geopolitical tensions can be softened, it’s really, really hard to move this debt discussion away from a political one and onto a technical one where there can be progress made.

Eric: But the Chinese keep coming back to the same issue over and over again, that this isn’t… Now, from their point of view, they’ll say this isn’t about great power competition. I’m just trying to channel what Qin Gang and what Mao Ning, the spokesperson at the Chinese Foreign Ministry are saying that this is really about restructuring the way that the multilateral development banks do business, that they must take haircuts the same way that the Chinese are doing it. And they also want concessions from the private creditors. And the private creditors, as best as I can tell, have done nothing, have made no concessions.

The United States and the UK governments have done nothing to ease up the fiduciary laws that make it easier for bond holders to provide debt forgiveness. So, while it’s easy for us to put this into the matrix of great power competition, there are also some technical issues that need to be addressed that the Chinese have been saying. And I get the sense that in many developing countries, when the United States and Europe and the UK talk about the rules-based order, they talk about the MDBs and the supremacy and their creditor preferences that they have, or their preferred creditor status, remember that in Asia and Africa, the memories of the IMF and the World Bank are not always very positive.

So, when China is trying to take a stick and hit the pinata very hard, not everybody in the developing south is thinking that this is necessarily a bad thing. So, Yunnan, can you talk about some of the technical arguments that the Chinese are making to reform the system, or at least call for what they say is equity?

Yunnan: On the technical side, I’m afraid I’m a little bit thin on that. There’s been a lot of considered arguments made around why the World Bank and the MDBs can’t take haircuts to do with their preferred creditor status, to do their AAA credit rating. But when China sort of levels this accusation at the MDBs, there is not an unreasonable argument behind it because there is a precedent for the MDBs giving debt relief. And this was in the 2005 MDRI, which was sort of under the HIPC initiative from two decades ago. It was very, very small on scale. It was only three MDBs. But in terms of optics, that I think, from a Chinese perspective, signals that, well, you were able to do this once upon a time, why are you making these arguments now?

And especially in the context of other ongoing pushes for reform in the MDB institutions where many researchers, including Chris Humphrey and others at ODI have explored, the MDBs can be doing a lot more and be taking a lot more risk without sacrificing this AAA credit rating. That argument, I think, it hangs a little bit fragile.

Eric: Yeah. So, Gyude, you wrote in your blog post, Will China Play its Part in Addressing African Debt Distress? That this question of the preferred creditor status threatens to undermine the very function and the role of the MDBs in the process. Can you speak to that question of should the MDBs take the haircuts that China’s calling for?

Gyude: Yeah, and I think, to Yunnan’s point, that I’m one of those people sympathetic to China’s argument here. One of the points I make is that just the size of China’s portfolio, and if China just willingly goes along, there’s this risk that, for example, with what happened in Sri Lanka, we’re beginning to ask now, why not Zambia? Because China’s exposure in Sri Lanka is higher than in Zambia. So, if, say, Sri Lanka uses the same IMF process, what is to hold up in Zambia? And this is what my thinking is what the Chinese feared that just, even though it’s going to be on a case-by-case basis, by making a concession in one case, it applies across the entire portfolio. And so this is something they want to push back against. But I raise two main points here.

One is that, first it should be clear, though, that we should not be treating policy banks as we treat the MDBs. Now, whether China sees the MDBs as set of policy banks of the West, that’s China’s view, and it’s free to have those views, right? Because the MDBs, at least the World Bank exists for two reasons. The twin goals of the World Bank, one is to reduce extreme poverty, and number two, it’s to invest in shared prosperity. The international financial system can continue to function without China Exim, without India Exim, without U.S. Exim, but it needs the World Bank, it needs the MDBs. And so, there has to be a distinction between MDBs and policy banks.

Now, I’m willing to concede that yes, using a process similar to the MDRI, maybe leveraging, like the piece you shared with me yesterday, leveraging SDRs and demanding that countries make some sort of in exchange for some policy changes, whether improvement in public financial management or investment in climate-related stuff, that the MDBs take some sort of cut. But I want to be sure that whatever process we use has to, at its core, maintain the ability of the MDBs to borrow cheaply from international capital markets and lend to poor countries. And like I said, Deborah Bräutigam has this piece in Foreign Affairs that shows that a significant portion of the debt is with MDBs. Hannah Ryder has made the same point.

But I’m happy to point that out, because for me, the system is working as it is designed. For countries like Chad and countries like Liberia and countries like Guinea Bissau, you want them to borrow from the World Bank, you want them to borrow from the African Development Bank, where the quality of project selection is higher, the tenure of the loan is longer, the terms of the lungs in terms of interests are lower. I mean, for poor countries, you want that kind of financing to exist. So, if we have a crisis in which it looks like the African Development Bank or the World Bank has a lot of those loans on its books, that’s not necessarily a bad thing. And whatever process we go through, through debt resolution is to ensure that the World Bank and the African Development Bank remain capable of continuing to lend to countries in that position.

That’s why I think China’s argument… I should say one final thing here and then like let Yunnan respond. Over the last 10 years, at least from 2010 to 2020, no country’s firms have benefited more from MDB procurement than China. In 2019 alone, Chinese firms won $7.4 billion in MDB contracts, and that’s won because of how concentrated Chinese firms are in construction and how much of MDB lending goes out for infrastructure construction because of the value size. So, at the exact same moment, China is talking about MDBs taking a haircut. I mean, again, in 2019, that was 14% of MDB lending from those banks.

So, China has consistently benefited from the MDB system and the lending that has allowed Chinese firms to get greater and greater share of construction markets. And now we come to this point, and China is talking to the MDBs as if it is something separate from that. And so that’s why I think there’s a bit of hypocrisy on the side of China, but I think the MDBs also ought to be able to relent and be able to find a way technically that they can take cuts without threatening their preferred creditor status.

Cobus: Yunnan, I wonder if we could also shift the discussion a little bit towards private credit. So, during the same era that we saw a ballooning in Chinese lending to global South, we also saw a massive increase in commercial rated lending and Eurobond issuance and other forms of commercial lending. I was wondering what you made of the positioning of these private lenders in the debt renegotiation so far, and what steps are open to the world to try and make debt renegotiation on that side a little bit more efficient?

Yunnan: Sure. Just to address Gyude’s point and to add a little bit on the multilateral side, if I can just add, the MDRI from two decades ago, that was also a politically negotiated initiative. It wasn’t something that just happened in isolation outside of the MDBs, within the MDBs. It was something where finance ministers, including big donors, like the UK, came forward and said, “We will support the MDBs no matter what,” and there were fresh injections of capital into these institutions. And I do think ironically, this is something that China has been trying to do as well. As it’s trying to gain more voice in the MDBs, it’s also try to increase its capital contributions to these institutions and faced a lot of hurdles to do so because of this kind of fear of Chinese influence in the MDBs as well.

I don’t know what the solution would look like on the multilateral front, but I think the sort of antagonism has intensified over the course of these two or three years that China did participate in the G-20 initiative, and this was, as Deborah Bräutigam pointed out, a quite big step forward. And it took a foot forward and then did not see the MDBs participate in the DSSI. It did not see private creditors participate in the DSSI. And I think that was a bit of a sort of, for me, once moment for China’s leaders. On the side of private creditors, I am not sure what a holistic solution would look like when it comes to a debt restructuring mechanism, but I don’t think there is such a, what’s the word? Conflict in every case between China and bond holders at the moment.

I mean, in the case of Zambia, my impression is that Chinese banks and private creditors and bond holders sort of have more in common right now and could even be on the same side when it comes to pushing back against the haircuts that the IMF have mandated. So, I don’t think it’s such a binary picture of China versus the private sector there.

Eric: Well, in Zambia, at least under the Edgar Lungu administration, not under the current administration, there were concerns from the private creditors that the Zambian government and the Chinese government were going to reach some kind of deal that wasn’t transparent, and therefore it wouldn’t be equal. And so, then we had Wu Peng, who was the chop Chinese diplomat for Sub-Saharan Africa, he went out on Twitter and said, “No, we believe in equal treatment for all creditors.” And so there was these questions about Chinese transparency in the lending and the debt restructuring process in Zambia. That hasn’t been the case under the current administration of President Hichilema.

But that was a concern earlier, and I wonder if that’s still in the back of the minds of some of the private creditors. Just for everybody at home who may not be keeping up with all of the acronyms, the MDRI that we’ve been hearing a lot about is the Multilateral Debt Relief Initiative that offered full debt relief for eligible debt from World Bank, International Development Association, the IMF, and the African Development Fund. That was what they’re talking about with MDRI. We’ve also heard HIPC. That is the Highly Indebted Poor Countries Initiative, and then also DSSI, which is the debt service suspension initiative. And that was under the G-20, which one can only say has been an unmitigated disaster, a failure, a complete bust. It really wasn’t effective. And that’s again, I think probably influencing where the Chinese are today.

We just did a briefing a couple hours ago, Gyude, and the key question that came up in our discussion, what are the Chinese doing here? What do they want? And the best answer that I could have provided is the fact that I think that they want to bring the multilateral development banks down a notch. They don’t want to destroy the banks, they don’t want the Pyrrhic victory that you’re talking about in your column where they become useless, but they want to give their own development banks, the Asian Infrastructure Investment Bank, the New Development Bank, increasingly the BRICS group more room to move, because as Yunnan pointed out, their approach to the MDBs in the early 2000s were rebuffed — fairly or unfairly.

But so now what I think my best guess is they’re trying to give themselves more room to move in the international system. Let me put the same question to you. What do you think is the ultimate Chinese objective here in stalling out this process, the way they have, and bringing this fight to what they’ve done for the past year now, even if it means that Zambia is collateral damage? Because at that point, it’s pretty evident that the Chinese are willing to flush the Zambians down the toilet for this fight. That has been pretty clear based on the past six to nine months of what we’ve seen. What’s your take on what you think the Chinese want to get out of this fight?

Gyude: My views on this aren’t as strong as yours in that direction. Here’s one of the things happening. If we listen to Qin Gang’s press conference, but before his press conference, if we listen to Xi Jinping’s comments in which he said that there seems to be a concerted effort by the Americans to contain China’s economic growth, to press China’s economic growth, then if the Chinese then see the multilateral institutions as sort of an extension of Western policy, see the larger institutions as policy banks for the West, then it sort of makes sense that China’s pushback against this, it’s not so much that China wants to bring down the system, it’s that China wants to reduce the influence of its rivals using this system to get at China.

And in the process, to your point, as long as China continues to take a position, a hardened position against the West hardened position, then the countries like the Sri Lankas and the Zambia are going to face this difficulty that we’re talking about. And that’s why I think China has a long history in Africa. As we know, 33 years running now, first visit the foreign minister makes is to Africa. Five days after independence, Zambia established diplomatic relations with China. Zambia was one of the core sponsors of the UN resolution granting the Security Council space and China space at the UN, People’s Republic of China away from the Republic of China, Taiwan. Zambia has claims to some of the deepest and longer-standing relationships with China in Africa. And the same goes on.

So, it would seem to mean then what is missing is, if you were China and you feel like you are being contained, if you feel like you’ve been pushed into the corner, then you kick back, not so much because you hope to hurt your friends, but because you feel you’ve been cornered. And so, as long as the West sees the dead issue as a weakness for China to be exploited, then we’re stuck in a situation where the Zambians, and Ghanas, and Ethiopias, and Kenyas, and whoever else is in line of the world, they’re going to struggle. I think we can remind our Chinese friends, I mean every Chinese foreign minister has spoken of Africa as being friends in woe and weal, to be able to shift the narrative a bit.

In terms of what China wants, I wouldn’t even say that it’s because China wants its development finance institutions to gain prominence because China isn’t replacing anyone in Africa. Since China stopped lending to Africa at the volume it did, we haven’t seen a pickup in European lending to Africa. So, if China’s development banks start to lend a lot of money, they were gaining in prominence. China doesn’t necessarily have to cut down the Western institutions to size. I think China is basically defending itself from what it believes are intrusions from the West in trying to contain his growth and that Western multilateral development banks are instruments that fight against China. That’s how I see it.

Eric: Yunnan, let’s hear from you what you think.

Yunnan: I couldn’t agree more, Gyude. I think there is this kind of risk when you turn these debt discussions into a matter of political face, and creating this kind of defensiveness just escalates the problem to a point where no one can really quite back down on it. If I can chip in on the domestic politics side, I think Eric, your question is sort of assuming that China has a sort of strategy when it comes to dealing with overseas debt in its foreign policy. And I’m not sure that’s so clear cut. And this year, we have the Anhui going on, where we’re going to see a lot of reshuffles in key ministers within key ministries, including the Ministry of Finance, including the People’s Bank of China.

And I just don’t think that the domestic politics is going to treat overseas debt restructuring in small African countries as a priority. The other matter is that doing any kind of debt forgiveness is a hugely difficult issue for any of these Chinese banks, which, you can understand, they are very, very unwieldy, politicized bureaucracies that make any kind of autonomous decision-making very, very difficult, especially if it’s a decision that loses money on a loan. So, there are a lot of conservative tendencies within how Chinese banks operate that mean that they don’t really want to be held accountable for any kind of losses that, that reflect badly on individual bankers or for the institution.

And they’re also incredibly fragmented. There isn’t really a centralized authority at presence that can really coordinate between all of these different creditors. And we’ve seen this play out as a problem in the Zambian case. The other matter is that a lot of these banks are probably going to see their leaders reshuffled as well this year towards the end of this year. And so, in this mix, in the midst of this political uncertainty, I am not optimistic on any positive or dramatic shifts in how Chinese creditors are going to be approaching the problem.

Cobus: Gyude, there was recently a very interesting like press flurry with… there was a delegation, an Ethiopian delegation that visited Beijing, I think a week or two ago, and there was suddenly all of the speculation in the Ethiopian press that Ethiopia’s debt distressed situation might be solved in the back channels because Ethiopia has such a uniquely big proportion of Chinese debt. That there’s kind of like debt swaps and other like import boosting and other kind of methods that might be used within the Ethiopia-China relationship, and that would bypass the larger kind of IMF driven debt restructuring process. Subsequently, then the Chinese foreign ministry completely shut that down, and they’re like, “Yeah, no, that’s not happening at all.” But I was wondering like do you foresee any kind of alternative processes evolving within the China-Africa space or to the China global south space that’s outside of the kind of debt restructuring processes as we know them now?

Gyude: Yeah, I mean, look, a part of the thing is, and I’m doing a piece on that now, is just from the frustration of a stalled process, you have to remember that since 2020, we’ve seen nothing. I mean, the only place we’ve actually seen some movement on the debt issue has been Chad. And that’s because a significant portion of that debt was owed to Glencore. And because of an increase in commodities prices, Chad, it just became a moot point because Chad was able to resolve that. Outside of that, we’ve seen nothing. So, if you are Ghana, if you’re in Ethiopia, Ethiopia has been at war. Ethiopia has had to spend money it doesn’t have fighting a war. If you are Ghana and you’re Ethiopia, it makes sense that if you’re frustrated, you’re going to try to find another means of being able to do this. And our good friend, Hannah Ryder, has this idea through her organization, Development Reimagined, of something she calls Borrowers Club.

Gyude: Just as the creditors have a club, like the Paris Club, borrowers will be able to create an informal organization, sort of shared notes, create shared positions so that they can start bilateral negotiations with China. The difficulty in this point is, to Yunnan’s point, the loans may be predominantly from China Exim, but they’re not exclusively from China Exim. The loans are spread across Chinese policy banks. Chinese policy banks are not as coordinated as we would hope they are. And she noted, they are also steered bureaucracies who have a tendency and inclination to conservatism. So, this idea that Ethiopia can show up or Ghana can show up and get some sort of relief, I’m not as hopeful about that process. I do think, though, however, that if they were to create an external informal borrowers club of sorts and coordinated it among themselves, maybe they might be able to push the conversation.

I think they can push the conversation in that way. They can push the conversation on the Western side to be able to say, “You are making this problem worse by continuing to treat this death problem as a great power thing.” And then push the Chinese and say, “Look, China is not without fault in how it lent money too.” I mean, every single person, there’s enough blame to go around here, and we should now begin working on a technical proposal. So, I’m not as hopeful that individually African countries are going to get in deal, but there may be a possibility if they were to organize themselves, invite Pakistan, invite Sri Lanka, invite other countries outside of Africa, create a group and try to engage the process from outside of that. They might be able to move the process forward.

Eric: And one other very important point here, based on Deborah Bräutigam’s research at the China Africa Research Initiative from her work on Zambia, is that we’ve been talking about the Chinese policy banks, but when we look at the number and variety of creditors in Zambia, it started at 18, and China Development Bank and the China Exim Bank were only two. But then Huawei was in there, ICBC, the Industrial Commercial Bank of China was in there, the Bank of China was there. There were private companies that were loaning money. So, there is a lot of diversity in the Chinese creditor portfolio that makes this borrowers club even more important in order to be able to understand what’s going on. So, very interesting point there. I’d like to close our discussion today with some advice that each of you would give different stakeholders. Gyude, I’m going to task you with, what are you going to advise African governments on how to manage through this process that we’re in, if what Yunnan is saying is true, which I believe it is, that we are in this period of great domestic leadership transition and flux in China?

Therefore, we’re not going to see quick prompt resolution of this anytime soon. Gyude, your tasked to think about is what would you advise African presidents and prime ministers on how to manage on this? Yunnan, your assignment in this question is what would you advise Western stakeholders from your vantage point in London to the United States, the European Union, and also to the UK government on how you think they should best manage through this process? So, let’s start with Yunnan, and then we’ll go to Gyude.

Yunnan: Okay, so, so just a really easy question then.

Eric: We’re closing on the simple question. It is just trying to help us understand what should people do? How should they think about this?

Yunnan: I think any kind of movement or resolution on debt problem has to focus on the needs of the debt distressed borrowers. It can’t keep being held in this lens of China is the bad guy or the World Bank is the bad actor here. When we can move the conversation away from the political, when we can try to deescalate some of the discourse that it’s become embedded in and shift it to technical solutions on how debt treatments can work, whether they be reschedulings or more innovative solutions around debt swaps, and keep the interests of borrowing countries in mind, that would be a great step forward. I would also add, for Chinese stakeholders, I think there needs to be a push up in the recognition that this debt issue should be something that China’s leaders recognize as an important area in their foreign policy. It could be an opportunity for China to try to show itself as a responsible partner and a stakeholder and development partner for global south countries, but it should not be something that gets escalated into this great power rivalry.

Eric: Okay. Gyude, what would you tell African presidents and prime ministers and stakeholders about how to manage through this current situation?

Gyude: Yeah, my recommendation to them would be that first, right now, because of how hardened the positions have become, there is no incentive on either the Chinese side or on the Western side to be the first to give in. So, something’s got to give. And this idea that you can surrender your voice to the United States or to the World Bank to speak for you is not going to get you the best outcome out of here. African voices have to be heard and they have to be forceful in a third narrative here, and at least try to push the parties. That’s the first thing — you need voice. Second thing is the African Union is at the moment asking to be a member of the G-20. The G-20 is a global governance forum. This is a point of global governance. You want a forceful voice for the African Union here. And its silence is puzzling, right?

The African Union has to be able to interject into this conversation. And with that, it means that the African Union and African governments have to invest in foreign policy. Your foreign policy cannot be simply responding to what others are doing. You have to invest in learning about the Chinese domestic system. You have to invest in learning about how China does business, not simply in response to what the Chinese are doing. Invest in people, experts on China, and knowing more about your interlocutors in these transactions. I will say also, look, at this point, the West has been trying to get African governments to side with it in issues on Russia. Maybe you put something on the table here in exchange for concession here, moving here so that this project goes forward.

Because I will tell you, foreign policy, whether we like it or not, includes quid pro quo. And so, unless the Africans are active in how this is done, I foresee this thing dragging us because as a stand, as I noted, the big players here have no incentive to wind down their positions.

Eric: Okay. Gyude Moore is a senior policy fellow at the Center for Global Development in Washington, and he is the author of an excellent blog post on these current issues, Will China Play its Part in Addressing African Debt Distress? As you can see, lots of fascinating insights there. Gyude, thank you so much for joining us. Yunnan Chen is a research fellow at the Overseas Development Institute in London, and also author of China in the Multilateral Development Banks: Evolving Strategies of a New Power. Gyude, Yunnan, thank you so much for taking the time to help us better understand these issues. Gyude, let’s first start with you. If people want to follow you online to find out what you’re reading and writing, and you’ve been writing a lot on this issue, especially on your Twitter channel, where can they find you?

Gyude: Yeah, I think people can just follow me on Twitter. It’s Gyude Moore, and Gyude is G-Y-U-D-E. I think Eric will have it in the notes. Or you can go to, and you’ll find stuff that I’m writing and thinking about there.

Eric: And tell us, you are also firing up your podcast again, correct?

Gyude: This is correct. We have a podcast called Lagos to Mombasa. It addresses big questions in Africa, talking from the perspective of practitioner and researchers. Great insights, so please join us for our second season. It’s focused on climate and the impact in Africa.

Eric: And we’re going to put links to the podcast, as well as to Gyude’s Twitter handle and his blog as well where he is posting a lot of these ideas. Yunnan, if people want to follow you, where can they find you?

Yunnan: You can find me through ODI or on Twitter @YunnanChen.

Eric: Wonderful. Yunnan, thank you so much. Gyude, we really appreciate your time today.

Gyude: Thank you for having me.

Yunnan: Thank you.

Eric: Cobus, so much to think about. Both of these two really provide amazing insights on this. I also want to point people to, again, we heard references to Hannah Ryder’s column, and I’m going to put this all in the show notes on our website for our subscribers. Hannah Ryder had a column in The Diplomat on this issue that’s very important. We also had a great column from Kevin Gallagher at Boston University’s Global Development Policy Center. He wrote some ideas on this. So, lots of ideas going around as to what’s happening and what the solution is. The key takeaway for me, though, is what Yunnan said about the leadership changes in China and how these changes are going to slow down any quick response to this. And also, we should be very concerned about the tone of the discourse now between the United States and China, and what Gyude talked about, the grass.

That is the, when the elephants fight, the grass suffers. That’s the old saying. Listening to Qin Gang’s press conference, and then at the same time, just before the show came on, I was watching the Senate Intelligence Committee in the United States, they did an annual briefing with the various intelligence chiefs, and it’s all about China, and it’s all very contentious. So, making sure that African governments find a space in this discourse is going to be critical. And so far, the African Union, as Gyude pointed out, who would be the natural place for this to happen, has failed miserably because we’re not seeing a strong articulated perspective coming from the AU to assert itself in this to say, “You need to take us seriously. You guys need to put aside your differences because people are dying and suffering because of the lack of debt relief, and it’s just not happening.”

What’s your forecast, Cobus, in terms of whether or not the African Union or some other African entity, whether it’s the African Development Bank or South Africa in its capacity as the kind of loudest voice on the continent when it comes to global affairs traditionally, maybe not today as much anymore, but somebody stepping up and pushing both the U.S. and China into their corners and saying, “Wait, enough. You need to think about us?”

Cobus: I’m not very optimistic on that point, I have to admit. Obviously, South Africa has always styled itself as being this kind of voice of Africa. I mean, it’s such a laughable concept, but South Africa is particularly messed up right now and particularly kind of inward looking. I think also that’s true for Nigeria. It’s true for several African countries. I think there needs to be much harder questions asked about African leadership, not only for the continent, but African global leadership, particularly African thought leadership. Because if one looks at, for example, the massive impact that the small island developing states have had, those are like countries like Micronesia, for example, have had in global debates about climate change, and to the extent where they actually managed to get new funding mechanisms set up to compensate poor countries for the development impacts of rich countries, I mean, those are such small, such weak countries, and yet they’ve had very, very large kind of impacts.

Africa is much larger, much richer, has much, many more people, and yet it’s falling down so spectacularly in terms of thought leadership in the world. And that has not always been true. If you look at the Cold War, African countries were very strong in terms of pointing forwards towards a more kind of egalitarian setup. We are not seeing that now. I agree with Gyude Moore, the silence from the African Union has been deafening on this issue. I mean, who better to talk about this issue than the African Union? And yet they’re not stepping up. In that sense, one can always be more disappointed by Africa. That’s sadly the truth. Maybe I’m just reflecting the very kind of gloomy mood that’s in South Africa at the moment, but I don’t see much progress on the horizon.

Eric: Yeah, and it’s frustrating as well that the discourse around Chinese debt in Africa has not really advanced that much over the past few years. There was an article this week in Legit Newspaper, which is one of Nigeria’s main online news portals, and it pointed out that Nigeria’s total public debt now has reached 50 trillion Nairas, 49.9 something trillion naira, which is about $108 billion. That’s a huge amount of money. The headline in the story was China. And you’d think, okay, but they’ve acknowledged the fact that China accounts for 4.16 billion of the 108 billion. So, we’re talking less than 4%, right? China’s not a factor in Nigeria’s debt, but yet that was the headline. Nevermind the fact that they overlooked and they buried, maybe in the eighth paragraph, the fact that the federal government borrowed $4.6 billion in just the past two months alone.

And in the tenure of Muhammadu Buhari, from 2015 to this year, Nigeria’s total debt, total debt has gone up 300%. Now, what’s depressing about this is that a lot of the money that they’re borrowing is going to fill budget deficits, which is, of course, the worst thing you can do to borrow money for in a developing country because it’s not creating wealth. It’s not infrastructure, human development or other things. It’s paying salaries. And that’s, unfortunately, what’s happening in a growing number of countries. They simply don’t have enough cash to function in their governments. And that’s the same case in Kenya. Cobus, you brought up this question of diminishing foreign exchange reserves. This is another area that we’ve been following in Ghana, Kenya, and Ethiopia because hard currency is going out the door to service the debts, and at the same time, they are not having enough to be able to pay for imports, and it’s causing all sorts of follow-on problems.

The one issue where, again, I’m surprised that governments like Kenya have not called out the Chinese more is on the forced repayment of loans like the Standard Gauge Railway loan, where the China Exim Bank refused Kenya’s appeal for a debt deferral. This is where again, when China kind of plays the victim card, as it often does here, and says it’s the multilateral development banks, it’s the commercial creditors, it’s not us. We’re just a small 12% of Africa’s total. That may be the case, but in countries like Kenya, China’s debt profile is quite large at $6 billion. And the fact that they are not relenting and giving the Kenyans any breathing room, to me is where there’s an opportunity for the Kenyans to, even civil society organizations, to push back and say, “Hold on. You’re not only the victim here, but you can do something meaningful and give us a break on this repayment. Give us a two- or three-year repayment moratorium so that we can just catch our breath, save our hard currency, and get out of this hole that we’re in.”

I think, again, the Chinese, there’s room for criticism of the Chinese here, but at the same time, as I said at the beginning of the show, the Chinese are absolutely right in pointing out some of the hypocrisies coming from the West, particularly on this question of not loosening up the fiduciary laws for bond holders.

Cobus: Yeah, absolutely. And I mean that kind of push from civil society would be very welcome, I think. These governments particularly are not going to be pushing China because I think they still see China as one of their only options. In the same era, the same like 10 years or so, when we saw really Chinese bilateral lending really expand, at the same time, Western bilateral lending was shrinking. That space was, to a certain extent, replaced by China, but it was also, it was replaced particularly by the western private sector and who, in a moment where interest rates were very low, in Western countries, they were out on the frontiers hunting for yield.

I think African countries, they have a limited amount of political will, I think, to push China because I think they still see China as the only option compared to like either very, very expensive Western debt or very, very slow Western led multilateral debt, which usually has a lot of conditions attached to it. There are other options beyond that, but not so many. And I think China really looms large there. And they also know that China is politically very sensitive and they’re very politically, like particularly sensitive about being called out in public. So, maybe there’s pressure happening behind the scenes, but I don’t think there’s going to be pressure happening in public.

Eric: Let’s continue the chat about geopolitics here. And this is again where Africa may come up short. So, Gyude pointed out that there may be bigger reasons in terms of why Sri Lanka was chosen for this debt relief by China Exim and agreeing to the terms that they’d previously said it wouldn’t, because in part, this involves not only India, but also the Japanese, who are key players in this too, of China’s biggest rivals in Asia. And also the United States was pounding the Chinese pretty hard on Sri Lanka. Let’s not forget that Sri Lanka’s ground zero for the debt trap narrative, which is the Port of Hambantota, which we’ve talked about extensively on this program. So, getting Sri Lanka off the table in terms of being a debt relief issue for the Chinese makes a lot of sense in terms of politics and narrative, but watch, keep your eye on what they’re going to do next in Pakistan.

And that is going to be another interesting case because you’re going to see very different treatment of Pakistan than you will see of Zambia, Ethiopia, Ghana, and other countries because of the geopolitical importance that Pakistan poses for the Chinese and presents for the Chinese. Pakistan is a main gateway to trade via the Indian Ocean. And at the same time, it is a major buffer against India. It is the source of a lot of, or destination of a lot of investment for the Chinese through the China-Pakistan Economic Corridor. The Chinese own about a third of Pakistan’s $100 billion of debt. Just this week and last week, the Chinese extended $700 million of new credit to the Pakistanis to reinforce their foreign exchange reserves.

So, they’re going to do things in Asia that they’re probably not going to do in Africa. But if I were sitting in any African capital and advising a president or prime minister, I would be keeping my eye on what they’re doing in other parts of the world, and then going to the Chinese embassy and saying, “Hey, listen what you did for Pakistan, we want a little bit of that here,” and really trying to put that pressure on. But one of the problems that we’ve found in our discussion with various African stakeholders is that they’re not focusing enough attention on what the Chinese are doing in other parts of the world. So, that question of the knowledge gap is also, I think something to consider.

Cobus: Yeah, exactly. That’s why we need a borrowers club. I think that is… yes.

Eric: That’s exactly what we need, the borrowers club. That’s a good point. Yeah.

Cobus: And other form of global south kind of group forming.

Eric: Well, let’s leave the conversation there. We are somewhat obsessed with this issue in our daily coverage, and we write about it probably more extensively than anybody else does. And so, if this is a topic that is of interest to you, and really trying to understand the motivations on all sides of this, so we look at it from the African side, the Chinese side, and then the Western stakeholder side, and really trying to help our readers figure their way through this tangled mess of politics, economics, finance and development finance, then go over to Try out our newsletter for free for 30 days. We also offer student and teacher discounts, so if you would like to get the coupon code for that, it’s half off. Send me an email, with or your university address, and I will then send you the codes for that.

So, what a great conversation. Very, very timely. We’re really looking forward to continuing this discussion with both Yunnan and with Gyude. And also then we’re going to be following up with Kevin Gallagher from Boston University next month. He’s got some interesting work coming out on this topic, and he’s thinking a lot about this as well. So, we’re really excited to be able to continue this discussion going forward. So, let’s leave it there. Cobus and I will be back again next week with another episode of the China in Africa Podcast. For Cobus van Staden in Johannesburg, I’m Eric Olander — thank you so much for listening.

Outro: The discussion continues online. Tag us on Twitter @ChinaGSProject and visit us at If you speak French, check out our full coverage at and AfrikChine on Twitter. That’s Afrik with a K. And you’ll also find links to our sites and social media channels in Arabic.

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