BUSINESS

Why is China loaning billions of dollars to African Countries?

China-Africa Cooperation forum includes a thrilling announcement of billions of dollars.

Last month, China was host to the leaders from across Africa for a summit in Beijing.The last summit was held in December 2015 in Johannesburg, South Africa.

For funding support Chinese President Xi Jinping announced $60 billion. This money was for infrastructural development in Africa.

chinese involvement in africa

China-Africa Cooperation forum includes a thrilling announcement of billions of dollars. Chinese is financing more to build infrastructure across the continent. But there is a great drawback in loans that come with sheer and cloudy conditions.

It’s typical for an American to think this is not our problem.But the African countries seem to be sinking deeper and deeper into Beijing’s carefully laid debt trap plan.The United States could be paying a stiff cost.

chinese involvement in africa

The cost has also been reduced by the cooperation on counterterrorism and new job creation.Chinese debt has become the methamphetamines of infrastructural finance. It is highly addictive, very readily available and with long-term negative effects.

China has become the largest provider of bilateral loans which is especially true in sub-Saharan Africa.About forty percent of sub-Saharan African countries are already at high risk of debt anguish.A single lender has a lot of debt concentrated in their hand.

chinese involvement in africa
Concept image of Handshakes between China-Africa, economic relations, Bilateral trade, China invest in Africa

They are vulnerable and are bound to their supplier.So, why does this really matter?

In places like Africa and elsewhere else the government has secured massive loans from Beijing.They are using strategic assets such as oil, minerals, and land rights in the form of collateral.

If the borrowing nations find themselves unable to repay the loan, China can claim the deliberate asset.

chinese involvement in africa

Sri Lanka recently lost the control of the port of Hambantota and they learned this the hard way. This gave China a strategic foothold along a busy trade waterway.

Professor Brahma Chellaney at the New Delhi-based Center for Policy Research said,

 “Several other countries like Argentina, Namibia or Laos, have been ensnared in a Chinese debt trap. They were made to confront agonizing choices and were being forced upon them in order to prevent it from being a default.”

Chinese debt diplomacy is a serious threat to U.S. national security although they may not seem relevant to most Americans.China’s cunning negotiations and capture of strategic assets can have a negative impact on U.S. It can limit U.S. influence and access overseas.

For example the tiny country of Djibouti is home to the most significant American military base in Africa. Because of the Chinese loans, Djibouti’s debt-to-GDP ratio surged from 50 to 85 percent. This was done between 2014 and 2016.

chinese involvement in africa

If Djibouti were not able to pay and give up the port that resupplies the U.S. base the American military capability in Africa and the Middle East could be seriously threatened. Unorganized levels of debt can sabotage African states. This may also compromise American security interests.

The government can get caught in a downward spiral of credit downgrades because of over-leverage. They can get caught up in activities like credit downgrades, reckless economic policies and reduced spending on social services.

chinese involvement in africa

Economic stagnation can create fewer opportunities for Africa’s faster growing and young population. The poisonous ferment of economic hopelessness and political disillusionment can drive unaffected youth toward violent dogmatism.

They can threaten Americans abroad and even at home.China’s debt diplomacy may shut down many opportunities for U.S. businesses and businessman.

chinese involvement in africaBeijing’s cheap infrastructure can provide loans and they can come with conditions to employ Chinese companies. They are also set out for technical designation. Projects like high-speed railways and wireless networks are made in a manner that can favor the Chinese firms.

The combined effect of these efforts “would push the United States away from its current position in the global economy and move China toward the center,” according to Jonathan Hillman, a fellow at the Center for International and Strategic Studies.

chinese involvement in africa

China has already started earning $180 billion annually from its investments in Africa.If the debt diplomacy remains to be unquestioned, there are even more chances revenues and jobs will flow to China instead of flowing to the U.S.

This consequence is far from being inevitable. U.S. has plenty of good options to increase revenues and jobs but it also needs to boldly step up its game and support alternatives to Beijing’s aggressive financial capability.Perhaps more radically, the U.S. needs to concentrate on the focal point on heightening African economic growth.

chinese involvement in africa

U.S. companies can earn more entry points if they help African states strengthen investment. Investments made on climates and economic governance will help attract more private sector capital and provide more entry points.A major piece is assisting African efforts is to increase their liquidity. This makes all the costs and benefits of project finance options to be known openly and make it familiar.

U.S. embassies should be fully staffing the members along with providing practical intervention in order to evaluate ideas on loan agreements and investment contracts. This would be a good start to be established and a good place to work and perform on.

chinese involvement in africa

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