Two Projects in Asia and Africa Highlight the New Realities of Chinese Development Finance

Two very interesting stories this week highlight the complexity of China’s development finance initiatives in Asia and Africa. In Cambodia, people close to the massive $1.7 billion Funan Techo canal project hint that Chinese financing isn’t as secure as Prime Minister Hun Manet made it sound when construction began last August.

Then, in Zimbabwe, a different yet equally worrying concern is on the rise over whether Chinese creditors will pull the plug on the vital Hwange power station due to the African country’s inability to make the $36 million monthly payment for refurbishments of the plant done by Sinohydro.

Both stories highlight two critical themes inherent in Chinese development finance today:

1. The days of easy access to Chinese loans are over.?The Cambodian PM may have mistakenly thought that he could move forward with the construction of the canal because, up until recently, the Chinese always seemed to come through with the money. Not anymore.
2. It’s Chinese creditors, not African borrowers, that are caught in a “debt trap.”?In the mid-2010s, Chinese creditors lent a lot of money to countries that did not have the financial strength to repay, particularly Zimbabwe. But China isn’t going to seize the Hwange power station, as ill-informed critics in the West and India will no doubt suggest. Instead, Sinohydro and other Chinese creditors are stuck with a bunch of bad debt that’s now weighing down their financial statements. That is the?real?debt trap.

What’s happening in both of these countries is also playing out across dozens of other states across the Global South. We’re now in a period of massive restructuring, where borrowers are sinking deeper in debt, and Chinese creditors are struggling to figure out how to reprofile all of these loans on their balance sheets.

Most important for observers is to resist the simple memes that too often frame these issues, which are vastly more complex than the usual reductive accusations of Chinese predatory lending.