What are the consequences if African countries refuse to pay China for infrastructure projects debt? Can China legally enforce repayment from them? Find out the potential outcomes and implications of this scenario! 🌍💰💡 #AfricanDebt #China #InfrastructureProjects #Repayment #Consequences #GlobalEconomy
Possible Consequences
– Economic sanctions
– Damage to diplomatic relations
– Legal actions
– Seizure of assets
Can China Enforce Payment?
– Potential legal avenues
– International pressure tactics
– Negotiation tactics and strategies
Stay informed on the complex dynamics of debt repayment in international relations and the impact it can have on African countries and China! 💭📊🤝
African country borrowed money to build an electric powerplant, a railroad or a harbor.
Default on China and you will no longer have the replacement parts to keep the Chinese powerplant or the Chinese train engines running. Also, if you are an African country, your main export are commodities. The biggest buyer of commodities in the world is China. Not a good idea to default on your #1 customer.
Infrastructure has to be maintained. Even if these countries decide to cut ties with China and stonewall them for compensation, things will quickly fall into disrepair.
And because they’ll have sullied their reputation, no other contractor will step in without an upfront payment and hefty hazard premium.
Usually it’s just incredibly bad for reputation to refuse to pay debts.
Developing countries are already at great disadvantage because barely anyone gives them loans or those loans are considered risky and have high interest rate. Defaulting on some loans will just reduce your credit rating further.
Ethiopia did default on a 13 billion Chinese loan this year, joining Gambia and Ghana. I read that what happened was they just reconstructed the loan into a long term one.
Obviously the Chinese noticed the trends and stopped loaning that much to Africa now. Also the amount of money is not as significant as the media portrayed. It’s about 170 billion from 2000 to 2022. The big brother probably wouldn’t even care. To put that into perspective, Apple made 383 billion in 2022 alone.
These countries would receive even less foreign investment than they do now, which would be a terrible long-term decision. You want foreign companies to invest in your country to provide jobs, pay taxes, transfer technologies, and incentivize education. And if you randomly decide not to repay debts or nationalize things that legally belong to foreign entities, you will not see any of that.
When these infrastructure debt is due and the receiving country can’t pay it (it’s happened before) – China will renegotiate the debt – they’ll forgive some of it, lower payments and interest rates etc. The most common result is that China just eats it and writes the debt off.
There are no international debt collectors and China can’t make sure they’re paid back, and they can’t just “repossess” state-owned infrastructure projects in foreign countries and contrary to popular belief, the loan contracts do not state that they must be handed over in result of non-payment. They have pretty much zero leverage when push comes to shove.
A lot has been made of “debt trap diplomacy”, but it’s mostly a myth. The oft-cited example is the Hambantota port in Sri Lanka, which Sri Lanka was unable to maintain payments on. The narrative goes that China seized the port when Sri Lanka defaulted – which is not true. Sri Lanka privatized the port to help pay off national debt – and a Chinese company bought a 99-year lease for ~$1bn. This is the major example of an infrastructure project falling into Chinese hands, but it’s become much more of a trap for China than it has for Sri Lanka – management of the port has not been easy and they’re bleeding money on it.
We’d never really know unless we see the specific contracts.
China is unlikely to be too bothered by the money itself, the amounts are generally not that big in comparison to China’s GDP.
The projects are mostly a way to gain geopolitical allies and so I can very much imagine they would be more than happy to let countries off the hook for some/all of the money in return for other concessions or agreements that China considers strategically or politically valuable.
It’s a little older now but this study [here](https://www.cgdev.org/sites/default/files/examining-debt-implications-belt-and-road-initiative-policy-perspective.pdf) discusses some of this in section 5 (starts on page 19) – China has generally been willing to forgive loans/change repayments in return for other concessions.
Then said country can look forward to losing out on future investment opportunities.
If you have a reputation for shirking debts then you’re not exactly attractive to entities which could loan you money expecting a return on it.
Eli5. China will ask for less money, because some money is better than no money. China also keeps the African country as a friend, and friends do favors for each other…
There are many cases where investors buy up 3rd world debt and then go to court to intercept any payments going to those countries through the banking system including payments by other countries and aid payments.
[https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/african-legal-support-facility/vulture-funds-in-the-sovereign-debt-context](https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/african-legal-support-facility/vulture-funds-in-the-sovereign-debt-context)
In reality China forgives a lot of African loans. Like [this](https://www.voanews.com/a/china-cancels-23-loans-to-africa-amid-debt-trap-debate-/6716397.html). Of course it looks like that China *proactively* forgives them, but sometimes the country just (secretly) defaults and China forgives them to save faces of both (the African country saves their credit and China saves their face since they don’t really know how to force the country to pay up).
Cyril Ramaphosa is that you behind a throwaway account??
Depends on why. If they just don’t feel like paying there are a ton of levers China can bring to make that an uncomfortable and counter productive choice. But if they literally cannot pay that triggers another set of very problematic interactions that either see China eating the debt or intervening militarily in a hugely unpopular way.
The “payment” in most if not any cases run in the way that china runs the facility and shares the revenue. Like building a harbor or a mine, run it and take 50% as payment and let 50% in the country. Many African leaders agree that deal because that way more stays in the country than the old colonial forces did. It is not like paying the debt of a card.
In a lot of these countries, infrastructure was built in exchange for a cheap deal on the resources in those countries.
China will build roads, power plants, water delivery and promise to put the locals to work.
They will do this for the cheap labor, but fill the higher paying management positions with Chinese nationals.
They complete enough infrastructure so they can export raw materials: cobalt, gold, lithium.
Local and national government elites get paid millions to go along with it. Locals get poverty level jobs, natural resource stripped and environmental problems for decades.
Much like people, countries have credit scores. If they simply default on their loans, governments will stop loaning them money. There is also the possibility of repossession of assets. The Chinese government probably also services and maintains the infrastructure which they could simply stop doing. They could also face trade sanctions from China whose imports they rely on. There was a bizarre case a decade or so ago where a bank that Portugal owed money two seized one of their naval ships. But mostly, it’s the loss of credit and the inability to borrow money, which is critical for poor countries.
there is a reason countries that default on loans get press coverage because it is a BIG deal. China cant force them to pay, short of acutally going to war but no one is going to go to war for that. other countries will look at them and go “well they didnt pay back china, so they might not pay me back as well. To justify that risk we will need to raise the interest rates on the payments”
So what was a 2% loan might now be now 8% or even higher. This makes getting economic development hard since no one wants to invest unless you pay them large amount of money. This is especially bad for countries that are already on the edge.
China is using the same playbook the US used
Its been used by other countries and companies in history.
There are collateral which China can seize (e.g. making the road a toll road). In reality, China would likely never do so, because it doesn’t provide them anything.
They will likely extend the loan for some intangibles (e.g. upcoming UN vote or access to more market/resources).
Defaulting on debt means loss of trust. Govts provide loans but if you default on one ,others will be mindful aswell. Then comes loans through private sources that a country pledges for. They usually are very sceptical and funding will reduce. Also remember while china and US are not in harmony, china can get the payments through foreign reserves stored in US banks by mutual benefit. This world is a tangled rope and everyone has been tangled in it.
Read the book called Confessions of an Economic Hitman to get your answer. In short, default in the debt and they own your resources for Chinas benefit. Industrialized countries have been doing this for a loooooong time.
There are likely legal remedies that will be partially effective. As with any debtor, if you default you are subject to judgment and involuntary collection.
If a country refuses to honor that, then they’re not really a “rule of law” jurisdiction and it becomes much much much harder to access capital markets in the future.
An example from Montenegro:
> A copy of the loan contract reviewed by NPR shows that if Montenegro is not able to repay China’s state-owned Export-Import Bank on time, the bank then has the right to seize land inside Montenegro, as long as it doesn’t belong to the military or is used for diplomatic purposes.
Forclosure.
China takes the assets that were used as collateral.
They’ll try legal means to assert ownership first, then they’ll use force to claim what is theirs.
They’ll step in one day and say, “your country is now mine, you owe so much debt that the debt is more than the country is worth, you don’t like it? We’ll send troops”.
they would grab land and keep until you don’t repay the debt, basically they’ll grab it forever as they did with Sri Lanka and Pakistan.
Investments are much more valuable in the long term than humanitarian aid because unlike aid which can be pulled away easily because of political conditions, investments are something that ties nations together economically.
It means that the African nation will prioritize paying back those investments or coming to mutually agreeable terms on the loan. Which will then encourage more investment or loans and so on.
There is a risk of default, which is the price of business, but both parties will try hard to avoid that. Of course straight up refusing to pay back the loan would be disastrous for no clear benefit.
They seize the land and use it for Chinese purposes ideally. It’s the same thing that the United States has done to get various airbases and things. The same thing we’re doing in Ukraine. We’re “borrowing” them weapons and then will get paid back in good terms on food and other things in the future as payback in return. If they so happen to have land to exchange for the debt or some other favor, we need then we call it in.
China offers these loans throughout the world in developing countries . The trick to it is they KNOW most will not be paid back and it’s part of the plan. They do this as a two part move .
Part 1 offer these loans to easily swayed politicians in countries under the premise it will be good for the local workers , employ locals and also under the table kickbacks/bribes to govt officials and the companies they own . What really happens though is once these projects are approved China begins to import its own workers to the particular country to do the bulk of the work , and once the work is done typically those workers end up staying in the country permanently.
The second part of this move is that they typically offer these loans to build critical infrastructure for the country telecom networks , ports /shipping , airports , roads , hospitals , power generation and they’ll usually throw in a soccer or cricket stadium for good measure . At the same time they donate equipment and training to the local defense forces/militaries. Once the country defaults the Chinese will assume control of the countries critical infrastructure while also having an inroad to work out deals through the local politicians for access to whatever resources the country owns. Also by building and installing these major infrastructures especially the telecom and shipping ports they spy on all traffic in/out of the systems, not just for military reasons but also for the corporate espionage/intellectual property transmitted via these networks.
Coming back to part one the now sizeable population of workers imported that stay after the works done are still Chinese citizens and now the Chinese have an excuse/reason to establish/expand their embassy while they also start buying the hotels, restaurants , and other stores in the area slowly draining the money from the local economy that used to go to the local businesses . Here’s the real kicker , long term this will be the basis the for why a Chinese military base is needed in the area the same way the U.S. does. When I tell most people in the next 5 years there will be a Chinese military base/naval base in the Caribbean/South America they don’t believe it , but it’s coming.
Source: 5 years working in state dept./joint military counteracting Chinese influence throughout Caribbean/South America .