JOHANNESBURG/BEIJING • A wave of African nations looking to restructure debt with China on the eve of a major Beijing summit provides a reality check for the continent, where most countries still view Chinese lending as the best bet to develop their economies.
China has denied engaging in "debt trap" diplomacy, but President Xi Jinping is likely to use next week's gathering of African leaders to offer a new round of financing, following a pledge of US$60 billion (S$82 billion) at the last summit three years ago.
Ethiopia and Zambia, heavy borrowers from China, have expressed desire to restructure that debt, while bankers believe Angola and the Congo Republic have already done so, though details of such deals are sparse.
The International Monetary Fund (IMF) said Cameroon, Ghana and others face a high risk of debt distress, as does Djibouti, whose main source of foreign loans is China, and which holds the majority of external debt.
But many countries, even those heavily indebted to China, still say Beijing offers far better terms than Western banks, and that European nations and the United States fail to match its generosity.
"Especially when you go to multilaterals, it takes such a long time," Mr Aboubakar Omar Hadi, chairman of the Djibouti Ports and Free Zones Authority, told Reuters.
To develop its Doral Container Terminal, Djibouti borrowed US$268 million from seven banks at 9 per cent over nine years, he said. By comparison, its first Chinese loan was for US$620 million over 20 years at 2.85 per cent, and it had a seven-year grace period.
"Where is America?" he asked. "Where is the investment from Europe? We are ready. Why are they leaving the whole continent for China?"
Chinese officials have vowed to be more cautious to ensure projects are sustainable.
Chinese-backed infrastructure has not always translated into the kind of economic growth that makes rising debt sustainable and resource-based economies are reeling from a slump in global commodities, said Mr Martyn Davies, managing director of emerging markets and Africa at Deloitte.
"The African states have this naivety at times that this is somehow free money," Mr Davies said.
From 2000 to 2016, China loaned around US$125 billion to the continent, according to data from the China-Africa Research Initiative (Cari) at Washington's Johns Hopkins University School of Advanced International Studies.
It is the most significant contributor to high-debt risks in three African countries, Congo Republic, Djibouti and Zambia, Cari said this week. It said in most other nations, traditional donors, multilateral agencies and private creditors held significantly higher portions of debt.
Chinese officials have said this year's summit will strengthen Africa's role in Mr Xi's Belt and Road initiative to link China by sea and land through an infrastructure network with South-east and Central Asia, the Middle East, Europe and Africa. Beijing has pledged US$126 billion for the plan.
China defends continued lending to Africa on the grounds that the continent still needs debt-fuelled infrastructure development.
Much of the concern over Chinese debt stems from different measures of "debt sustainability" used by Beijing and African nations versus Western governments and institutions like the IMF, said Dr Cheng Cheng, a researcher at the Chongyang Institute of Financial Studies at Beijing's Renmin University.
But the debt problem is driving a push to transform financing to more investment over loans, he said. "New instruments are being used to leverage finance from elsewhere, because the Chinese government has long realised that there is generally the debt problem everywhere."