Nothing’s free: skepticism grows over China’s debt forgiveness

Skeptics say that despite China’s agreement to forgive interest-free loans to 17 African countries as it seeks to dispel debt-trap allegations, the days of Beijing writing off interest-bearing loans are over.
The world’s poorest countries — many of them in Africa — are facing $35bn in debt-service payments in 2022, out of which around 40% is owed to China, according to the World Bank. With cash-strapped African economies under severe strain from surging commodity prices and the tailwinds of COVID-19, there were sighs of relief when Wang Yi, China’s top diplomat, announced at a major African debt announcement in August that Beijing had forgiven 23 interest-free loans to 17 African countries. He noted that the loans had matured, but remained tight-lipped about the total value and their recipients.
However, while interest-free loan forgiveness could make a difference to Africa’s very poorest nations, in reality, no-interest loans make up only a tiny fraction of China’s lending to the continent. While the carefully arranged spectacle around Wang’s announcement could indicate an attempt by Beijing to tackle allegations of “debt-trap diplomacy,” analysts stress it is unlikely to have an impact on China’s interest-bearing loans. China has traditionally been reluctant to write down the face value of interest-bearing loans and hence also the current negotiations over Zambia’s debt obligations do not suggest Chinese banks are in a particularly forgiving mood. “We certainly believe that the Chinese official creditors will not accept a big haircut,” says Kevin Daly, investment director for emerging-market debt at Abrdn PLC.