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Last Updated: Tuesday, 19 September 2006, 16:36 GMT 17:36 UK
China's loans raises African debt fears
By Andrew Walker
Economics correspondent, BBC World Service, Singapore.

African delegate at the IMF conference in Singapore
Is China responsible in its lending to African nations?

A year ago, the financial leaders who gathered at the International Monetary Fund and World Bank's annual meetings made an agreement that was intended to sort out the debt problems of the poorest countries once and for all.

Now, some of them are getting uneasy about China's growing influence in Africa, especially its lending on the continent.

World Bank President Paul Wolfowitz said that while it was wrong to focus one particular country - there are others involved apart from China - he could not deny that "there is real problem here".

"The challenge is how to make sure that these countries that were heavily indebted and suddenly get large debt relief, don't turn around and borrow so much, so imprudently that we have a heavily indebted poor country all over again in few years time," he said.

The G7, a group of world's main-industrialised countries, also share this concern.

They did not name particular lenders, but in a statement after this year's annual meeting in Singapore they said: "It is imperative that all donors take account of debt sustainability issues in their lending practices."

Investment or loans?

So how do the borrowing countries in Africa feel about the situation, and why are they taking money from China?

Many of them said that it is partly because the aid increases promised by the rich countries - at the G8 Gleneagles summit last year for example - have been slow in coming.

Senegal's Finance Minister Abdoulaye Diop said that debt relief alone was not going to maintain a nation's economic growth, adding that it was clear that "funding from China would be very welcome in poor countries".

Paul Wolfowitz agreed that aid from the rich countries would be central to sustained economic development.

He said they have a special responsibility to honour their pledges on development aid "because that is part of the way to enable countries to have adequate levels of investment without going and borrowing heavily".

Among the campaigners who pressed for debt relief for more than a decade, there is, perhaps surprisingly, some sympathy for countries that turn to China.

Trisha Rogers of the Jubilee Debt Campaign said that the borrowers are grown up countries who have suffered from debt problems in the past and will be very careful about the small print of any new loans they take out.

She added that some of China's loans are very concessional - at low, subsidised interest rates.

It does not matter she explained, whether the loan comes from China or a G8 country like the US or Japan.

What matters, is that it is a good loan that will generate income to help the country's poorest people.

Growing presence

According to Mr Diop, Senegal's Finance Minister, another reason that Chinese loans are attractive for African nations is that they come with fewer conditions attached.

The issue of "conditionality", as it is called, is one of the most contentious aspects of aid programmes.

Loans and grants usually come with requirements that the receiving country follow specific policies.

They can be very detailed and onerous and sometimes the policies themselves are very controversial - especially in areas such as privatisation and trade liberalisation.

Many developing country governments loathe these conditions and borrowing without these unwelcome strings would be very appealing to many African countries.

Hard figures are difficult to come by, but it is clear that China's lending in Africa has been on the rise.

So is China's wider commercial involvement with the continent, and it has been investing in natural resources especially energy, something the country's expanding industry needs in increasing quantities.

One way or another China is going to have a growing presence in Africa.

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