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World African leaders head to China to seek funds, despite U.S. warnings of ‘predatory’ loans

Despite repeated U.S. attacks on China’s lending practices, a procession of African leaders, including Egypt President Abdel Fattah El-Sis, left, flew into Beijing this week to ask for more loans.

Andrea Verdelli/Getty Images

The warnings from the Trump administration were dire: African countries would be held captive by “predatory” loans from Beijing in a deliberate Chinese strategy to use secret debt agreements to achieve global dominance.

The ominous message came from U.S. President Donald Trump’s national-security adviser, John Bolton, as he unveiled a new U.S. strategy for Africa last December. He was taking direct aim at China’s “project of the century” – its multibillion-dollar Belt and Road Initiative, a vastly ambitious policy of Chinese funding for trade and transport projects across a huge network of countries worldwide.

Critics have argued that the initiative could help China to gain control of key seaports and railways, allowing it to assert political influence worldwide. “China uses bribes, opaque agreements and the strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands … with the ultimate goal of advancing Chinese global dominance,” Mr. Bolton said.

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Despite repeated U.S. attacks on China’s lending practices, a procession of African leaders flew into Beijing this week to ask for more loans. Even if Western criticism remains sharp and Chinese influence could become risky, African governments have decided they need the money.

“We’ve tried other sources,” said Aboubaker Omar Hadi, chairman of the ports and free-trade authority in Djibouti, a small country in the Horn of Africa, who landed in Beijing this week with a US$15-billion wish list.

“Who is going to pay?” he asked The Globe and Mail in an interview. “I toured Europe for three months, this year and last year, talking to various European banks and investors, and they’re still reluctant to lend to us. Either they don’t have the money, or they don’t trust the African continent.”

Many other African officials, including the leaders of Kenya and Ethiopia, are in Beijing this week to seek Chinese financing for a long list of projects, including railways, electricity transmission lines, industrial parks and oil and gas developments.

China is fighting back against the criticism by Mr. Bolton and others. The attacks by the Trump administration and other Western governments are an “evil attempt” by “fearful” people who seek to sabotage the Belt and Road Initiative, the Chinese ambassador to South Africa, Lin Songtian, said in a speech Thursday.

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Canada, for its part, is joining the United States and other countries in a co-ordinated plan to create a rival to the Chinese initiative.

Last October, Mr. Trump approved an expanded US$60-billion budget for the Overseas Private Investment Corp., a federal agency which will be renamed the U.S. International Development Finance Corp. and has been given an explicit mandate to challenge China’s lending policies. The increased budget is twice the previous limit, and the agency will also have new powers to make equity investments.

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According to its website, the new U.S. agency “will help countries sidestep opaque and unsustainable debt traps being laid by Beijing throughout the developing world.”

In contrast to the Chinese model, the U.S. agency’s financing deals will be “transparent” and “sustainable” and its social impacts will be “properly assessed,” its website says.

Earlier this month, the U.S. agency signed an alliance with the official development-finance institutions of Canada and the European Union, establishing a major competitor to China’s Belt and Road Initiative.

The U.S. agency, which had earlier signed a similar partnership with Japan and Australia, said the new alliance is aimed at “providing a robust alternative to unsustainable state-led models” – a clear reference to the Chinese initiative, although it did not mention China by name.

While the U.S. agency has been busy signing deals with other countries, it has been slow to offer loans so far, Djibouti officials said.

“We are expecting this fund that President Trump announced, but they said it will only be functional from October this year,” Mr. Hadi said.

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Djibouti, with its strategic location on the busy shipping routes near the Red Sea, has been a key target of the Belt and Road Initiative.

It has received billions of dollars in Chinese loans and investment for its port and railway projects, sparking a construction boom and a dramatic modernization of infrastructure in a country with a population of barely a million. China has also opened a military base in Djibouti – its first overseas.

In its meetings with Chinese officials this week, Djibouti will seek US$15-billion in loans and investment over the next 10 years for a new container terminal, new roads and renewable-energy projects, Mr. Hadi said.

Rather than creating an unsustainable debt trap for Djibouti, the Chinese loans will be repaid from a sharp increase in cargo trade in Djibouti’s ports, he said.

“This is demand-driven. All of this infrastructure is needed. Africa needs billions of dollars in investment in infrastructure. We are not pro-China, pro-West or pro-South. We are pro our country.”

Western leaders, however, are not the only skeptics. Critics in Djibouti are concerned that the Chinese loans are secretive and corrupt, propping up a regime that has jailed opposition leaders and extended its rule for decades.

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“Nobody consulted Parliament on these loans,” said Zakaria Abdillahi, a human-rights lawyer in Djibouti. “The Chinese debt is very opaque, and there’s a risk to Djibouti’s sovereignty. China dictates its terms on these loans.”

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