There has been a lot of discussion and controversy recently over the swapping of debts owed to China for $8 billion with strategic Egyptian assets of ports and airports. Which may not be well understood by some, and given my specialization in Chinese affairs, I have tried to analyze Chinese debts and lending arrangements to Egypt and other African countries, in order to understand the Chinese point of view in this regard, as following:
There is no evidence to support fears that China is using its debt to control the strategic assets of debtor countries. But on the other hand, China has recently registered its direct participation in the ownership of the projects, by acquiring a share of the shares in them.
China has financed projects across the African continent, including in Egypt, with almost zero interest and with grace periods of up to five years. It has also managed the use of a mixture of grants and loans, the repayment periods of which can reach periods ranging from 15 to 30 years.
We find that the most important terms and conditions that are included in Chinese loan contracts, in foreign aid projects, were the sentence:
“If there are difficulties in repaying the debt on time, the repayment period may be extended after consultation with the Chinese government”
We note that the term has been widely used “waiver of sovereign immunity” in the contracts of a number of loans to countries such as Nigeria and Kenya.
We see here that the disclaimer that China requires from “sovereign immunity” allows a sovereign country to be sued in a foreign court or subject to international arbitration.
When reviewing many Chinese loan agreements, most of them contain language about waiving sovereign immunity in arbitration and enforcement.
At the same time, he did not find what is called “expropriation of sovereign assets” by China, following a default, whether in Africa or in the world.
We find China’s justification for resorting to the inclusion of the “sovereignty” clause, as a common practice in many international trade agreements, and accordingly China confirms that the criticisms directed against this clause specifically in several countries, have been used in favor of certain local political agendas. Especially since these concepts in the financing of Chinese international projects, and according to commercial law, are completely technical concepts that are commonly used.
As a result, the debts of many countries to China in particular, and in conjunction with the economic crises of most countries, especially after the spread of the Corona pandemic, suffered rescheduling operations which sometimes reached tens of time.
The most important point for me here is that it is not only China as a partner or as a business investor that is only accused of pledging assets, i.e. assets of countries that are in default. We note that in international financial and monetary institutions, and in the context of restructuring programs, under the supervision of the International Monetary Fund and the World Bank, a number of African governments have privatized their public institutions. As a result, his approval was given to exchange Chinese loans for shares of official institutions.
Also, most Chinese debt falls under almost the same terms, until the Chinese “Exim Bank” took over the management of China’s public debt. Then the “Export and Import Bank of China” followed international standards to include significant penalty clauses, including 20% to 50% as interest rate on late payments. But, these conditions disappeared in the following decades, and it was found that these conditions were not enforced at all.
China has launched a debt rescheduling program. It was Beijing’s first promise to cancel debts on the African continent. Then the Chinese government launched a program of debt cancellation, due to the collapse and fall in commodity prices, which had a significant impact on the bankruptcy of many countries, especially in Africa.
We see that between 2017 and 2021, there has been an acceleration in China’s trend of increasing lending volume, due to the return of high prices of goods produced by many African countries in particular.
But, after 2019, the issue of “failing” procedures started to change, and the issue of trade restructuring is no longer the main tool used by Beijing to pressure payment when the debtor state is insolvent, but s Rather, it is oriented towards stopping spending on projects that are being implemented, which slows down their completion, but this of course has caused great damage to Chinese entrepreneurs.
In addition to these new Chinese procedures for scheduling loans and debts, a mechanism provides that: “China does not grant any new loans until part of the old loans is repaid to the debtor country.” If these projects are able to generate revenue, Chinese funding will be supplemented, as was the case for the Addis Ababa railway in the Ethiopian capital.
As for dealing with the insolvency of Chinese infrastructure projects in certain countries such as the African Congo, a coalition of Franco-Chinese companies has been set up. This consortium holds shares in the project, which spans at least 30 years.
We find the expansion of Egypt and of all African countries in borrowing from China. Horn of Africa countries in East Africa have borrowed about $29 billion from China for infrastructure, energy and construction projects.
We note that recently Beijing has stepped up its efforts to obtain leases to manage certain strategic assets in countries that have defaulted on debt payments, such as the “Port of Hambantota” in Sri Lanka, which China will rule for 99 years, and the “Pakistani Port of Gwadar” with a lease Up to 44 years.
Through the previous analysis of the Egyptian researcherwe can monitor how the Egyptian side is suffering economically, like many other economies around the world, and the traditional solutions adopted by Egypt in recent years (of big debt expansion or use of Gulf allies) are no longer sufficient to deal with this crisis, which has been exacerbated on a global scale by the Russian-Ukrainian war and the decision of the United States Federal Reserve to raise the interest rate, which has led to the flight of dollars of the country and several countries of the world. world. Meanwhile, this year alone, in 2022, Egypt would have to pay tens of billions of dollars to repay its debts or interest.
Therefore, according to my assessment of the situation, estimating the economic and security risks that compliance with these loan conditions to the Egyptian economy may entail requires a high degree of precaution and prudence, especially since the one of the estimates indicates that the dollar could rise to 25 pounds, in the event of complete liberalization of the exchange rate. in Egypt.