There has been a lot of talk and controversy recently, about exchanging debts owed to China for $8 billion with Egyptian strategic assets from ports and airports. Which may not be well understood by some, and given my specialization in Chinese affairs, I tried to analyze the Chinese debts and lending mechanisms to Egypt and the other African countries, in order to understand the Chinese viewpoint in this regard, as follows:
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 recently recorded its direct participation in the ownership of projects, by acquiring a share of the shares in them.
China has funded projects along the African continent, including Egypt, with almost zero interest, and with grace periods of up to five years. It 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 prominent terms and conditions that are included in Chinese loan contracts, within foreign aid projects, were the phrase:
“If there is any difficulty in repaying the debt on time, the repayment period can be extended after consulting with the Chinese government”
We note that there has been extensive use of the term “waiver of sovereign immunity” in the contracts of a number of loans to countries such as Nigeria and Kenya.
We find here that the waiver clause that China requires of “sovereign immunity” allows a sovereign country to be sued in a foreign court or to be subject to international arbitration.
When reviewing many Chinese loan contracts, most of them contain language on waiver of sovereign immunity in relation to arbitration and enforcement.
At the same time, it did not find what is known as any “expropriation of sovereign assets” by China, as a result of default, whether in Africa or globally.
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 criticism directed at this clause specifically in several countries, was employed in favor of some local political agendas. Especially, since these concepts in financing Chinese international projects, and according to commercial law, are completely technical concepts that are routinely used.
Accordingly, 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, have undergone rescheduling operations that sometimes reached dozens of times.
The most prominent point for me here, is that it is not only China as a partner or as a commercial investor that is only accused of pledging assets, that is, the assets of countries that are in default of loans. We find that in the international financial and monetary institutions, and within the restructuring programs, under the supervision of the International Monetary Fund and the World Bank, a number of African governments have privatized their state-owned institutions. Accordingly, its approval was given to exchange Chinese loans for shares in official institutions.
Also, most of the Chinese debts fall under almost the same conditions, until the Chinese “Exim Bank” took over the management of the Chinese state debt. Then the “Export and Import Bank of China” followed the international norms to include large penalty clauses, including 20% to 50% as an interest rate on late payment. But, these conditions disappeared in the following decades, and it was found that these conditions were not applied at all.
China launched a debt rescheduling program. It was the first pledge by Beijing to cancel debts on the African continent. Then the Chinese government issued a debt cancellation program, due to the collapse and decline in commodity prices, which had a significant impact on the failure of many countries, especially African.
We find that between 2017 and 2021, there was an accelerating tendency from China to increase the volume of lending, due to the return of high prices of goods produced by many African countries in particular.
But, after 2019, the issue of “defaulting” procedures began to change, and the issue of commercial restructuring is no longer the main tool used by Beijing to pressure for payment when the debtor state is insolvent, but rather is moving towards stopping expenses on projects that are being implemented, Which slows down their completion, but this of course has caused great damage to the Chinese contractors.
In addition to these new Chinese procedures for the loan and debt scheduling a mechanism system, stating that: “China does not grant any new loans, until part of the old loans is paid to the debtor country”. If these projects are able to generate revenues, Chinese financing will be completed, as happened in the Addis Ababa railway in the Ethiopian capital.
As for dealing with the insolvency of China’s infrastructure projects in some countries such as the African Congo, a coalition of French-Chinese companies was brought in. This consortium owns shares in the project, which extends for at least 30 years.
We find the expansion of Egypt and all African countries in borrowing from China. The Horn of Africa countries in East Africa borrowed about $29 billion from China for infrastructure, energy and construction projects.
We find that recently, Beijing has intensified its efforts to obtain lease contracts to manage some strategic assets in countries that have defaulted on debt payments, such as the “Hambantota Port” in Sri Lanka, which China will manage for 99 years, and the “Pakistan Gwadar Port” with a lease Up to 44 years old.
Through the previous analysis of the Egyptian researcher, we can monitor the extent to which the Egyptian side suffers economically, like many other economies around the world, and the traditional solutions adopted by Egypt during the past years (from the large expansion of debt or the use of Gulf allies) are no longer sufficient to deal with this crisis, which was exacerbated globally by the Russian-Ukrainian war and the move by the US Federal Reserve to raise the interest rate, which resulted in the flight of dollars from the country and from several countries around the world. Meanwhile, only this year, in 2022, Egypt is scheduled to pay tens of billions of dollars to pay off its debt payments or interest.
Therefore, according to my assessment of the situation, estimating the economic and security risks that adherence to these conditions for lending to the Egyptian economy may cause, requires a high degree of precaution and caution, especially since one of the estimates indicates that the dollar may rise to 25 pounds, in the event of a complete liberalization of the exchange rate. in Egypt.
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