World Bank, China and African debt relief efforts
President of the World Bank Group David Malpass talks to Finance Minister of Mozambique, Adriano Afonso Maleiane before sharing dinner with other key Ministers of Mozambique on May 2, 2019 in Maputo, Mozambique.
Just three years ago, the World Bank was proud to highlight its growing engagement with China Development Bank (CDB) in Africa. Yet in July this year, World Bank President David Malpass, a Trump appointee, publicly criticized China Development Bank for not participating in the G-20's Debt Service Suspension Initiative (DSSI) for official bilateral creditors, announced earlier this year.
Malpass' focus on CDB followed a public statement in April from China's minister of finance calling on the U.S.-dominated World Bank to participate in the DSSI. So far, neither of the two big banks has budged.
What's going on? Will the rising hostility between the United States and China make a comprehensive approach to debt relief more difficult in Africa?
Africa and the Pandemic The COVID-19 pandemic has hit African countries hard. The IMF now estimates that sub-Saharan
African economies will shrink by nearly 3.2 percent this year, the worst decline on record. Debt service relief is imperative.
Malpass framed his comments on CDB as an Africa issue. China Development Bank's "full participation" in the G-20 debt relief effort, he said, was "important to make the initiative work, especially since it has played such an important role in providing development assistance to Africa [emphasis added]."
However, as far as Africa goes, the World Bank president's focus on China Development Bank appears to be a red herring. As we explain below, with the important exception of Angola, CDB is not a significant lender in the group of African countries that are participating in the DSSI.
The Controversy Over Chinese Lenders
China's two largest overseas lenders are China Export Import Bank (Exim Bank) and China Development Bank. The World Bank's definition of official bilateral creditors - those that the G-20 agreed would participate in the DSSI - includes export credit agencies but explicitly excludes governmentowned commercial banks, which are considered "private."
The World Bank confirmed to us earlier this month that as China's official export credit agency, China Exim Bank has been participating in the G-20 initiative and has concluded agreements with a number of countries.
Our data on ChinaAfrica loan commitments suggest that China Exim Bank has provided close to 75 percent of all Chinese loan commitments in the DSSI-eligible African countries (excluding Angola, which we discuss below) and China Development Bank only 5 percent. Chinese commercial banks and companies account for the rest.
Although China Exim Bank is participating in the DSSI, Chinese officials have argued that China Development Bank is a commercial bank. China would "encourage" CDB to take part, just as other G-20 members were encouraging their commercial lenders and bondholders firms to participate.
Diplomat Brief
To be fair, there is some ambiguity about CDB. In 2008, CDB was officially restructured as a commercial bank. Then, as the Chinese magazine Caijing explains, the global financial crisis hit, and Beijing back-pedaled. CDB became a hybrid: part policy bank, part commercial bank. China can't have it both ways: Beijing should include CDB as an official bilateral lender in G20 debt relief.