Chinese loans to Africa could spark crisis, warns Germany.

By Adam Bukenya updated at 1854 EAT on Friday 27th 2022

What you need to know:

  • Critics have long accused China of luring lower-income countries into debt traps by offering huge unaffordable loans. 

China’s years-long lending spree in poorer countries, particularly in Africa, poses a “serious danger” that could plunge the world into the next financial crisis, German Chancellor Olaf Scholz warned Friday.

German Chancellor Olaf Scholz addresses the assembly during the World Economic Forum (WEF) annual meeting in Davos on May 26, 2022. PHOTO/AFP

“There is a really serious danger that the next major debt crisis in the global south will stem from loans that China has granted worldwide and doesn’t have a full overview of because there are so many players involved,” Scholz said.

“That would then plunge both China and the global south into a major economic and financial crisis and, incidentally, would not leave the rest of the world unaffected, to put it politely. So this is a serious concern.”

The comment was made during an on-stage discussion at Germany’s Catholic Day in Stuttgart, where a fellow panellist said Europe had stood by while Chinese money was building African roads and universities and increasing Beijing’s clout on the continent.

Critics have long accused China of luring lower-income countries into debt traps by offering huge unaffordable loans. 

Beijing disputes the charge, arguing that its loans are designed to alleviate poverty.

Scholz said he was pushing for China to join the Paris Club of creditors, which have common terms on how to handle countries that get into trouble.

“One of the very, very big ambitions we have is to bring China in, as a country that is lending a lot in new ways,” he said.

He also pointed to the European Union’s recently unveiled Global Gateway initiative, which is in part aimed at countering China’s influence.

Under the plan, the EU aims to invest more than 150 billion euros in Africa, in areas ranging from renewable energy to transport, vaccine production and education.

The ambitious scheme is widely seen as a response to China’s mammoth Belt and Road infrastructure project.

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