Le Monde: How China is Strengthening Its Financial Influence in Africa

According to a report by the French newspaper Le Monde on Thursday, November 6th, several African countries have converted initial debts originally denominated in US dollars into debts denominated in Chinese yuan. This has become a means for China to further promote the internationalization of its currency and to help these countries alleviate the pressure of debt repayment.

Replacing debts denominated in US dollars with those denominated in Chinese yuan. The report by Le Monde states that this is a choice made by two African countries - Ethiopia and Kenya, and other countries are also considering following suit. Although this has not yet formed a widespread trend of "de-dollarization" in certain African economies, China seems to be gradually consolidating the international status of its currency.

At the beginning of this month, Kenya finally completed the conversion of three previous US dollar-denominated Chinese loans into Chinese yuan-denominated ones, totaling an estimated $3.5 billion. This funding was used to build a modern railway line connecting the port of Mombasa with the station near Naivasha in the inland Rift Valley province.

As for Ethiopia, it has started negotiations with the Chinese government to convert at least part of its $5.38 billion debt to China into loans denominated in Chinese yuan. Situmbeko Musokotwane, the Minister of Finance of Zambia, stated in mid-October in Washington that the country also owes China billions of dollars in debt and is closely monitoring the agreement reached by Kenya. Not only African countries, but Sri Lanka has also shown interest in such opportunities.

Cost Reduction

The report believes that overall, these countries facing budget difficulties and public debt issues will be able to save on debt repayment costs. The preferential interest rate offered by China for yuan loans is approximately 3%, while the interest rate for US dollar loans is slightly higher than 7%. According to John Mbadi, the Kenyan Minister of Finance, Kenya can save about $215 million annually.

These debt conversions alleviate the public financial pressure on the relevant African countries, while also strengthening the position of the Chinese currency in African sovereign debt. Beijing sees this as a strategic opportunity to expand the internationalization of the yuan.

The report cites Julien Marcilly, Chief Economist at Global Sovereign Advisory, stating, "Africa is not the only region affected. This is a more general trend, where investors and governments around the world are questioning the status of the US dollar as a safe-haven asset. For example, Panama and Colombia, which rely heavily on the US dollar, recently borrowed in Swiss francs."

The new policies of the Trump administration have led to a depreciation of the US dollar by about 10% since the beginning of this year, contributing to this trend. In addition, US interest rates have risen sharply over four years, currently hovering around 4.15%, compared to just 1% at the beginning of 2021. It is evident that in a context of weakened confidence in the US dollar and growing concerns about the sustainability of American debt, borrowing in US dollars has become more expensive.

China's Reduced Activity

The report notes that China is no longer as active as before in providing loans to developing countries. According to a study by Rebecca Ray from the Center for Global Development Policy at Boston University published last month, developing countries pay China a net of $3.9 billion annually. Clearly, these countries now repay more debt to China than they receive in new loans.

Despite this, as the world's largest bilateral creditor, China has historically played a key role in financing infrastructure for the "Global South". Between 2008 and 2024, through the China Development Bank and the Export-Import Bank of China, China committed over $472 billion in funding.

The report continues with Marcilly explaining, "Many of the US dollar credits issued by China are maturing under the current debt crisis context. Even without fundamental needs, China is willing to renegotiate these loans provided under the framework of the Belt and Road Initiative, on the condition that they be converted into Chinese yuan-denominated loans."

The report concludes that, in Asia, Gulf countries, and now Africa, leaders are seeking to reduce their reliance on the US dollar to strengthen regional financial ties, reduce their exposure to US interest rate cycles, stabilize exchange rate management, and achieve reserve diversification. On a political level, these countries want to reduce their vulnerability to Washington sanctions and policy changes. At the same time, China is seizing this opportunity to further consolidate its influence over these countries.

Original: www.toutiao.com/article/1848143566496844/

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