China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

African debt issues

June 13, 2023

African debt needs more transparency which I pointed at several times before. Too much of African countries’ borrowing is summarized on aggregate (macro) levels, too little in micro numbers. However, an interesting change has recently been presented.

Interesting news from the Kiel Institute

Some weeks ago, a serious attempt to create more detailed debt statistics on African  micro levels has been launched by the Kiel Institute for the World Economy/Germany (which conducts a lot of international research, also on emerging countries including since two years ago the introduction of the bimonthly, very quickly updated World Trade Indicator with 75 participating countries and regions, quite a number from the emerging world as well (https://www.ifw-kiel.de/index.php?id=15876). These global trade statistics are based on water-transport big data and interesting AI applications.

You can now look at the following link to get more details on African debt (https://www.ifw-kiel.de/publications/kiel-working-papers/2022/who-lends-to-africa-and-how-introducing-the-africa-debt-database-17146/):

The Kiel Institute shows understandably that global private and Chinese (governmental) lenders on average charge essentially higher interest rates from African borrowers than multilateral public organizations like the World Bank or the IMF do. This attitude is not really fair – neither as shown by the Chinese and their influential political ambitions nor as applied by global private institutions vis-à-vis tax payers and their indirect contributions to subsidized loans.

According to the Kiel Institute averages credit conditions from multilateral public organizations in the past two decades – as exemplified above – tend to be clearly softer (around 1 %) than the average conditions given by Chinese government banks  (3.2 %) and private bond issuers (6-7 %) .

Altogether, the database of the Kiel Institute contains circa 7400 international loans and bond issues to African borrowers, many times with widely diverging credit conditions. This fact urges for more transparency.

Another three reasons for underlining the need of better transparency for international credits to African countries (projects) can be added:

1) Africa’s capital needs must expand further for achieving visible development progress.

2) Therefore, African debt burden – which already has been increasing strongly in the past few decades – should do so as well in the future.

3) When improving international borrowing and lending transparency, it would be a win-win situation for both the stability of international financial markets and therefore also for single African countries.

Conclusion – the way forward is obvious 

In order to manage the challenges described above, African borrowers should  – together with their lenders – work more ambitiously on the transparency of their international finance conditions. Particularly African borrowers could benefit from such good moves – also by the avoidance of potential financial accidents!

PS: Now I will spend around two months on vacation and special studies – and will be back at the end of August. All the best to you all!

 

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Which factors favor the recovery of corona-affected emerging markets?

August 11, 2020

In my blog from June 12, I stressed the importance of renewed satisfactory or good economic growth in OECD countries for the future recovery in emerging market countries. Another important source for single emerging markets can be increasing price trends for their most important commodities, for example oil, copper, tin and many agricultural products and – interrelated – particularly the development of the U.S. dollar and U.S. rates.

In this article, a somewhat closer look is also taken on the domestic conditions for a visible recovery of a single emerging country. Below, some of these growth-favoring conditions are listed up. The impact of these different factors can, of course, differ substantially from country to country.

Some structural relationships are well-known, such as the links between institutions and economic growth, education and growth, infrastructure and growth, entrepreneurship and growth, the environment and growth, political efficiency and growth, macroeconomic stability and growth, to mention a few.

Most emerging countries have some shortcomings in the above-mentioned respects, with Brazil and its strongly underperforming political leadership probably at the very end of the globalized emerging markets. International sources for comprehensive country information can be, for example, picked from international organizations like the IMF, the World Bank (“Doing Business”), Transparency International, continental development banks like the ADB in Asia or the AfDB in Africa. Embassies and companies from the own country may hint at changes of the business sentiment in the emerging world, sometimes with a certain bias for their geographical and professional location. Good country reports by specialized analysts may also help.

Altogether, the analysis of emerging countries will be even more complex in the forthcoming quarters than normally. This enormous complexity also includes, of course, the fight against the corona virus.

But how much do the affected emerging countries know themselves about their own corona contagion – and how much are they able or want to publish?

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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China’s two strategies

December 18, 2018

A few weeks ago, I attended one of these interesting conferences on China. One of the presentations there focused on Chinese political strategies, singling out that China more or less exclusively concentrates on domestic developments. This is not quite in line with reality.

China’s global ambitions
Sure, politicians in all countries primarily work with the future of their own country. So does China, for example by putting more weight than before on private consumption at the expense of unnecessary investments – and by favoring education, research, innovation, technical progress (digitalization and AI) and competitive (new) products, also for exports.

Nonetheless, there is no doubt about China’s global ambitions. Economically, China already performs as the no 1 in the world when measuring total GDP in PPP terms – and in dollar terms this may happen in the next decade.

Global ambitions can be underlined by different kinds of clarifications. Huawei and a number of construction companies can serve serve as visible corporate (micro) examples.

Africa
On a geographical level, strong Chinese efforts can be watched in a number of African countries. The other week, there was quite an illuminating article in China Daily about China’s ambitions in Africa. They do not write about about China’s future needs of commodities. Instead, China Daily points at Chinese opportunities to contribute to Africa’s future development – for example by projects dealing with construction, energy, manufacturing, information and communications technology, AI, and by giving skills to Africans about the Chinese market.

The rapidly growing African population is frequently mentioned, probably as an indicator for market potential (despite the fact that African GDP-growth numbers are not really comparable to those of China because of their different levels of development).

Another example: China’s particularly ambitious Belt and Road Initiative (BRI) is intended to link together even several continents – Asia and Europe but obviously also to some extent Africa – because there is also a maritime component in the BRI project. China’s strongly prioritized BRI plans aim to increase cross-border trade for 65 countries by constructing roads, railways, harbors etc. – including both a land and maritime Silk Road. From China to Duisburg in Germany!

It will be most interesting to watch the future of the BRI project which is highly ranked by Chinese political leaders – but not sufficiently observed and analyzed in Europe. Perhaps more Chinese transparency would be helpful in this respect.

Also the international upgrading of the currency renminbi fits into China’s internationalization strategy. The renminbi is now part of the IMF:s Special Drawing Rights (SDRs). Furthermore, the renminbi (RMB) belongs these days to the five most frequently used currencies in international trade finance – which happened without convertibility of the RMB. Thus, reality reflects the importance of China in international trade.

Potential threats
Certainly, American protectionism will remain a threat to Chinese globalization efforts – at least as long president Trump remains in power. But China will also make strong attempts to intensify or enlarge other international or bilateral alliances. The UK is already quite aggressive in getting closer to China.

Another threat – so far not outspoken – may some day come from potential deficits in the current account. The net of Chinese exports and imports will this year end quite close to zero and – in any case – confirm the weakening trend of the current account balance.

Persisting deficits at some point in the future – if they should show up but the risk is there – could shatter at least to some extent China’s ambitious global strategy.

Simply because China would have less own money to invest outside the country.

I wish you all a wonderful holiday season!

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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