China and Zambia: creating a sovereign debt crisis

Abstract

Abstract Does Zambia's exceptionally high level of Chinese loan commitments provide insights into China's financial statecraft? Some have argued that Chinese lending to Zambia reflects China's purposeful use of loans to build leverage and perhaps acquire strategic assets. This article uses new data on Chinese loans, lenders and contractors and process-tracing to argue instead that Zambia is an extreme case of coordination problems in Chinese lending. Among all African countries with Chinese loans, Zambia has had the largest number of distinct Chinese lenders since 2000 (18) and the second largest number of different Chinese contractors winning Chinese loan-financed projects (29). This multiplication of stakeholders has created fierce and unregulated competition for infrastructure contracts in Zambia. In Beijing, ‘fragmented authoritarianism’ has meant an absence of top-down coordination of firms' and lenders' activities and thus few restraints. At the same time, Zambia's political leaders disregarded their own restraints on over-borrowing. Distinctive Chinese ideas about debt sustainability likely created additional disincentives for close Chinese monitoring. Finally, Zambia's history of frequent debt cancellations from China and other lenders likely exacerbated moral hazard risks.

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