Road loans

China turns some Belt & Road loans into non-repayable grants

Tanzanian president visits Beijing, negotiates grant loans, signs additional infrastructure deals

By Chris Devonshire-Ellis

The neglected but important recent visit by Tanzanian President Samia Suluhu Hassan to Beijing on Thursday (November 3rd) offered clues as to how China intends to manage at least some of the debts it has racked up in due to errant BIS lending overdue. .

During a meeting with Chinese President Xi Jinping, Hassan was able to negotiate 15 new agreements with China, including the granting of a grant of 13.7 million dollars, under the title of “Economic and Technical Cooperation”. . This cancels, as a grant, an earlier loan that China had given to Tanzania.

Tanzanian President Samia Suluhu Hassan with Chinese Xi Jinping

Tanzania had found itself in the red with China after the construction of a railway and other infrastructure to countries where the port of Bagamoyo had been badly affected in terms of projected cash flow generation during the pandemic. of Covid. Anticipated revenues from freight and other taxable services have not materialized, leaving Tanzania scrambling to finance its debt. China canceled part of this amount by moving it from China’s “Accounts Receivable” ledger to its “Expenses” ledger by reclassifying the amount.

The experience has brought the two countries closer together – Bagamoyo Port will prove productive over time anyway, while China’s trade with Tanzania grew by 47.1% in 2021 to $6.74 billion. dollars – the bulk being in favor of China. This means that China’s exports to Tanzania have increased by almost US$3 billion over the year – the US$13.7 million being a refund ‘reward’ against Chinese exporters who are carrying on. well, and a sign that China is ready to cancel loans due if trade develops, a nice way to solve sovereign debt problems.

However, Xi did not do everything his way. In return, and to encourage Tanzanian exports to China, the Chinese Ministry of Customs agreed to waive 98% of all Chinese tariffs on imported Tanzanian products – a major price for Tanzanian exporters. The country exports oilseeds, raw and refined copper to China and will consider other export products to send to Chinese consumers.

Hassan was also able to cite the revival of the Tanzanian economy as a kind of assurance that the country was able to negotiate more debt with China once the former converted. The Tanzanian economy is valued at around US$68 billion and is experiencing GDP growth of 4-5% so far in 2022.

To this end, the two countries have signed an additional loan of $56.72 million to develop sanitation and quality control infrastructure for avocado and seafood in Tanzania, as well as partial funding for the second terminal of Zanzibar International Airport.

Tanzania and China also signed a “comprehensive strategic cooperation partnership”, an important document that strengthens their ties. Kenya, south of Tanzania, is the only other East African country to have such an agreement.

Understanding how domestic economic problems arose, while examining the underlying economic fundamentals and their future value for Chinese trade, is therefore key to understanding how China views debt cancellation with respect to BRI loans.

However, there are differences. Many of the types of loans Tanzania has experienced are short-term cash flow problems due to Covid, while others, like the situation in Sri Lanka, were created by local mismanagement and corruption. This category will require refinancing, unlike the smaller variety seen in Tanzania where millions can be forgiven under the auspices of a trade volume rebate.

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