China’s Evolving Role in Africa: Banker, debt collector and rescuer Yan Liang

China has become a key player in the African economic landscape. It has been a major lender to the African continent since 2000 and its lending has had far-reaching and transformative impacts on the African economy. China is the principal creditor to a few African countries and has participated in African debt resolutions at both the multilateral and bilateral levels. China’s lending has undergone notable changes in recent years, and questions remain as to how China may reconfigure its economic engagement with Africa.

Over the past twenty years. China’s estimated cumulative lending to Africa from 2000-2022 has reached $170.08 billion, equivalent to 64 percent of the World Bank’s lending ($264.15 billion) and almost five times the African Development Bank’s sovereign loans ($36.85 billion) over the same period (Moses et al 2023). The massive scale of lending has no doubt provided an alternative source of financing, especially for infrastructural development in the energy and transport sectors. According to the International Consortium of Africa (ICA), China accounts for 16.7 percent of cumulative infrastructure financing received by African countries between 2012 and 2017, making it Africa’s third largest financing source behind African national governments and the ICA member donors. Notably, China’s Belt Road Initiative (BRI), launched in 2013, tripled the number of “mega-projects” (projects financed with loans worth $500 million or more) every year during the first five years of the Initiative (Malik et al 2021). These infrastructure projects greatly relax some critical bottlenecks in the African economies, and help promote connectivity, boost utility generation, expand trade, attract foreign investment, improve to industrialization and accelerate structural transformation. Several empirical studies have confirmed the significant growth-promotion and poverty-reduction impacts of China-financed or co-financed projects (World Bank 2019; Dreher et al 2022).

China’s lending practices differ from those of the World Bank and the IMF, which could put competitive pressures on the latter institutions to improve their lending practices. China offers loans on terms comparable with those provided by Multilateral Development Banks (MDBs). Chinese loans are disbursed in a prompt fashion, and without conditionalities. Studies show that China’s lending both “crowds in” World Bank infrastructure financing (Zeitz 2021) and reduces conditionalities that IMF imposes with its loans (Hernandez 2017).

Despite the positive impacts of China’s lending, it has contributed to debt distress in some African countries. African countries carry $655.6 billion in external debt as of 2022, or 22.8 percent of their combined GDP, and will pay $89.4 billion in debt service in 2024 (World Bank 2024). Twenty-one (21) of the low-income countries in Africa were assessed by the IMF to be at high risk or already in debt distress. China holds a 13.3 percent share of the total public or publicly guaranteed external debt stock of the African countries, which renders China a significant player in African debt resolutions. China has participated in the multilateral debt restructuring – the G20 Common Framework’s Debt Service Suspension Initiative (DSSI). For the 46 countries that participated in the DSSI, Chinese creditors accounted for 30 percent of all claims, and contributed 63 percent of debt service suspensions. However, there are significant limitations of the DSSI due to the small scale of the restructuring and due to the lack of participation of private creditors who hold 43.1 percent of the external public and publicly guaranteed debt by African countries. China’s insistence that the principle of comparability of treatment (COT) should be applied to both MDBs and private creditors, while reasonable, has been met with strong resistance, which has undermined multilateral debt resolutions.

On the other hand, China prefers to negotiate for debt restructuring on a bilateral basis, taking a different view on debt management to the traditional approach championed by the MDBs and the Paris Club. Traditional financing mechanisms emphasize debt control, whereas China places greater emphasis on economic development to promote sustainable debt. The traditional approach stresses the “conditionality” of debt to regulate the policy agenda of developing countries, while China’s approach is more flexible, placing greater importance on the autonomy and capacity-building among developing countries. The former emphasizes standards, transparency, and procedures, whereas the latter focuses more on the actual effects of debt, particularly the developmental and catalytic effects of debt. China stance on infrastructure projects seems to be that while they have a long gestation period, these investments would eventually generate positive economic returns that would justify the taking on of debt. And therefore, China’s approach typically involves extending loan repayment periods rather than outright debt cancellation, except for interest-free foreign aid accorded without commercial interests. The total value of write-offs during 2021-2023 was estimated to range from $45 million to $610 million (Horn et al 2023). The vast majority of China’s recent lending in Africa – concessional loans, preferential buyer’s credits, and commercial loans – has never been considered for cancellation.

China has increased rescue lending in the past two decades. Between 2000 and 2021, more than 20 debtor countries have received 128 bailout loans worth $240 billion from China. In Africa, Angola, Sudan, South Sudan, Tanzania and Kenya have received China’s rescue loans. It is estimated that $170 of the rescue lending is in the form of swap line drawings while the remaining $70 billion has come via loans to governments from Chinese state-owned policy and commercial banks as well as state-owned enterprises (Horn et al 2023). China provided $185 billion rescue lending to countries in debt distress from 2016-2021, surpassing the $144 billion disbursed by the IMF. This effectively expands the liquidity support for debt-distressed developing countries, “which have largely been left out of the group covered by the Fed’s dollar-liquidity swap system.” (Chandrasekhar and Ghosh 2020)

Finally, China’s lending to Africa has visibly declined since the COVID pandemic, both due to China’s declining current account balance and the deteriorating debt-carrying capacity of the recipient countries. However, China’s current account surplus has increased recently, and China’s leadership has pledged to double down on the BRI financing. There are emerging signs that China will pivot towards “small but beautiful” and “small yet smart” projects that are smaller in scale but focus more on environmental and social needs.

In summary, China’s finance has provided both challenges and opportunities for the African economies. African governments must exercise agency and strategically utilize China’s finance for sustainable development objectives.

** This article builds on the analysis and research produced for the IDEAs Conference on the African Debt Crisis and the International Financial Architecture

Yan Liang, PhD
Kremer Chair Professor of Economics, Willamette University
Research Associate, Levy Economics Institute
Liangy@willamette.edu