China-Africa: A shift in loan schemes

China has over the years stapled itself as the world’s largest public lender, especially to developing countries, with Africa seen as the largest trading partner.
Beijing’s loans to countries in Africa soared to a five-year high in 2023. Angola, Ethiopia, Egypt, Nigeria and Kenya lead the pack, according to the Chinese Loans to Africa Database compiled by researchers at Boston University’s Global Development Policy Centre.
However, the data shows that loans were well down compared to highs in 2016, when they totalled almost $30 billion (€27 billion). The loans, researchers said, were also increasingly to local banks, helping to avoid “exposing Chinese creditors to credit risks associated with those countries”.
Analysts say an economic slowdown in China has made Beijing increasingly reluctant to shell out big sums.
The new independent study comes as Beijing hosts African leaders for the Forum on China-Africa Cooperation (FOCAC), which takes place every three years. FOCAC has been a major vehicle for delivering loans since 2006 – some of which have become significant burdens for their African recipients.
According to Alex Vines from the London-based Chatham House think tank, the emphasis of Chinese loans has now shifted to more targeted lending and foreign direct investment (FDI). Chinese lenders have become more risk-averse seeking bankable projects, he told DW.
“Economic woes in China have refocused China to be a lot more selective with its investments. We have also seen a shift from State Owned Enterprises – to family firms investing in Africa,” Vines said.
Chinese loans are also smaller, and mostly to more credit worthy countries – such as Senegal and Ivory Coast. Ghana, Vines noted, overextended itself in lending from China and had to seek help through international debt relief efforts.
In late 2022, a Chatham House report on Chinese debt exposure in Africa concluded that Chinese lenders accounted for 12% of the continent’s private and public external debt, which increased more than fivefold to $696 billion from 2000 to 2020.
China is a major creditor of many African countries, but its lending has fallen in recent years and is set to remain at lower levels, according to Vines.
“Despite growing political and economic tensions, China and the West have a strong mutual interest in cooperating with each other, and with African nations and institutions, to tackle the challenge of debt distress,” he said.
China is doubling down on its ambitious global infrastructure initiative, pledging to deliver ‘high-quality cooperation’ on a global scale. The Belt and Road Initiative (BRI) started by President Xi Jinping provides loans for big infrastructure projects in developing countries.
Africa has emerged as a pivotal region in the BRI, with Chinese companies inking deals worth over $700 billion between 2013 and 2023, according to the commerce ministry in Beijing.
However, the impact of the iinitiative on the continent has sparked controversy, with critics accusing China of burdening Africans with crippling debt and backing environmentally harmful projects.
According to media in Kenya, the government has secured a U$310 million loan from China to complete 15 stalled road projects across more than 10 counties. Kenya now owes China more than $8 billion.
Last year, President William Ruto asked China for a loan of $1 billion and the restructure of Kenya’s existing debt to complete other stalled BRI construction projects. One of them is the Standard Gauge Railway (SGR) which connects the capital Nairobi with the port city of Mombasa.
The SGR, which opened in 2017, cuts the travel time from 10 to four hours. However, the project has now become a white elephant as the second phase that was meant to extend the railway to Uganda never materialized since both countries struggled to pay BRI debts.
Kenya-based financial expert Aly-Khan Satchu told DW that completing the railway from the Uganda border will at least be a tilt toward economic sustainability.
The recent anti-government protests in Kenya were partly triggered by the government trying to service its international creditors, including China.
In June, the government proposed a finance bill which sparked weeks of mass protests and riots labelled #TotalShutdown. It saw Ruto withdraw a plan for $2.7 billion in tax hikes and fire almost his entire cabinet.
Many in Kenya continue to blame the president for bad governance, corruption, and the deaths of protesters.
Kenya-based financial expert Aly-Khan Satchu told DW that without debt relief, Kenya’s current level of borrowing is not sustainable.
The government, he said, needs to “be ruthless in execution of only economically viable projects and trim its own expenditure. The weight of evidence suggests this is not something that it can do.”
However, Kenya has been diligent in paying its loans to China with some help from the World Bank and the International Monetary Fund (IMF).
The FOCAC in Beijing unfolds as African leaders navigate the intensifying rivalry between the United States and China in vying for the resources and influence on the continent.
Experts believe that Beijing will be seeking to deepen China-Africa relations to further its broader geopolitical goals.
China has over the years gifted some African countries freebies such as a State House in Burundi and the African Union headquarters in Ethiopia.
Vines believes there is a sense of competition with China by the European Union (EU), the US and Japan when it comes to hosting forums with African leaders.
“China’s Belt and Road Initiative also resulted in newer initiatives such as the Global Gateway by the EU and the US administration’s Partnership for Global Infrastructure and Investment, which has invested also in the Lobito corridor,” Vines said.
Japan and India have also established a joint Asia-Africa Growth Corridor. But with unclear results.
Edited by: Benita van Eyssen