Analysts Say China Will Cut Lending To Africa

Truck in traffic Africans on china
Credit: Mukaleng D via Iwaria

If there is any aspect of the Africa-China relations that has received much attention and discussion, it is definitely about China lending to African countries to aid and service infrastructural budgets. 

Despite the data comparably pointing that Beijing is not Africa’s largest foreign lender, China’s relations with Africa has ‘surprisingly’ become synonymous with the term ‘debt-trap diplomacy.’ But some analysts have predicted that among other reasons, Beijing will cut lending to African countries due to the fear of debt defaults in the fallout from the coronavirus pandemic. 

Yun Sun, director of the China program at the Stimson Centre in Washington, is reported by South China Morning Post to have commented that “the general direction after Covid-19 should point to more financial discipline and caution coming to foreign lending, and more stringent procedures for the loan approval… I think there is that consensus even in China that the debt crisis this year has done China more harm than good. So, I think the hope is that the lending will slow down in the mid-term.” 

This year at least 18 processes of African countries renegotiating debt with China had taken place, and 12 countries were still in talks with Beijing as of the end of September over US$28 billion in Chinese loans, New York-based consultancy Rhodium Group revealed.  According to Yun, although the consensus was that China would cut lending to Africa amid the debt crisis, in the first six months, newly signed contracts by Chinese contractors increased by a third.

Next year would be the last year for China to wrap up the US$60 billion in commitments made at the 2018 Forum on China–Africa Cooperation.

China’s Belt and Road initiative has become the main channel through which some African countries borrow infrastructural loans from Beijing. Speaking on the prospects of this project in Africa, Mark Bohlund, a senior credit research analyst at REDD Intelligence consultancy, said, “I think it is clear that [Belt and Road] lending will be further curtailed due to the economic pressures brought on by Covid-19 but I think some projects in less-distressed countries will continue.”

Bohlund, according to SCMP, said he expected that much of the financial aid to Africa from China in the future would be debt relief and some bilateral budget or project support to maintain good relations with key partners on the continent. 

Zhou Yuyuan, a senior fellow at the Centre for West Asian and African Studies at the Shanghai Institutes for International Studies, said Chinese policy banks and commercial banks had been very cautious in their lending to some African countries, SCMP reported. 

John Ashbourne, a global emerging markets economist at London-based Fitch Solutions, also noted that Chinese lending to countries in distress – notably Angola – might decline. He however adds that structural factors that encouraged Africa-China lending were all still in place.

“When Zimbabwe experienced debt problems a few years ago, Beijing refused Harare’s request for more loans to shore things up. We could see a similar situation play out this time,” SCMP reported. 

Chinese Loans Benefit Africa

Zhou Yuyuan suspects that “as we know, China’s loans are mainly flowing to the growth and productive sectors in Africa. In this respect, in the short term, the uncertain economic situation in Africa will lead to reduced lending from China… African countries will recover soon from the pandemic and I am also optimistic that China’s lending will increase again in the long term…we should also see that China’s lending has played a very important catalytic and stimulating role in African economic growth and development.”

Even today, we are hearing African voices advocating for more lending from China, that China cannot stop lending or Africa will fall into a worse recession,” Zhou said. 

China’s Loans To Africa

The China Africa Research Initiative at the John Hopkins University in Washington has revealed on its website that, “between 2000 and 2018, we estimate that Chinese financiers signed 1,077 loan commitments worth US$ 148 billion with African governments and their state-owned enterprises. Our figures are not equivalent to African government debt, as we do not track disbursement or repayment.”

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Is China’s infrastructural loans in Africa doing more harm than good? Should African countries be concerned about their debts to China?

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