China's lending to Africa rebounds first time in seven years

For the first time since 2016, Chinese lending to Africa saw an uptick, with loans amounting to $4.61 billion in 2023. This signals a renewed engagement by China after years of declining investment in the continent, according to a study released by Boston University's Global Development Policy Centre on Thursday.

Between 2012 and 2018, Africa benefited from more than $10 billion in annual loans from China, largely driven by President Xi Jinping's Belt and Road Initiative (BRI). This ambitious global infrastructure project aimed to recreate the ancient Silk Road and expand China's geopolitical and economic influence. Africa featured prominently in the initial years of the BRI, receiving significant funding for energy, transport, and ICT sectors.

However, the momentum was curtailed by 2019, as China's economic pressures mounted and the COVID-19 pandemic exacerbated financial strains on both sides. African nations such as Zambia, Ghana, and Ethiopia faced rising debt burdens, resulting in stalled infrastructure projects across the region. One notable example is Kenya's modern railway, which was envisioned to connect neighboring countries but remains incomplete due to the reduction in loans.

Last year’s resurgence in lending marks a more than three-fold increase compared to 2022 and highlights China's evolving approach to investment in Africa. The Boston University report suggests that Beijing is adopting a more cautious and sustainable strategy, aimed at mitigating risks associated with highly indebted economies.

“Beijing appears to be searching for a more sustainable equilibrium level of lending, experimenting with new strategies,” the Global Development Policy Centre noted. The study tracks China’s financial activities in Africa through its Chinese Loans to Africa Database project.

This renewed engagement comes just ahead of the Forum on China-Africa Cooperation, a triennial summit set to take place next week in Beijing, where African leaders will meet with Chinese officials to discuss future collaborations.

A More Focused Lending Strategy

In 2023, China made 13 loan agreements across eight African countries and with two multilateral African lenders. Among the most significant loans were a $1 billion deal with Nigeria’s Kaduna-to-Kano Railway project and a similar-sized liquidity facility provided to Egypt’s central bank. These loans are part of China’s broader strategy of shifting its focus toward regional and national financial institutions, rather than direct sovereign lending.

The study suggests that China is pursuing a risk mitigation strategy by targeting African financial institutions, which may allow it to avoid exposure to the continent’s broader debt challenges. Last year, over half of the loans, or $2.59 billion, were committed to regional and national lenders.

A Move Toward Renewable Energy

China’s recent lending is also more concentrated on sustainable development. Nearly 10% of the 2023 loans were dedicated to three solar and hydropower energy projects, signaling China’s intention to move away from financing coal-fired power plants and towards supporting renewable energy on the continent.

This shift aligns with global trends and China’s own growing commitment to green initiatives. Africa’s vast untapped renewable energy resources make it an attractive partner in this sector. The focus on solar and hydropower projects could play a significant role in driving the continent’s transition to clean energy while also addressing China's climate change goals.

Challenges and Uncertain Future

While China’s renewed lending is seen as a positive development for African economies, the future of the relationship remains unclear. The Boston University study points out that despite the discernible trends in 2023, China's financial engagement with Africa still lacks a clear and consistent direction. For instance, even as Chinese lenders are showing interest in renewable energy and financial institutions, they are also continuing to write loans to struggling economies like Nigeria and Angola.

China has lent a total of $182.28 billion to Africa between 2000 and 2023, making it the continent’s top bilateral lender, especially for countries like Ethiopia. Nevertheless, China’s pivot away from aggressive lending due to its own domestic pressures raises questions about whether it can maintain the same level of engagement in Africa in the coming years.

The uncertainty around China’s future in Africa could have significant implications, particularly as African countries continue to grapple with protracted debt restructuring efforts. Nations such as Zambia and Ghana have undergone extensive debt overhauls since 2021, casting doubt on the sustainability of borrowing from China, even with more cautious lending strategies in place.

As Beijing prepares to host African leaders for the upcoming Forum on China-Africa Cooperation, all eyes will be on how China navigates its evolving role on the continent. The outcome of the summit may offer some clues as to whether China's partnerships in Africa will continue to thrive or if they will face further challenges in the years ahead.

Ultimately, the relationship between China and Africa remains a complex and dynamic one, shaped by shifting economic realities, global trends, and evolving political interests. The next chapter in this partnership will depend largely on how both sides adapt to these changing conditions.