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Analysts: China to cut back lending to Africa in the post-Covid-19-era

CHINESE infrastructure lending to African countries is widely expected to slow over the next 1-2 years amid mounting debt sustainability concerns, according to analysts interviewed by the South China Morning Post. This would mark a dramatic change over the past twenty years when Beijing emerged as a key source of development finance that helped Africa close its gaping $100bn-a-year infrastructure deficit.

From 2000 to 2018, China extended $148bn of loans, mostly for infrastructure development, according to data from the China-Africa Research Initiative. But now, as a growing number of those countries are struggling to repay their debts, Chinese creditors are becoming understandably cautious about providing new loans to borrowers facing considerable financial duress.

At least 18 countries are currently renegotiating debts with China, with 12 others still in talks to restructure an estimated $28bn of Chinese loans, according to the New York-based consultancy Rhodium Group.

While it’s not expected that Chinese financing will completely dry up, future loans will likely be smaller, less risky and require more comprehensive feasibility plans than what had been accepted in the past.

What the analysts are saying about the future of Chinese loans to African countries

  • Near-term nervousness: ‘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.’- Zhou Yuyuan, a senior fellow at the Centre for West Asian and African Studies at the Shanghai Institutes for International Studies
  • Expect medium-term lending slowdown: ‘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…[but] we are hearing African voices advocating for more lending from China, that China cannot stop lending or Africa will fall into a worse recession.’ – Yun Sun, director of the China program at the Stimson Centre in Washington
  • BRI (Belt and Road Initiative) lending likely to continue: ‘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.’ – Mark Bohlund, a senior credit research analyst at REDD Intelligence
Bohlund and a number of other experts agree that Covid-19 is only partially responsible for the anticipated lending slowdown, a trend that already started 2-3 years ago.

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