Banks and private sector keep China’s African ambitions alive

The volume of Chinese lending to Africa has slowed dramatically in recent years – especially during the Covid-19 pandemic – but Beijing continues to play an important role in providing the continent with finance.

The Chinese government has promised to target future funding at clean energy and climate adaptation projects, and its policy on managing existing African debt – owed to its own banks as well as to other lenders – will have a big impact on the economic stability of many African countries.

At the same time, alongside growing trade ties there has been a drive to promote the use of the yuan as a reserve currency, and African governments are beginning to issue “panda bonds” denominated in Chinese currency.

Financial ties between China and Africa have strengthened hugely over the past two decades. Chinese foreign direct investment in Africa increased from $75m in 2003 to $5bn in 2022. China is now the largest bilateral creditor to Africa, accounting for close to 20% of the region’s external sovereign debt, up from 2% in 2004.

According to the International Monetary Fund (IMF) about 20% of Africa’s exports are shipped to China, mainly mining and energy commodities; and around 16% of all African imports come from China. Both these proportions are roughly in line with the sizes of their populations. Total trade between Africa and China reached a record $282bn last year. China’s economic health is so important to Africa that the IMF estimates that GDP growth in Sub-Saharan Africa falls 0.25% for every 1% decline in China’s GDP.