China’s Creditor Diversification in Africa: Impacts and Challenges of Infrastructure Debt-Financing by Chinese Commercial Creditors

Chinese overseas lending has drawn attention for their support to developing countries in infrastructure development, as well as growing criticism for sovereign debt impacts. 

However, the institutions and instruments involved in overseas finance vary significantly and have undergone substantial changes over time. While financing has to date been dominated by policy banks, Export-Import Bank of China and China Development Bank, there has been a growing diversification with the rising participation of diverse commercial creditors.

In a new working paper published by ODI, Tianyi Wu and Yunnan Chen explore the diversification of Chinese lending to Africa over the last decade, highlighting how Chinese commercial creditors have introduced new financing sources, and challenging the traditional dominance of policy banks.

The findings reveal that commercial creditors, despite their state ownership, differ significantly from policy banks in their project financing approaches and risk appetite, often taking on projects with less favorable financial terms for borrowers. This diversification has critical policy implications for debt restructuring and future infrastructure financing in African economies, emphasizing the need for strategic and prudent leveraging of these resources.

Drawing on quantitative analysis, case studies and Chinese policy documents, Wu and Chen examine the lending practices of policy banks and commercial creditors in Zambia and Ghana, providing insights into the decision-making processes and the impact of creditor diversification on project finance and debt management.

For African governments, infrastructure needs remain high, while tightened fiscal constraints and a high interest borrowing environment impacts future capacity to borrow from Chinese commercial sources. To navigate these challenges, the authors say African governments must adopt strategic approaches that prioritize project commercialization, support capable partners and mitigate potential risks.