The Mosaic of Energy Debt Financing from Chinese Policy Banks in Africa: How and Why One Is Greener than the Other

By Tianyi Wu

African leaders face significant challenges in energy policy as they strive to implement low-carbon energy solutions while expanding electricity access to around 600 million people—43 percent of the total population of Africa. In this context, lending from Chinese policy banks has played a pivotal role in expanding energy capacity and facilitating sustainable energy transitions across African economies.

My new journal article published in Development and Change reveals that, despite having similar levels of capacity, African power-generation projects (PGPs) financed by the Export-Import Bank of China (CHEXIM) and the China Development Bank (CDB) have significantly different levels of emission output. The study debunks the perception of monolithic Chinese policy banks and investigates the drivers and policy implications behind the lending of CHEXIM and CDB, which result in energy debt-financing with drastically different environmental outcomes.

From 2000-2023, CDB and CHEXIM, financed PGPs in Africa with a cumulative capacity of 21 gigawatts (GW), according to the China’s Global Power (CGP) Database managed by the Boston University Global Development Policy Center. These projects contribute approximately 8 percent of Africa’s total power-generation capacity, which amounted to around 240 GW by 2024. However, CHEXIM’s lending to power-generation projects results in significantly fewer carbon dioxide (CO₂) emissions compared to CDB’s. PGPs financed by CDB have yielded an estimated annual CO₂ output of 60 million tons. In stark contrast, PGPs funded by CHEXIM have an estimated annual CO₂ production of only 8 million tons, as shown in Figure 1.

Figure 1: PGP Capacity (GW) and Estimated CO₂ (1,000 tons) Financed through Lending from CDB and CHEXIM (2000–2023)

This disparity is puzzling given the tendency of current public and academic discourse to generalize lending from Chinese policy banks and treat them as monolithic entities. My comparative analysis for this study between CDB and CHEXIM highlights three key differences in their lending practices concerning PGPs.

First, CHEXIM and CDB used different instruments for their PGP financing. Figure 2 shows that CHEXIM’s hydro and non-hydro renewable energy financing is primarily conducted through concessional and preferential buyer’s credit, whereas CDB’s financing is mostly on commercial terms in Africa, both for hydro and coal projects, as shown in Figure 3. These findings suggest that CHEXIM’s PGP financing is more concessional than that from CDB.

Figure 2: Types of Credit Used for Various Types of PGP Financed by CHEXIM

Figure 3: Types of Credit Used for Various Types of PGP Financed by CDB 

Second, I find that diverse supply factors have guided the two Chinese policy banks in financing various types of PGPs in Africa. Using concessional loans and preferential buyer’s credits, CHEXIM advances both Beijing’s ideational ambition of providing a new development paradigm to African recipients with sustainability commitments and China’s industrial goal of offshoring non-renewable power capacity. In contrast, using commercial credits, CDB prioritizes its commercial interests, resulting in the bank lending primarily to coal projects. This focus on coal contributes to higher CO₂ emissions associated with CDB-financed projects.

Furthermore, on the demand side, CHEXIM’s concessional capital has made it a second-best option for low-carbon PGPs, just behind financial sources from other international investors. In comparison, CDB’s capital is primarily pursued by African policymakers who are still keen to develop thermal-based PGPs and have had difficulties in finding alternative resources. This preference for thermal projects leads to a higher environmental impact from CDB’s financing activities.

Finally, the study demonstrates that the distinct lending outcomes of CHEXIM and CDB can be traced back to differences in their decision-making processes. As Figure 4 demonstrates, CHEXIM’s concessional lending is governed by an institutionalized policy-making process that enables African and Chinese bureaucratic actors to align their strategic and development goals from the early stages of lending decisions. This alignment facilitates coordination with financiers and market actors, promoting sustainable outcomes.

Figure 4: Project and Loan Application Processes of Two Preferential Loans in CHEXIM

In contrast, Figure 5 shows that the decision-making process within CDB is less institutionalized with external agencies, allowing greater autonomy for the financier to pursue commercial goals. This autonomy results in a focus on projects that may be more profitable in the short term but have higher environmental costs.

Figure 5: Project and Loan Application Processes of CDB

In this study, I develop a polycentric development finance model to better understand the political economy behind the decision-making of the two Chinese policy banks. It suggests that CHEXIM and CDB are embedded in distinct networks of stakeholders, which influence their lending decisions for PGPs. Specifically, CHEXIM’s energy lending decisions in Africa are more likely to be shaped by state actors concerned with environmental issues, whereas CDB is less influenced by these actors.

The polycentric development finance model reveals that policymakers in borrowing countries can leverage their understanding of the distinct decision-making processes and priorities of Chinese policy banks to develop appropriate incentives and institutional arrangements when seeking financing to support renewable PGPs. For countries seeking renewable finance but unable to address concerns about the profitability or commercial viability of the project, policymakers can consider utilizing diplomatic and geopolitical relations with Chinese political and bureaucratic agencies, which have closer influence on CHEXIM’s concessional lending. Conversely, for countries with more bankable proposals on renewable energies, policymakers can potentially find more opportunities engaging with CDB to secure necessary funding.

This policy process model also indicates that differential policy incentives are essential for policymakers aiming to direct more green finance through CHEXIM and CDB. For example, providing direct capital or budget support to CHEXIM through concessional loans with specific environmental targets can swiftly incentivize green finance. To encourage the CDB to increase green lending, it is crucial to make green projects bankable and to develop innovative financial instruments.

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