China’s Africa loans ‘underestimated risk, like those of US, Japan in past’

Quick growth in lending then sharp readjustment follows pattern of others who lent to developing nations, professor in Beijing says

Failure to foresee debt distress in African countries blamed on ignorance of the history of such lending

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Several African countries have sought or received debt relief from China, the continent’s biggest bilateral lender. Photo: AFP

Published: 4:00am, 2 Dec 2020Updated: 7:10am, 2 Dec 2020

The slowdown in Chinese lending for African infrastructure projects was likely to happen because it mirrored past lending by other countries, and the coronavirus pandemic has only accelerated the trend, a Beijing-based finance professor has said.

Michael Pettis, a senior fellow at the Carnegie-Tsinghua Centre for Global Policy and a finance professor at Peking University, said that 10 to 15 years ago the Chinese government was largely following the same path every country before it followed when first investing abroad.

“It was significantly underestimating risk, and would soon begin pulling back sharply on its lending once it discovered how risky these loans could be,” Pettis said. “Covid-19 – as it has done with so many other trends – seems to be accelerating this process.”

At the turn of the century, China moved aggressively into Africa in the hope of securing raw materials for its industries and markets for its products. In return, Africa received billions of dollars in loans for construction of infrastructure megaprojects, including ports, railways, airports, roads and power dams.

Chinese lending peaked in 2013 and has since been flat or declining, aside from a major deal by China Development Bank in 2016, when it recapitalised Angola’s state-owned oil and gas company Sonangol.