The Chinese financial model in Africa
Over the past two decades, China has established itself as one of the main financial players in Africa, providing large-scale loans for infrastructure, energy, and major development projects, and redefining the continent’s economic balance.
The Belt and Road Initiative (BRI), also known as the New Silk Road, has been one of the main strategies through which the People’s Republic has established itself in Africa, supporting the construction of railways, ports, power plants, and road networks in numerous countries across the continent. It is a global infrastructure development program launched in 2013 by Xi Jinping that aims to improve economic and trade connectivity on a global scale. It is considered one of the most ambitious foreign policy projects undertaken by the People’s Republic of China.
From the outset, it was clear that a significant portion of the investment would be directed toward Africa. In this way, Beijing has gradually replaced Western partners and multilateral institutions, which, since the 1990s, have preferred to direct their resources toward structural reform and social development programs, accompanied by particularly stringent environmental, social, and transparency standards.
Western partners and multilateral institutions, such as the World Bank and the International Monetary Fund, have in fact focused their efforts on institutional reforms, governance, macroeconomic stability, and poverty reduction, investing heavily in sectors such as health and education.
In contrast, China’s approach has been very different. With its large-scale entry into the continent, Beijing has chosen to finance projects, such as large infrastructure projects, that other actors considered excessively risky in terms of economic guarantees and implementation times.
Furthermore, Chinese cooperation has been characterized by less emphasis on explicit political conditionality, direct negotiation between governments, and significantly faster decision-making processes, aspects that have made this model particularly attractive to many African countries.
From expansion to rebalancing: the reversal of financial flows
The Sino-African cooperation model has been strongly distinguished by the construction of roads, railways, ports, and energy infrastructure, in stark contrast to the Western and multilateral approach adopted on the continent.
However, the recent reduction in new loans from the Asian power now risks leaving this sector uncovered, reopening the problem of financing major works on the continent.
In recent years, the financial relationship between China and African countries has undergone a significant transformation.
According to the inaugural report of the ONE Data initiative, compiled by the non-profit organization ONE Campaign and based on official and aggregate data on sovereign financing, between 2015 and 2019, African countries received approximately $30 billion net in new loans from Beijing. During that period, according to the analysis, more capital flowed into the continent than flowed out in the form of accumulated debt repayments.
The positive balance analyzed accurately reflected the peak phase of Sino-African financial cooperation, especially under the umbrella of the Belt and Road Initiative.
During the following five years, again according to data reported by ONE Data, the scenario changed profoundly. Between 2020 and 2024, the trend reversed: debt service transactions, i.e., the repayment of principal and interest on loans already granted, exceeded the volume of new credit flows received.
Overall, African countries transferred approximately $22 billion to China in debt payments, a figure that significantly exceeds the loans received during the same period.
In practical terms, this means that Africa now sends more money back to Beijing to repay past debts than it receives in new debt financing. The shift from a positive net balance of $30 billion to a negative net balance of $22 billion marks an important turning point in the financial relationship between the parties.
This change is not the result of a temporary fluctuation in the financial cycle but is the expression of a structural change in the financial relations between China and African countries, the result of the convergence of two trends that have gradually consolidated in recent years.
On the one hand, there has been a sharp decline in Chinese credit for new investments in low- and middle-income countries on the continent. After more than a decade of financial expansion linked to support for large infrastructure projects, Beijing has decided to adopt a more cautious approach, focusing on more targeted and less risky projects. In this new phase, therefore, we are witnessing a shift from a strategy of credit expansion to one of greater risk containment and management.
On the other hand, many loans granted in previous years, especially during China’s period of maximum expansion, are now entering the full repayment phase, with the return of capital plus interest and the end of grace periods. As a result, the volume of budget resources that African governments must allocate to debt servicing continues to increase, generating constant outflows to Beijing, but without new loans to offset these outflows.
The reasons for the downsizing of Chinese credit
China’s decision to significantly downsize new loans to low- and middle-income African countries does not necessarily seem to translate into a disengagement from the area, but rather reflects an attempt at strategic recalibration in a changed political and economic context.
Firstly, there is an increased perception of risk associated with the ability of debtor countries to repay the loans they have received. Analyses based on economic data have shown that China initially granted a significant portion of its financing, including sovereign credit instruments, to countries with low credit ratings.
However, in recent years, many African governments have accumulated excessively high levels of public debt and, faced with limited tax revenues, a global economic slowdown, and increased financial burdens, their ability to repay has gradually diminished. Thus, the world’s second-largest economy has found itself exposed to a growing number of renegotiations, payment delays, and debt restructurings, circumstances that have prompted it to adopt a more selective approach and greater caution in lending.
Another key factor is China’s profound internal economic difficulties: severe deflation, the collapse of the real estate sector, declining domestic consumption, and geopolitical tensions. These factors have reinforced the need to focus resources on domestic stability, as granting large sovereign loans abroad would entail much higher political and financial costs than in the past.
Furthermore, many projects financed in the previous phase have not generated the expected economic returns, especially in contexts characterized by weak domestic demand and high maintenance costs. This additional issue has led the Asian power to question the economic sustainability of this type of investment, even when motivated by strategic reasons.
Finally, the geopolitical and reputational dimensions are also particularly important. In the international debate of recent decades, Beijing has been accused of pursuing debt-trap diplomacy. According to Western powers, the People’s Republic lends money to economically fragile countries that are not fully able to meet the established repayment conditions in order to exert a certain amount of strategic and diplomatic pressure on them.
The phase of intense financial expansion implemented by the Asian power has often been interpreted as an attempt to strengthen its influence in the area by binding African governments to itself through debt. As a result, Western actors and multilateral financial institutions have sought to put pressure on China by criticizing the limited transparency of some of the loans granted and accusing it of contributing to the worsening debt crisis in many countries in the Global South.
The People’s Republic has long sought to consolidate its role as a leader in the Global South, presenting itself as an alternative to a Western model that imposes political and regulatory constraints that are too stringent and often difficult to meet, given the structural fragility that characterizes many African governments.
Beijing rejects Western accusations and argues that putting pressure on an African country to force it to cooperate would be counterproductive, as it would compromise the principle of non-interference and the model of economic partnership on which it claims to have built its relations with Africa in the new millennium.
However, if the narrative of ‘debt-trap diplomacy’ were to take hold internationally, there would be a risk of eroding the soft power resources that Beijing leverages to maintain and legitimize its presence on the continent.
For this reason, too, Chinese leadership today tends to avoid high-profile defaults associated with its loans, reduce financing for projects that could be perceived as predatory towards debtor countries, and present itself as a more cautious and cooperative player in international financial relations.
What new scenarios for African countries?
The reversal of the volume of financial flows between China and African countries offers debtor governments both challenges and opportunities.
Increased debt pressure on public budgets could push them to diversify their sources of financing, for example, by strengthening dialogue with international institutions such as the International Monetary Fund, the World Bank, and regional development banks.
Not surprisingly, according to ONE Data, this transformation in financial cooperation has coincided with a strengthening of the role of multilateral institutions, which have become the main source of development financing and which, in the period 2020-2024, have seen a 124% increase in net flows compared to the previous decade.
At the same time, recent developments highlight the need for sounder fiscal policies and innovative debt management tools. Some countries on the continent are exploring alternative solutions: restructuring maturities, issuing bonds in different currencies, or using instruments such as debt-for-development swaps, which allow part of the external debt to be converted into social and environmental investments.
A case in point is Ghana, which, after declaring default on most of its foreign debt in 2022, entered into a complex agreement with the African Export-Import Bank (Afreximbank) to restructure $750 million in debt.
Agreements of this type can provide greater clarity on future burdens, thereby strengthening the country’s credibility in the eyes of international investors. However, resorting to debt restructuring could raise questions about sovereign credit quality and the involvement of regional banks in such operations.
Without a doubt, this new financial phase could stimulate greater regional leadership. Stronger intra-African economic integration accompanied by the strengthening of local markets could attract more international investment and improve the continent’s negotiating power.
The challenges at stake remain significant, starting with the growing burden of foreign debt and the risk of default in several countries. However, the redefinition of the balance of international financial flows could open the way for a financing model that is more in line with the continent’s needs and less dependent on a single large creditor.
In conclusion, the combination of internal reforms, more effective debt management tools, and the support of multilateral institutions can offer African governments greater diversification of financing sources with potential benefits in terms of both fiscal stability and strategic autonomy in the long term.