Analysts argue that China’s reconfiguration of its foreign financing model, aimed at reducing default risks and supporting the energy transition, has resulted in a drop in investment in Africa, but could generate opportunities for Angola.
As part of the Belt and Road Initiative, China has cemented its position as a creditor to African countries by financing and building ports, airports, railway lines and motorways.
However, the debt crisis among developing countries, climate change and the slowdown in the Chinese economy have led Beijing to change the paradigm, with bets on smaller projects and renewable energies.
Researchers from the Global China Initiative (GCI) at Boston University’s Global Development Policy Centre in the United States point to a persistent decline in new loans by Chinese entities to African government borrowers, which has become more pronounced in recent years.
The value of new loans has fallen from a peak of 28.5 billion dollars (26 billion euros) in 2016 to just under one billion dollars in 2022 – the second year in a row that loans have fallen below two billion dollars (1.8 billion euros).
“The Belt and Road Initiative seems to be in a period of reconfiguration,” Oyintarelado Moses, a data analyst at the GCI, told Lusa news agency in a written interview.
Michael Pettis, professor of financial theory at Peking University’s Guanghua School of Management, also pointed to a pyramid shape in the graph of Chinese investment worldwide, with a sudden rise that peaked in 2016 and then fell sharply.
The turning point was Venezuela’s default, Pettis told Lusa. According to different estimates, Caracas currently owes 10 billion dollars (9 billion euros) to various Chinese institutions.
“This was a huge shock for Beijing,” said the economist, who has lived in the Asian country for more than two decades. “It was the first time [China] realised that lending to developing countries is quite risky and that when you expand too quickly, problems are likely to arise.”
The Covid-19 pandemic and the rise in interest rates in recent years, in response to galloping inflation in the world economy, are said to have made China even more cautious.
“The biggest change we have to recognise is that the era of low interest rates and cheap money flowing out of China to these countries is over,” said Ammar A. Malik, a researcher at the AidData research unit of William & Mary’s Global Research Institute in the US.
“The challenge [for China] now is to ensure that these countries have enough liquidity and that these projects are functional enough so that [Beijing] can collect their repayments with interest and on time,” he said.
In recent years, several beneficiary governments have asked creditors, including China, for a postponement or debt relief.
In the case of Angola, one of China’s main borrowers in Africa, the drop in investment may be linked to the Chinese authorities’ decision to reduce funding for fossil fuel projects and direct the money towards cleaner energy sources.
Chinese President Xi Jinping announced in 2021 that China would “strongly” support green development in the poorest countries.
“This commitment will probably result in financial support for renewable energy development in Angola,” emphasised Oyintarelado Moses.
“Future financing opportunities from China could support Angola’s energy transition and diversify its economy, which is highly dependent on oil exports,” he said.