Study underscores benefits of China's sovereign financing in Africa

Passengers are seen in the train to Mombasa at Nairobi Terminus Station of the China built Mombasa-Nairobi Standard Gauge Railway (SGR) in Nairobi, Kenya, Sept. 20, 2023.(Xinhua/Han Xu)

BEIJING, Oct. 13 (Xinhua) -- China's sovereign financing in Africa has lent steam to economic growth, foreign investment inflows and job creation in African countries, according to recent research.

Different from the commercial lenders seeking maximum profit, China's financing to Africa is development-oriented, mostly covering infrastructure, according to the findings of a report released Thursday by the Institute of New Structural Economics of Peking University, which examines the effectiveness of Chinese loans to 49 African countries from 2000 to 2020.

Specifically, transport is the single largest financing sector, accounting for one third of China's financing to Africa, followed by energy and ICT sectors, the report noted.

Investment in infrastructure is important, as poor infrastructure is a major bottleneck that hinders productivity improvement in most developing countries, said Lin Yifu, dean of the Institute of New Structural Economics.

"China will work hard to make itself prosperous, and hopes to help others become prosperous too," Lin added, stressing that China's financing to Africa is a move to build a global community with a shared future.

Many infrastructure projects deliver positive effects as regional public goods, such as the Bole International Airport in Ethiopia.

A one-percent increase in Chinese loans to African countries contributes to a 0.176-percent-to-0.3-percent increase in local economic growth, the report said.

Furthermore, a one-percent increase in Chinese loans leads to at least a 0.027-percent improvement in infrastructure and at least a 0.143-percent growth in industrial job creation across African countries. The financing's positive impact coefficient for foreign direct investment inflows ranges from 0.293 percent to 0.533 percent.

The report noted that Chinese loans constitute a new and major impetus in development financing, but doesn't fundamentally alter the conventional rules of global development finance.

The report called for a louder voice of the African nations about their financing needs, as well as the lending needs of the emerging donors, to address the financing gap in global development.

Advanced economies and industrialized countries are advised to put their strategic focus on infrastructure projects in Africa to build the foundation for Africa's development.

"I'm personally very optimistic of Africa's future," said Jang Ping Thia, an economist at the Asian Infrastructure Investment Bank, citing Africa's great potential of development, especially in the field of green energy.

"With the huge renewable energy potential, the right industrial policy and the right infrastructure, Africa will definitely attract investments and offer the world a greener path," Thia said.