A Study on the Effectiveness of China’s Sovereign Financing in Africa

Published on : 14.03.24

By: Institute of New Structural Economics Peking University, 

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China’s involvement in Africa has been on the rise since 2006-2008, although it still lags behind other major financing sources like multilateral lenders and bondholders. Despite the creation of significant infrastructure assets for African governments, the question remains whether China’s financing on the continent has been effective. This report by the Institute of New Structural Economics at Peking University aims to provide answers based on open data sources.

The key takeaways of this report are as follows:

  • Statistical analysis shows that China’s financing in Africa has had positive socioeconomic impacts.
  • Productive infrastructure investment helps address the bottleneck of Africa’s sustainable structural transformation.
  • Case studies show that China has played a complementary role alongside traditional creditors in assisting Africa’s development.
  • The international society should scale up investment to bridge the large financing gap in Africa’s development, as well as improve international mechanisms, including debt sustainability evaluation and creditor coordination.

A Study on the Effectiveness of China's Sovereign Financing in Africa


Department of International Development Cooperation

The Institute of New Structural Economics at Peking University

China’s financing in Africa: scale and structure

This report analyses China’s financing in Africa using data from the Chinese Loan to Africa Database (CLA) managed by the Global Development Policy Center at Boston University.

Table 1

The database tracks Chinese loan commitments to African countries. Overall, China made financial commitments of 160 billion USD to African countries from 2000-2020. 56% of these loans are from China’s official lenders, which play a major role compared to non-official creditors[1]. Around 90% of the loans were given to low-income and lower-middle-income African countries. The effects of these loans should be assessed in conjunction with the major sources of sovereign financing in Africa, such as multilateral lenders and bondholders, which respectively account for 33% and 30% of Africa’s external debt[2]. China’s financing to Africa is development-oriented, primarily focusing on infrastructure projects such as transportation and energy, as well as other sectors, such as health, education, and agriculture.


This report is based on the theory of New Structural Economics, which suggests that effective markets and promising governance can work together to align the industrial structures of a country with its factor endowments. Increasing investments in infrastructure is in line with Africa’s current development needs, which can only be achieved through external funding given the continent’s significant financing gap. Productive infrastructure investment aims to achieve sustainable structural transformation to leverage Africa’s comparative advantages in the global market, in order to increase economic growth and achieve debt sustainability on a self-sustaining development path.

Effectiveness of Chinese loans

Based on open data sources such as the CLA and World Bank, this report uses regression methods to estimate causal relationships between Chinese loans and six crucial dimensions, namely economic growth, job creation, infrastructure improvement, export earnings, foreign direct investment, and school enrollment rates.

In addition to ordinary least squares (OLS) estimation, the report employs the instrumental variable two-stage least squares (IV-2SLS) estimation method to address endogeneity concerns and reaffirm the causal relationships between Chinese loans and the six indicators. The study uses China’s steel production and foreign exchange reserves as instrumental variables in the IV-2SLS estimation, which shows consistent results as the OLS estimation.

Figure 1 illustrates that Chinese loans have a statistically significant positive impact across all six dimensions. The report provides specific ranges of positive impacts in Table 2 below. For instance, the positive impact of Chinese loans on African economic growth ranges from 0.176% to 0.300%, indicating that a 1% increase in loans contributes to at least a 0.176% increase in African economic growth.

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Table 2

The report conducts a structural analysis, comparing datasets to and investigating the following aspects (1) whether Chinese official and non-official loans have varying impacts on Africa’s development; (2) whether the impacts of Chinese loans are different in recipient countries of different income levels; (3) whether there are differences in the impacts between Chinese loans of different intended uses.

Case studies: positive socioeconomic influence of infrastructure projects  

The case studies presented here may not be applicable to every situation due to their specific nature, but they demonstrate how infrastructure projects funded by China can bring about beneficial socioeconomic effects. These include generating revenue in local and foreign currencies, creating public goods for the region, improving healthcare conditions, reducing carbon emissions, and increasing educational access.

Transport is the largest sector for China’s investment in Africa, accounting for one-third of all funding, followed by the energy and ICT sectors. Nearly half of the transportation projects are brownfield projects, aimed at expanding existing infrastructures. One notable case is the expansion of Ethiopia's Bole International Airport, which has seen a 68% rise in operational capacity, thereby yielding revenue growth, enhancing connectivity, and creating regional public goods. The Tanzania National Fiber Optic Backbone is an excellent example of digital infrastructure projects that have significantly improved regional telecommunication within East Africa. The Mombasa-Nairobi Railway (MNR) received China’s support in terms of financing and knowledge sharing, becoming the first modern railway in Kenya since its independence. The MNR project achieved operational break-even within 5 years of its launch and contributed to reduced carbon emissions by replacing road transportation.

Sustainable energy projects that are tailored to countries’ resource endowment, such as the Soubre Hydropower Plant in Côte d'Ivoire and the Adama Wind Farm in Ethiopia, have contributed to overcoming the electricity bottleneck, reducing carbon emissions, and generating foreign exchange through electricity exports and carbon credit trading. With traditional donors financing institutional reform in the power sector of Côte d'Ivoire, a policy plus infrastructure model complemented by China has boosted electricity accessibility in the country. In Senegal, a rural well-drilling project not only increases access to clean water but also has positive impacts on health, education, and environmental protection, by improving water hygiene, saving time for basic needs, and replacing traditional water cleaning methods. Additionally, China has directly invested 1.6 billion USD in 33 training and education programs, indicating their commitment to sustainable development.


This empirical study finds that China’s sovereign financing provided to Africa is overall effective. This is supported by the statistical analysis at a project level. In contrast to Africa’s sovereign financing sources that primarily rely on MDBs and bondholders, China’s sovereign financing is a new and significant contributor to Africa’s development. The focus is mainly on economic and social infrastructures, addressing the bottlenecks in Africa’s sustainable structural transformation and generating significant socioeconomic impacts. Investing in productive infrastructure that meets development needs and is tailored to natural endowments enhances comparative advantages and contributes to long-term growth capacity.


To the Chinese creditors

  • Increase financing to Africa through diverse financing channels such as bilateral, commercial, and multilateral funding.
  • Continue practicing multilateralism, promoting creditor coordination, and increasing policy impact
  • Expand institutional capacity in monitoring and evaluation on overseas financing projects.
  • Focus on Africa’s endogenous needs by continuing to invest in infrastructure projects and human capital to tackle the bottleneck of Africa’s development and integration.
  • Develop theoretical frameworks to share experiences and learn from international experiences.

To African countries

  • Promote the country ownership principle, advocate for their financing needs, influence development financing policies, and lead development projects.
  • Develop long-term development capacities, including project management, fiscal governance, and data collection.
  • Diversify financing currencies and sources, including developing domestic development financing capacities.

For the international community

  • Mobilize more resources to bridge the continent’s significant financing gap, focusing on Africa’s endogenous needs, with a strategic emphasis on infrastructure projects.
  • Multilateral creditors can leverage their advantages such as low-cost financing, to provide liquidity support and create fiscal space for long-term productive projects.
  • When assessing debt sustainability, it is necessary to consider the sustainability at a project level and the productive impacts of debt.
  • The newly established multilateral development banks funded by emerging economies can play a growing role in supporting global development
  • Commercial lenders are playing a more significant role in sovereign financing, which comes with corresponding responsibilities.

Edited by Lu Wei, Finance for Development Lab




[1] This report categorizes Chinese creditors as official (e.g. Export-Import Bank, China International Development Cooperation Agency, central bank) and non-official (e.g., commercial creditors, China Development Bank labeled as development finance creditor).  

[2] Wang, Y. & Xu, Y. (2023). China and Africa: A new narrative on debt sustainability and infrastructure financing. Journal of Infrastructure, Policy and Development, 7(1): 2181.