Friday, September 21, 2018

Chinese Loans to Africa Are Market-driven: China Development Bank
By Chen Qingqing and Li Xuanmin
Global Times
2018/9/20 22:13:41

Workers stand along a prototype rail line, to be constructed by China Railway Construction Corporation, during the groundbreaking for the construction of Lagos-Ibadan rail line project in Nigeria in March 2017. Photo: VCG

The nation's major policy bank has rebutted claims that China's loans to Africa are causing a debt crisis, and it said every loan it has granted was market-driven and in line with international standards.

The China Development Bank (CDB) has so far extended more than $50 billion in funding to nearly 500 projects in 43 African countries, Liu Yong, chief economist of the CDB, told a press briefing on Thursday.

"In addition to conventional loans, the CDB also runs the China-Africa Development Fund, under which we have so far committed $4.6 billion in loans to more than 90 projects," he said.

China pledged to extend $60 billion of financing to Africa during the 2018 Beijing Summit of the Forum on China-Africa Cooperation (FOCAC).

Of that new amount, CDB is in charge of a $10-billion-special fund for development financing, Liu noted. "The fund will be run in line with commercial and international principles, with full consideration of project profitability and potential risks," he said.

It's crucial to commercialize projects in Africa, because with more equity investment, local companies will strive to ensure projects yield returns for stakeholders, Li Zhibiao, a senior research fellow with the Chinese Academy of Social Sciences, told the Global Times on Thursday.

"Chinese financial institutions mostly support State-backed infrastructure projects, and it's hard to forecast their profitability," he said. Li added that China's policy banks should back more small and medium-sized enterprises investing in sectors such as furniture and steel, which support local economic growth.

In response to concerns that China's continued lending to Africa may entrap the continent in a debt crisis, CDB representatives noted that every loan granted is market-driven and lending strictly follows rigorous standards, Jin Tao, director general of CDB's Global Cooperation Department, told the briefing.

"We've come up with effective methods in Africa-related projects, which include analysis of the socioeconomic situation of targeted countries and project feasibility," he said.

As of the end of June, the bank's overall nonperforming loan ratio was 0.67 percent, the 53rd consecutive quarter in which it was below 1 percent, Jin noted.

As one of eight major initiatives linked to China-Africa collaboration, China will support African countries in expanding financing channels and optimizing their debt structures, according to a statement by the Ministry of Commerce on Wednesday.

Chinese financial institutions are encouraged to open outlets in Africa or set up joint ventures with their African counterparts, the statement noted. China is also willing to expand the use of local currencies in investment and sign currency swaps with African countries.

On September 5, the CDB - in partnership with 16 African financial institutions - set up a cooperation alliance. This was a major outcome of the FOCAC, Liu said during the briefing. 

"We also signed loan agreements with the Bank of Egypt, National Bank of Egypt and African Export-Import Bank to put the $10-billion special fund for development financing into use," he said.

The CDB has also signed a lending agreement of 7 billion yuan ($1.02 billion) with the People's Bank of China, the central bank, to boost the yuan's use as a reserve currency for African countries.

Cooperating with local banks in Africa will reduce the risk of debt defaults, Li noted.

"The internationalization process of the yuan has been slow in Africa, with only small-scale currency swap deals with some countries in the continent," he said, noting that many Africans are even not familiar with the yuan.

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