Export-Import Bank of China president Li Ruogu has defended the banks’ financing activities in the wake of growing western concern that heavy lending by the agency – the Asian nation’s principal arm for financing African projects – threatens debt sustainability, governance and environmental protection in the continent.
“We have lent support for Africa to achieve its target of sustainable development and the Millennium Development Goals,” Li told Emerging Markets.
He said a central mission of the state-owned export guarantee business is to contribute to the region’s economic expansion by boosting export growth and so building a win-win economic relationship. “We have worked with many African countries to help them step up resources exploration and exports to China,” said Li.
Li stressed the mutual benefits of bilateral economic relations and highlighted the bank’s involvement in non-commercial sectors, rather than pure energy-focused investments.
“We collaborate in the agriculture sector, helping them to improve their subsistence capacity and reduce dependence on food imports.” In addition, the agency is involved in the onlending business for energy efficiency projects.
Li said the bank looks to use local supply chains and develop domestic industries where possible. “The bank also assists countries with feasible conditions to develop their construction materials industry including cement plants, and promote trade among African countries,” he said.
China Exim’s operations are rapidly advancing towards international best practice, he said, citing its enhanced collaboration with multilateral institutions.
The bank provides credit or commercial loans often with repayment linked to the output of projects.
The IMF estimates China Exim loans to sub-Saharan Africa for infrastructure alone amounted to $12.5 billion by mid-2006 – 79% of its investments in the continent. In May 2007, the bank announced it would finance $20 billion for infrastructure and trade to Africa over the next three years.
The Chinese government has also committed the agency to provide $5 billion in preferential credits between 2007 and 2009, consisting of $3 billion in concessional loans and $2 billion in export buyers’ credit.
China Exim’s financing strategy aligns debt financing with evolving repayments from revenue-generating projects.
In December, World Bank president Robert Zoellick addressed concerns that China Exim’s involvement in the continent could create unsustainable debt burdens, saying: “there’s a legitimate concern about building that debt up again. From statistics I have seen, China has paid attention to debt sustainability, and there is certainly a willingness to discuss that issue because they want to get paid back too.”
In May 2007, China Ex-Im signed a memorandum of understanding with the World Bank to improve cooperation for road and energy projects.
Alex Rugamba at the Infrastructure Consortium for Africa, a G8-backed initiative to boost co-operation between donors, said: “China’s state-owned financing institutions have recently shared information, collaboration, and coordination with host country authorities and development partners.”