The Political Economy of Variations in Energy Debt Financing by Two Chinese Policy Banks in Africa

The African continent faces a multifaceted challenge regarding its energy policy. To bolster economic industrialization and improve livelihoods, leaders seek energy solutions with low carbon emissions while endeavoring to bring electricity to an estimated 600 million people who lack access. 

Emerging as a pivotal capital provider for global energy finance, China has committed $49 billion in loans towards power plant development in Africa through the China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM). 

How do CHEXIM and CDB lend differently regarding power-generation projects (PGPs) in Africa? And what factors are guiding the two banks in financing various types of PGPs?

In a new journal article published in Development and Change, Tianyi Wu examines why these two institutions have lending portfolios for PGPs in Africa that have drastically different levels of carbon dioxide (CO2) emissions. 

Main findings:

• PGPs financed by CDB in the two decades of China’s lending spree have yielded an estimated annual CO2 output of 59.95 million tons, whereas the estimated annual CO2 production of 7.53 million tons are from PGPs funded by CHEXIM, according to the China’s Global Power (CGP) Database managed by the Boston University Global Development Policy Center. 
• From the supplier side, CHEXIM balances two imperatives: Beijing’s ideational ambition as a new development provider to African recipients with sustainability commitments, and China’s industrial goal to offshore non-renewable capacity. 
  • In contrast, CDB prioritizes its commercial interests, which results in the bank lending solely for coal projects. 
• On the demand side, CHEXIM’s concessional capital has emerged as a second-best option among international financial sources for renewable and hydropower generation projects. 
  • Conversely, CDB’s market-rate lending makes it the fiscal last resort for host countries seeking financial support for thermal-power projects, which are shunned by other financiers.
• Wu argues for a polycentric development finance model to better understand the political economy behind the decision making of these two institutions’ energy financing in Africa. 
  • The lending decisions of CHEXIM are linked with institutionalized policy processes, translating priorities of Chinese and African state actors. Meanwhile, the loan origination processes of CDB are more independent of state actors, allowing greater autonomy for the financier to pursue commercial interests.

As Chinese financiers exhibit a growing tendency toward commercial risk aversion, Wu writes that it is imperative to consider the potential for leveraging CHEXIM’s capacity in concessional lending. This avenue could serve as a continuing source of new green finance, which remains essential for the development aspirations of recipient countries