An empirical analysis on whether China’s infrastructure lending is a debt trap for Africa

ABSTRACT

Since the first interest-free loans in 1960, China’s lending has played a significant role in African development. However, whether China’s debt is raising the African countries’ sovereign default risk ？This study uses the panel data of China’s lending to Africa to conduct quantitative research to answer this question. While empirical evidence shows that generally in both scenarios (with and without lag effect), China’s debt (represented by debt to GDP) is not relevant to African countries’ sovereign default risk (represented by CRP) for the whole African continent, the debtor countries’ region is also not relevant to the countries’ sovereign default risk. This study reveals that the change in China’s lending is not the only factor affecting the total debt. Sovereign default risk also depends on the GDP growth because if it grows faster than the debt, theoretically debt burden (and the default risk) may decrease rather than increase with debt.

KEYWORDS:

• China’s infrastructure lending
• debt trap theory
• sovereign default risk

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Yun Liu

Yun Liu’s professional background is in engineering and infrastructure finance. He obtained his master degree in engineering from the University of Sheffield and his second master degree in infrastructure investment and finance from UCL. Before UCL, he has several years of practical experiences working in the ‘Belt and Road’ construction initiative in Senegal. After UCL, he has gained experience as an intern for a sovereign wealth fund in Asia.

Yangda Li

Yangda Li is a PhD student at the University of Glasgow. He has earned a master’s degree in Project and Enterprises Management (with distinction) from UCL. His major research interests are strategy management, international business, and pension management

Yite Zhu

Yite Zhu is a PhD student at Tsinghua University, PCBFS. His current research interest focuses on financial technologies and macroeconomics. He has earned a Master in applied economics from UCLA and a Master of finance and economics from LSE.

Jiana Pan

Jiana Pan is an in-house lawyer in energy and infrastructure financing. Before UCL, she worked in South Africa for six years and represented Chinese enterprises concluding several deals in M&A, infrastructure development and financing sectors

Qingan (Angus) Huang

Qingan Huang is a Professor at the International Business School, Guangdong University of Finance & Economics, China. He is the founding dean of this school. He also serves as a Senior Lecturer in Strategic Management at Royal Docks School of Business & Law, University of East London. His research interests include internationalization of SMEs, marketing, strategic leadership, entrepreneurship and China’s Belt and Road Initiative (BRI). He regularly presented his projects at the AoMand SMS annual meetings. He published papers in International Marketing Review, Journal of Business Ethics, International Journal of Entrepreneurial Behavior & Research and edited book chapter