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Chinese Loans to African Countries Differ from Western Development Loans

DIW Weekly Report 26/27 / 2023, S. 193-200

Lorenz Meister, Lukas Menkhoff, Annika Westen

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Over the past 20 years, China has granted a conspicuous amount of loans to African countries. New loan data show that compared to Western multilateral loans, Chinese loans have relatively high interest rates and shorter maturities, tend to be highly collateralized, and are volatile over time. Thus, Western loans are generally more likely to be in the economic interest of the borrowing country. Furthermore, Chinese loans are focused on resource-rich countries that undertake fewer anti-corruption efforts, so local policymakers have more opportunities to feather their own nest. Finally, unlike Western loans, Chinese loans are not tied to any economic policy conditions. It seems worth considering for Western lenders to reduce the number and intensity of loan conditions to respect the sovereignty of the borrowing countries.

Lorenz Meister

Ph.D. Student in the German Socio-Economic Panel study Department

Lukas Menkhoff

Senior Research Associate in the Macroeconomics Department

JEL-Classification: G15
Keywords: International lending, conditionality, China, Africa