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China’s commitments to financing in Africa are shifting away from giant infrastructure developments and towards developing stronger trade flows and commercial investments, analysts say.

At the Forum on China-Africa Cooperation (Focac) in late November, the country unveiled an action plan that included around US$40bn of commitments in the form of trade finance, commercial investments and a share of China’s Special Drawing Rights (SDR).

Although a hefty headline figure, it is significantly less than the US$60bn promised at the two most recent forums in 2015 and 2018.

It also includes little in the way of concessional loans, which has been China’s primary tool for financing a swathe of infrastructure across the continent, including railways, airports, roads and energy projects.

The plans, released alongside a speech to the forum presented virtually by Chinese President Xi Jinping, have reinforced impressions that China is curtailing state-backed exposure to Africa as several countries struggle under the weight of sovereign debt, including from non-Chinese sources.

“Perhaps the most striking element of China’s Focac commitment this year is the complete disappearance of infrastructure from the narrative,” noted Yun Sun, a non-resident fellow at the US-based Brookings Institute.

China is shifting from an approach of “hard cash for infrastructure” to one focused on “soft cooperation on trade and human capital”, according to researchers at the Center for Global Development think tank.

The decline in financing promises compared to previous years “demonstrates a trend already well-noted by others – a downturn in China’s willingness to use state-backed loans to finance its global ambitions”, the Center said in a December 9 research note.

“What came out of Focac was not unexpected,” says Kanyi Lui, a partner with law firm Pinsent Masons in Beijing. “There has been fairly significant infrastructure investment in Africa already and while more is needed, governments also need to make sure these new infrastructures are put to good use.”

“If you look at historical Chinese lending activities, many developing countries in Africa are probably approaching their country limits,” he tells GTR.

The G7 countries and the EU have announced initiatives seen as competitors to the Belt and Road Initiative this year, both with a strong focus on trying to close the infrastructure capacity gap between developed and developing nations.

“The infrastructure gap is not going to be filled by just the Chinese and a global response is needed,” Lui says.

The new action plan – jointly agreed to by China and all African countries with diplomatic relations with Beijing – includes a promise of US$10bn in trade finance over the next three years to underpin African exports, double the amount devoted to trade in 2018. China is trying to reach US$300bn in annual imports from Africa by the end of 2024.

The plan also seeks to “improve the competitiveness of African agricultural products, and will facilitate and expedite the entry of small scale agricultural producers into formal processing, marketing and distribution networks” and attempts to simplify cross-border trade, including through increased digitalisation.

A further US$10bn will be extended in the form of credit lines to African financial institutions for lending to small and medium enterprises on the continent – half that committed during Focac 2018.

“I think the idea is to marry up Chinese liquidity with local expertise,” says Lui.

“That gels very well with the idea that the Belt and Road Initiative is moving to the next phase at least for many countries in Africa. Now that bridges, roads, ports and airports have been built, it is time to leverage that infrastructure to make an impact on the local economy.”

Lui says the US$10bn is likely to be used for letters of credit and revolving export credit arrangements so that the credit can be recycled for bigger impact.

The plan also says that “China will encourage its businesses” to invest a minimum of US$10bn in Africa over the next three years, chiefly in manufacturing, agriculture and the “green economy”.

The remaining US$10bn in the package will come from China sharing some of its allocation of SDRs with African countries, although no specifics were provided in the plan.

Chinese state financing for major infrastructure projects declined steadily between 2016 and 2019, according to data compiled by the Boston University Global Development Policy Center.

While China Export-Import Bank and China Development Bank are still the main Chinese creditors active on the continent, researchers have noted a trend of growing participation by state-owned but commercial banks such as Bank of China and the Industrial and Commercial Bank of China.

GTR reported in September that European export credit agencies and commercial lenders have been approached by Chinese contractors working on projects in Africa who have been unable to secure financing from Chinese sources.