China’s secret loans to Africa

Questions swirl around China’s funding for Ethiopian Airlines (ET) and whether this was part of the country’s secret loans to Africa.

China’s footprints can be seen in Ethiopia, as in other parts of Africa. This includes a recently expanded ET terminal at Addis Ababa Bole International Airport and a new five-star hotel. An increasing number of Chinese travelers pass through Addis Ababa to various destinations in Africa, all made possible by the rapid growth and expansion of ET’s network. Passengers from Beijing, Chengdu, Guangzhou, Hong Kong and Shanghai can now reach 61 destinations in Africa thanks to the carrier.

Although it is difficult to get concrete facts about Beijing’s involvement, there are indications that Chinese banks, in particular the China Export Import Bank and the Industrial and Commercial Bank of China Financial Leasing, have loaned large sums of money. at Ethiopian Airlines.

According to the carrier’s 2016-17 annual report, its total outstanding loans were $ 1.5 billion, or 65% of its total liabilities, net of capital. This is a healthy situation, but the breakdown into individual creditors is not clear.

Known lenders include the US Export Import Bank, JPMorgan, the African Development Bank, the East and Southern Africa Trade and Development Bank, ING and Société Générale. ET’s new Boeing 737 Max were funded in part by the US arm of financial services firm Investec. However, publicly listed creditors account for less than half of the company’s long-term loans. Substantial funding has therefore come from unallocated lenders, some of whom are likely Chinese. In their annual reports, China Exim Bank and ICBC Financial Leasing are vague about their strategies in Africa.

China Exim Bank’s priority is to promote the Belt and Road Initiative. While China has never published a list of Belt and Road countries, African states such as South Africa, Zimbabwe and Ethiopia are first on the list of responsibilities of the China Exim office. Bank Africa.

The China Exim Bank has deep pockets. In 2017, it had spent $ 37 billion on investment loans abroad, $ 113 billion on international cooperation loans and $ 135 billion on loans promoting greater openness in addition to their trade financing.

The tragic crash of ET 302 on March 10 highlighted China’s involvement in Africa. Once its causes become clearer, it can lead to a reassessment of the risks of lending to a growing airline. Western creditors may react faster than their Chinese counterparts. Regardless of the extent of ET’s fault in the crash, lenders will likely continue to support the airline. This is particularly true for Chinese investors as part of Beijing’s “globalization” strategy; Ethiopia plays an important role as a transport hub in Africa. Any withdrawal would have a ripple effect on China’s strategy elsewhere on the continent. Chinese airlines are unable to fill the void if the country reduces its commitment to ET. In addition, the airline’s success has made it a profitable Chinese investment.

Herbert Poenisch is a member of the International Committee of the International Monetary Institute at Renmin University of China and a former Senior Economist at the Bank for International Settlements.

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