## Annex I. Details of GVAR and AFRMOD Models

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### I. Introduction — scope and context
- Paper examines key aspects of China–Africa economic relationship: trade, lending, and foreign direct investment.
- Focus on channels, recent developments, and implications of China’s economic slowdown for African economies.
- Definitions used:
  - "Africa" = the group of 54 countries in the continent.
  - "Sub-Saharan Africa" = the group of 45 countries under the purview of the IMF’s African Department.

### II. Trade: major facts and patterns
- China is Africa’s largest individual country trading partner; between 2020 and 2022:
  - "about 13 percent of the region’s total goods exports have found their way to China."
- Historical growth in trade values:
  - African goods exports to China increased "more than fourfold in nominal US dollar terms between 2000 and 2022."
  - African imports from China "surged in value twentyfold between 2000 and 2019."
  - Imports from China averaged "16 percent of the total between 2020 and 2022."
- Africa’s role in China’s trade:
  - In 2022, "Africa received 4.6 percent of China’s total exports."
  - After peaking in 2012, "China’s imports from Africa represented about 4.3 percent of its total imports" in the peak year.
- Composition of trade:
  - Africa predominantly exports "natural resources, especially crude oil, and other fossil fuels as well as raw unprocessed minerals and other intermediate goods" to China.
  - Africa imports "manufactured goods and machinery" from China.
  - Africa consistently runs a bilateral trade deficit with China.
- Concentration and exposure:
  - China’s share of imports by African countries is relatively homogeneous; top 3 import exposures (including Ghana, Guinea, Nigeria) "stand at just over 30 percent."
  - For exports to China, the top 5 country exposures (including South Sudan, Democratic Republic of the Congo, Angola, Eritrea, and the Republic of the Congo) "all have shares above 50 percent," while countries outside the top 10 export, on average, "less than 15 percent" to China.
- Implication: countries highly exposed in exports to China are vulnerable to a deceleration in Chinese economic activity.

### III. Loans and Debt: overview and measurement caveats
- Data limitations and methodological issues:
  - Chinese lending agencies "do not typically reveal their loan amounts or terms publicly."
  - Confidentiality clauses have been included in some debt contracts.
  - China is "not a member of the Paris Club of government lenders," complicating transparency and coordination.
  - Two main data issues:
    - Available data often comprise "debt commitments" (promised lending) which may not translate into disbursements.
    - Data coverage and statistical concepts (creditor classification, debtor sector classification, reporting to World Bank DRS) materially affect reported magnitudes; some loans may be recorded as owed by private entities despite implicit government responsibility.
  - Example quantitative data source usage:
    - Commitments: Boston University, Chinese Loans to Africa database.
    - Disbursements: World Bank, International Debt Statistics (IDS) database.

### IV. External lending trends: key findings
- China has "gradually emerged as the largest bilateral official creditor of African governments in the last two decades."
- Composition and trends:
  - Concessional loans' share "has decreased to less than 10 percent by the end of 2020."
  - The region’s "total external interest payments attributable to China’s official bilateral loans is 10 percent as of 2019."
- Recent disbursement and commitment dynamics:
  - "In the last 5 years, however, Chinese official total loan disbursements to African countries have fallen, representing in 2021 about one-eighth of their peak value of 1.2 percent of the region’s GDP in 2016."
  - "Total loan commitments also contracted dramatically from their peak in 2016."
- Debt-service cost positioning:
  - China's loans occupy a middle position between concessional MDB/Paris Club lenders and more expensive commercial financing such as Eurobonds and syndicated loans.
  - Implicit interest rate (ratio of interest payments over existing stock of debt) for China's loans lies between concessional MDB/Paris Club rates and commercial rates; the implicit rate concept may differ from agreed contractual rates due to grace periods, repayment schedules, missed payments, or arrears.

### V. A closer look at China’s lending agencies
- Major lenders and instruments:
  - Export–Import Bank of China (Exim Bank) and the China Development Bank (CDB) are the two largest overseas lenders; Exim Bank "hold[s] the bulk of outstanding loans to African countries."
  - Exim Bank’s main loan types:
    - "Export seller’s credits" — loans extended to Chinese companies or ‘export sellers’ expanding business abroad.
    - "Export buyer’s credits" — loans provided to buyers of exported Chinese goods and services.
    - Both types are "negotiated at commercial rates based on prevailing rates in international capital markets."
- Roles and institutional features:
  - Exim Bank:
    - Operates a third category known as preferential loans—preferential export buyer’s credits, and concessional foreign aid loans.
    - These instruments have interest rates subsidized by annual appropriations from the Chinese budget and are exclusively provided to other developing-country governments or their state-owned firms.
    - Exim Bank has a 20 percent share in the China-Africa Fund for Industrial Cooperation (CAFIC), announced in December 2015 and officially launched the following January with an initial cash injection of $10 billion; the State Administration of Foreign Exchange (SAFE) owned the remaining 80 percent share (Li 2020).
    - CAFIC has been merged with the China-LAC Industrial Cooperation Fund to form a joint investment vehicle for the Belt and Road Initiative.
  - China Development Bank (CDB):
    - State-owned policy arm focused on domestic projects (public infrastructure, highways, electric power).
    - More commercialized and domestically oriented than Exim Bank; most lending directed towards supporting domestic projects.
    - Second largest bond issuer in China after the Ministry of Finance, accounting for about one quarter of China’s bond market (Global Infrastructure Hub 2019, Annex D).
    - CDB and Exim Bank reported to rely on collateralized lending referred to as “resource-secured infrastructure finance,” which relies on future receivables to secure the loan.
      - About a quarter of 2020 loan commitments were secured in this way.
  - China-Africa Development Fund (CAD Fund / CAD-Fund):
    - Announced in 2006 at FOCAC; operational in 2007 with an initial capital amount of $10 billion.
    - Wholly owned private-equity subsidiary of CDB.
    - Invests via equity, quasi-equity (e.g., preferred shares, convertible bonds), or funds; CDB may recommend some loan projects to the CAD-Fund for equity financing.

- Commercial banks and creditor classification:
  - Commercial banks in China hold an increasingly significant share of the debt stock of African countries.
  - Per IDS definitions (World Bank 2000), commercial banks that are creditors for public debt reporting are considered such regardless of public or private ownership—so shares attributed to Exim Bank and CDB may appear as commercial-creditor shares.

### Currency composition of Chinese lending and swap agreements
- IDS data and Renminbi treatment:
  - World Bank’s IDS database groups Renminbi-denominated debt with other currencies in a residual category; it does not specifically isolate Renminbi-denominated debt.
  - IDS public-facing portal shows shares of PPG debt denominated in US dollars, Euros, UK Pound Sterling, Swiss Franc, Japanese Yen, Special Drawing Rights, and two residual categories: “Multiple Currencies” and “Other” (the latter captures the (offshore) Renminbi and all other currencies not explicitly mentioned).
- Currency decomposition findings (PPG debt owed by African DRS-reporting countries to China):
  - Analysis divides debt into three currency groups: the US dollar; the Euro and other traditional Advanced Economies’ currencies; and the Renminbi along with other local currencies (combined in a residual category in IDS).
  - Most African external debt owed to China is denominated in US dollars, with no clear pattern indicating a decrease aside from normal fluctuations likely due to exchange rate movements.
  - Note: No SDR-denominated debt is owed to China.
- People’s Bank of China (PBOC) bilateral swap agreements:
  - Between 2008 and 2021, the PBOC signed 40 bilateral swap agreements with major central banks worldwide (Horn and others 2023).
  - Swap lines provide for swift currency swaps between two central banks to provide liquidity support to commercial banks needing foreign currency in challenging market conditions.
  - In Africa, only Egypt and Nigeria have been documented tapping and rolling over bilateral swap lines.

### Investment linkages: Chinese FDI to Africa and characteristics
- Global Chinese ODI context:
  - Chinese outward direct investment (ODI) flows peaked at about $200 billion in 2016 and reached approximately $180 billion in 2021 (National Bureau of Statistics of China).
  - From 2014 to 2021, Chinese cumulative ODI nearly tripled in value, growing from almost $900 billion to about $2.8 trillion.
- Africa’s share in Chinese ODI:
  - Africa’s share as a destination remains relatively small:
    - Constituted less than 3 percent of China's overall ODI flows as of 2021.
    - Constituted less than 2 percent of China’s overall ODI stock as of 2021, with the latter on a steady decline from a high of 4 percent in 2012.
  - Key ODI destinations are overwhelmingly in Asia and Latin America, which together account for almost all the ODI stock as of 2021.
  - Data may be incomplete because almost half of China’s ODI flows are recorded to Hong Kong, likely not the final destination.
- Chinese FDI into Africa (from Africa’s perspective):
  - Chinese FDI flows hovered between 6-12 percent of the total annual FDI inflows in recent years.
  - Chinese FDI flows to Africa amounted to approximately $4.8 billion in 2021.
  - Stock of Chinese investments as a share of the region’s total FDI was about 3.6 percent in 2021.
  - Even a doubling of Chinese ODI stock to Africa would remain a relatively small share of total existing FDI stock.
- Sectoral and geographic concentration:
  - Chinese ODI in Africa concentrated in construction, mining, and manufacturing.
  - Official statistics based on stock values are often dominated by large investments made by Chinese state-owned companies.
  - Geographic concentration notable: investments focused on natural-resource-rich and oil-exporting countries; diversification plateaued after 2015.
  - Concentration poses vulnerability if Chinese investors divest.

### The Belt and Road Initiative (BRI) and related developments
- BRI overview:
  - Launched in 2013 as a collection of global development and infrastructure investments to enhance connectivity and foster economic cooperation.
  - Since inception, most foreign direct investment originating from China has been under the umbrella of the BRI.
- Engagement statistics and scope:
  - Over 150 countries and 30 international organizations have signed cooperation agreements with China under the BRI.
  - Cumulative engagement surpassing $1 trillion (Nedopil 2023).
- Terms, transparency, and recent trend:
  - Most BRI loans are in dollars, provided on commercial terms more generous than private investors but costlier than western donors or multilateral development banks.
  - Project-level details and terms remain opaque in many cases.
  - A retrenchment in BRI-related engagement since 2020 has affected all regions, indicating a slowdown in Chinese investment not specific to Africa.

### Labor Flows Associated with Chinese FDI in Africa
- Gross annual revenues of Chinese engineering and construction projects in Africa:
  - Peaked in 2015.
  - Totaled about $37 billion in 2021, a 3 percent reduction from a year prior.
- Geographic concentration (2021):
  - Top 5 countries: Nigeria, Algeria, Kenya, Angola, and the Democratic Republic of the Congo — together account for about 40 percent of all Chinese companies’ gross annual revenues from 2021 construction projects in Africa.
  - Nigeria alone accounts for about 11 percent.
- Trends in Chinese workers:
  - Number of Chinese workers in Africa declined since 2015, reaching less than 200 thousand by the end of 2019.
  - Data categories: "workers on contracted projects" and "workers doing labor services" (reported by Chinese contractors; excludes informal migrants).
  - In 2019, top 5 countries with Chinese workers: Algeria, Angola, Nigeria, Zambia, and Kenya; together they accounted for 52 percent of all Chinese workers in Africa; Algeria alone accounted for almost a quarter.
  - At the end of 2021, the official number of Chinese workers in Africa stood at about 93 thousand, a 64 percent reduction from the 2015 peak.
  - Algeria and Angola each experienced an almost 90 percent reduction in the number of registered Chinese workers in 2021 compared to 2015.
- Employment and training effects:
  - Evidence cited of positive employment effects from Chinese projects (Guo and others 2022) and increased employment stability (Zhang and others 2023).
  - Luban Workshop vocational training program (initiated 2016) operates in more than 30 locations in 25 countries; tens of thousands of young people have graduated; Beijing announced in April 2023 the formation of a special committee to plan and construct new workshops.

### Foreign Aid and Development Finance
- Comparative scale:
  - US aid in fiscal year 2021 totaled approximately $28 billion, compared to about $3 billion for China.
  - China’s per capita income cited at roughly 9,000 US Dollars in nominal terms (about a quarter of the OECD average per World Bank data).
- Chinese aid composition and transparency:
  - According to The State Council Information Office of the People’s Republic of China (2014), aid includes grants (aid gratis), interest-free loans, and concessional loans.
  - Unclear how much of China’s global aid flows to Africa; during the 2018 FOCAC China pledged $15 billion in aid amount to African countries out of the total $60 billion commitment, but data on actual disbursements are not publicly available.
- Development finance vs. aid:
  - The bulk of Chinese financing to Africa falls under development finance rather than aid.
  - China provides relatively little aid in the strict sense (development projects with a grant element of 25 percent or higher); a large share comes in the form of export credits and market-rate or close-to-market-rate loans.
  - China is not a member of the OECD Development Assistance Committee (DAC) and classifies itself as a South-South cooperation development partner/provider rather than a “donor.”
  - In 2018, China established China International Development Cooperation Administration (CIDCA) to manage rising development cooperation; CIDCA’s budget still appears small relative to overall foreign aid spending.

### Recent Developments and China’s Growth Slowdown
A. Lending: Evolving Priorities and Risk Appetite
- Peak and retrenchment:
  - Chinese loan commitments to African countries peaked around 2016; disbursements followed a similar pattern and subsided notably already before the COVID-19 pandemic.
  - Surge slowed after the commodity price collapse of 2015 amid growing debt sustainability and solvency concerns.
- Cross-region trend:
  - Ray and Myers (2023) document a precipitous decline in Chinese loan commitments to Latin American and Caribbean countries between 2015 and 2020.
- Pandemic and debt initiatives:
  - DSSI context:
    - 73 countries were eligible for temporary suspension of debt-service payments owed to official bilateral creditors; 38 are in Africa, and 32 of those participated in the initiative.
    - The DSSI delivered potential savings of about $12.9 billion to 48 participating countries in 2021 (World Bank 2022).
    - G20 agreed on a Common Framework for Debt Treatments beyond the DSSI.
  - External borrowing costs:
    - Ratio of public interest payments to revenue (excluding grants) more than doubled over a decade, at 10 percent for the median African economy, and at three times the level prevailing in advanced economies (IMF 2023).
- China in restructuring:
  - China contributed to the DSSI, providing 63 percent of suspensions in 2020 and 2021, while owning just 30 percent of the claims (Brautigam and others, 2023).
  - Debt restructuring complexity due to many debt instruments and diverse creditor base; China’s involvement complicated by varying entities participating (e.g., China Exim Bank as part of OCC in Ghana; CDB classified as private creditor in Zambia).
- Risk management adjustments:
  - Chinese authorities have strengthened risk assessment frameworks and adopted formal debt sustainability frameworks (e.g., Exim Bank strengthened its risk assessment framework), possibly contributing to the slowdown in lending.

B. Investment: Shrinking Financing Envelope and Evolving Framework
- FOCAC pledges and shifts:
  - 2018 FOCAC: China’s nominal financing pledge was $60 billion (flat compared to the pledge three years prior); private companies encouraged to contribute $10 billion in investment projects out of the total package.
  - 2021 FOCAC: China announced a reduction in the nominal envelope of financial commitments to Africa, from $60 billion to $40 billion over a three-year period, with half of the decrease attributed to a fall in infrastructure lending.
- Observable impacts:
  - Declines mirrored in sharp falls in Chinese companies' African construction gross revenues and presence of Chinese workers.
  - 2023 China-Africa Economic and Trade Expo saw a 50 percent drop in signed projects compared to 2019 (Africanews 2023).
- Strategic recalibration:
  - Indicators that Chinese authorities may reduce direct involvement and increase reliance on local governments and African banks to select projects under FOCAC commitments.
  - At the third BRI Forum (October 2023), President Xi called for “high quality and well-targeted projects,” promoting a multidimensional connectivity network, “small and smart” livelihood projects, green development, digital economy, and technopolitical innovation—suggesting a potential move away from large transport, energy, and mining projects toward green energy and high-tech investments.
  - China pledged to halt new overseas coal-fired power stations and announced joint initiatives with several African countries to improve digital infrastructure (telecommunications, satellite navigation, and cloud data centers); launched a Global AI Governance Initiative.

C. China’s Conjunctural and Structural Growth Slowdown and Implications for Africa
- China’s growth trajectory:
  - Averaged around 10 percent annual growth in the 2000s.
  - Grew by less than 8 percent per year on average in the 2010s.
  - Since the COVID-19 pandemic, growth has declined further; IMF projections show average annual growth below 4 percent for 2023-2028.
- Demographic pressures:
  - In 2022, China saw its population decline for the first time in decades and is projected to face a dramatic reduction in working-age population before the middle of the century.
- Trade and commodity impacts for Africa:
  - China’s reduced demand for commodities significantly impacted African countries reliant on fuel and commodity exports.
  - The fuel component of total African exports to China fell dramatically after 2015 and contracted further during the pandemic.
- Quantified spillover estimates:
  - Empirical estimate (Abdel-Latif and El Gamal, forthcoming):
    - A 1 percentage point decline in China’s real GDP growth rate leads to about 0.25 percentage points decline in sub-Saharan Africa’s total GDP growth within a year.
    - For oil-exporting countries, the growth shortfall rises to more than 0.5 percentage points on average.
    - For other resource-intensive countries, the growth loss averages 0.2 percentage points.
- Scenario analysis approach:
  - An IMF AFRMOD open-economy general equilibrium model scenario envisions a contraction in China’s real estate sector, weaker consumption from subdued confidence, and assumes no swift policy actions to restructure property developers—used to evaluate broader spillovers to sub-Saharan Africa.

### A. AFRMOD — model description and composition
- AFRMOD is a specific version of the Flexible System of Global Models – FSGM tailored to sub-Saharan Africa.
- The IMF G20 Model is a version of the FSGM (Andrle and others 2015). This model is suitable for short- to medium-term scenario analyses in an internally consistent general equilibrium framework and features rich sectoral and cross-country interlinkages.
- AFRMOD focuses on a limited set of regions and countries in Africa to analyze joint responses of key parts of the world economy to shocks.
- Model composition:
  - Consists of 13 individual countries, of which 5 are relatively large SSA economies and 8 advanced economies.
  - Consists of 8 country groups, of which 6 consist of SSA countries and 2 consist of other important groups of mostly AEs and EMs.
- Country groupings in AFRMOD (Type — Group name — ISO3 codes):
  - Individual — N/A — USA, CHN, FRA, DEU, IND, ITA, JPN, GBR, AGO, GHA, NGA, ZAF, ZMB
  - SSA Group — Eastern Africa — KEN, RWA, TZA, UGA
  - SSA Group — Fragile Africa — BFA, BDI, CIV, CAF, COM, ERI, GIN, GNB, STP, SLE, TGO, LBR, ZWE
  - SSA Group — Low Income Africa — ETH, GMB, MDG, MWI, MOZ
  - SSA Group — Middle Income Africa — BWA, CPV, LSO, MUS, NAM, SEN, SYC, SWZ
  - SSA Group — Sub-Saharan Africa Oil Exporters — CMR, COD, TCD, COG, GNQ, GAB, SSD
  - SSA Group — West African Economic and Monetary Union, WAEMU — BEN, MLI, NER
  - Non-SSA Group — Other Advanced Economies — AUS, CAN, DNK, HKG, ISL, ISR, KOR, NZL, NOR, SGP, SWE, CHE, TWN
  - Non-SSA Group — Other Oil Exporters — DZA, BHR, BRN, ECU, IRN, KAZ, KWT, OMN, QAT, RUS, SAU, TTO, ARE, VEN, YEM

### B. GVAR Model — coverage and groupings
- The GVAR model referenced is from Abdel-Latif and El-Gamal (2023) and includes 44 SSA countries distributed across groups.
- Country groupings in the GVAR Model (Group name — ISO3 codes):
  - Oil Exporter — AGO, CMR, TCD, COG, GNQ, GAB, NGA
  - Other Resource-Intensive — BWA, BFO, CAR, DRC, ERI, GHA, GIN, LBR, MLI, NAM, NER, SLE, ZAF, TZA, ZMB, ZWE
  - Non-resource Intensive — BEN, BDI, CPV, COM, CIV, SWZ, ETH, GMB, GNB, KEN, LSO, MDG, MWI, MUS, MOZ, RWA, STP, SEN, SYC, TGO, UGA

*Source: wpiea2024037-print-pdf - Annex I. Details of GVAR and AFRMOD Models.*

### Annex I. Details of GVAR and AFRMOD Models .............................................................................

### Annex I. Details of GVAR and AFRMOD Models

### I. Introduction — scope and context
- Paper examines key aspects of China–Africa economic relationship: trade, lending, and foreign direct investment.
- Focuses on channels, recent developments, and implications of China’s economic slowdown for African economies.
- Definitions used:
  - "Africa" = the group of 54 countries in the continent.
  - "Sub-Saharan Africa" = the group of 45 countries under the purview of the IMF’s African Department.

### II. Trade: major facts and patterns
- China is Africa’s largest individual country trading partner; between 2020 and 2022:
  - "about 13 percent of the region’s total goods exports have found their way to China."
- Historical growth in trade values:
  - African goods exports to China increased "more than fourfold in nominal US dollar terms between 2000 and 2022."
  - African imports from China "surged in value twentyfold between 2000 and 2019."
  - Imports from China averaged "16 percent of the total between 2020 and 2022."
- Africa’s role in China’s trade:
  - In 2022, "Africa received 4.6 percent of China’s total exports."
  - After peaking in 2012, "China’s imports from Africa represented about 4.3 percent of its total imports" in the peak year.
- Composition of trade:
  - Africa predominantly exports "natural resources, especially crude oil, and other fossil fuels as well as raw unprocessed minerals and other intermediate goods" to China.
  - Africa imports "manufactured goods and machinery" from China.
  - Africa consistently runs a bilateral trade deficit with China.
- Concentration and exposure:
  - China’s share of imports by African countries is relatively homogeneous; top 3 import exposures (including Ghana, Guinea, Nigeria) "stand at just over 30 percent."
  - For exports to China, the top 5 country exposures (including South Sudan, Democratic Republic of the Congo, Angola, Eritrea, and the Republic of the Congo) "all have shares above 50 percent," while countries outside the top 10 export, on average, "less than 15 percent" to China.
- Implication: countries highly exposed in exports to China are vulnerable to a deceleration in Chinese economic activity.

### III. Loans and Debt: overview and measurement caveats
- Data limitations and methodological issues:
  - Chinese lending agencies "do not typically reveal their loan amounts or terms publicly."
  - Confidentiality clauses have been included in some debt contracts.
  - China is "not a member of the Paris Club of government lenders," complicating transparency and coordination.
  - Two main data issues:
    - Available data often comprise "debt commitments" (promised lending) which may not translate into disbursements.
    - Data coverage and statistical concepts (creditor classification, debtor sector classification, reporting to World Bank DRS) materially affect reported magnitudes; some loans may be recorded as owed by private entities despite implicit government responsibility.
  - Example quantitative data source usage:
    - Commitments: Boston University, Chinese Loans to Africa database.
    - Disbursements: World Bank, International Debt Statistics (IDS) database.

### IV. External lending trends: key findings
- China has "gradually emerged as the largest bilateral official creditor of African governments in the last two decades."
- Composition and trends:
  - Concessional loans' share "has decreased to less than 10 percent by the end of 2020."
  - The region’s "total external interest payments attributable to China’s official bilateral loans is 10 percent as of 2019."
- Recent disbursement and commitment dynamics:
  - "In the last 5 years, however, Chinese official total loan disbursements to African countries have fallen, representing in 2021 about one-eighth of their peak value of 1.2 percent of the region’s GDP in 2016."
  - "Total loan commitments also contracted dramatically from their peak in 2016."
- Debt-service cost positioning:
  - China's loans occupy a middle position between:
    - Low-cost concessional loans from MDBs and traditional Paris Club lenders.
    - More expensive commercial financing such as Eurobonds and syndicated loans.
  - Implicit interest rate (calculated as ratio of interest payments over existing stock of debt) for China's loans lies between concessional MDB/Paris Club rates and commercial rates; implicit rate concept may differ from agreed contractual rates due to grace periods, repayment schedules, missed payments, or arrears.

### V. A closer look at China’s lending agencies
- Two largest overseas lenders: "Export–Import Bank of China (also known as Exim Bank) and the China Development Bank," with Exim Bank "holding the bulk of outstanding loans to African countries."
- Exim Bank’s main loan types:
  - "Export seller’s credits" — loans extended to Chinese companies or ‘export sellers’ expanding business abroad.
  - "Export buyer’s credits" — loans provided to buyers of exported Chinese goods and services.
  - Both types are "negotiated at commercial rates based on prevailing rates in international capital markets."

*Source: wpiea2024037-print-pdf - Annex I. Details of GVAR and AFRMOD Models.*

### 1. China Development Bank 2. China Export-Import Bank 3. Other China

### 1. China Development Bank 2. China Export-Import Bank 3. Other China

### Roles and institutional features
- China Export-Import Bank (Exim Bank)
  - Operates a third category known as preferential loans—preferential export buyer’s credits, and concessional foreign aid loans.
  - Both loan instruments have interest rates that are subsidized by annual appropriations from the Chinese budget and are exclusively provided to other developing-country governments or their state-owned firms.
  - Exim Bank has a 20 percent share in the China-Africa Fund for Industrial Cooperation (CAFIC), announced in December 2015 and officially launched the following January with an initial cash injection of $10 billion; the State Administration of Foreign Exchange (SAFE) owned the remaining 80 percent share (Li 2020).
  - CAFIC has been merged with the China-LAC Industrial Cooperation Fund to form a joint investment vehicle for the Belt and Road Initiative (recent revamp; see next Section in source).

- China Development Bank (CDB)
  - State-owned policy arm with main mission the development of China, focusing on domestic projects related to public infrastructure, highways, and electric power.
  - More commercialized and domestically oriented than Exim Bank; most lending directed towards supporting domestic projects.
  - Second largest bond issuer in China after the Ministry of Finance, accounting for about one quarter of China’s bond market (Global Infrastructure Hub 2019, Annex D).
  - CDB and Exim Bank reported to rely on collateralized lending through a model referred to as “resource-secured infrastructure finance,” which relies on future receivables to secure the loan.
    - About a quarter of 2020 loan commitments were secured in this way.
    - This model differs from using existing assets as collateral (Brautigam and others 2020).

- China-Africa Development Fund (CAD Fund / CAD-Fund)
  - Announced in 2006 at FOCAC; operational in 2007 with an initial capital amount of $10 billion.
  - Wholly owned private-equity subsidiary of CDB.
  - Focuses on Africa, investing via equity, quasi-equity (e.g., preferred shares, convertible bonds), or funds.
  - CDB may recommend some loan projects to the CAD-Fund for equity financing.
  - Encourages and supports Chinese enterprises that set up operations in Africa or plan to invest in Africa, especially those facilitating infrastructure construction and enhancing social and economic development (Centre for Chinese Studies 2013).

- Commercial banks and creditor classification
  - Commercial banks in China hold an increasingly significant share of the debt stock of African countries.
  - Per IDS definitions (World Bank 2000), commercial banks that are creditors for public debt reporting are considered such regardless of public or private ownership.
    - Therefore, in the case of China, this share is mostly attributable to China Exim Bank and to CDB, and may also include other SOEs and commercial banks with close ties to the Chinese government.

### Currency composition of Chinese lending and swap agreements
- IDS data and Renminbi treatment
  - World Bank’s IDS database groups Renminbi-denominated debt with other currencies in a residual category; it does not specifically isolate Renminbi-denominated debt.
  - IDS public-facing portal shows shares of PPG debt denominated in US dollars, Euros, UK Pound Sterling, Swiss Franc, Japanese Yen, Special Drawing Rights, and two residual categories: “Multiple Currencies” and “Other” (the latter captures the (offshore) Renminbi and all other currencies not explicitly mentioned).

- Currency decomposition findings (PPG debt owed by African DRS-reporting countries to China)
  - Analysis divides debt into three currency groups: the US dollar; the Euro and other traditional Advanced Economies’ currencies; and the Renminbi along with other local currencies (combined in a residual category in IDS).
  - Most African external debt owed to China is denominated in US dollars, with no clear pattern indicating a decrease aside from normal fluctuations likely due to exchange rate movements.
  - Note: No SDR-denominated debt is owed to China.

- People’s Bank of China (PBOC) bilateral swap agreements
  - Between 2008 and 2021, the PBOC signed 40 bilateral swap agreements with major central banks worldwide (Horn and others 2023).
  - Swap lines provide for swift currency swaps between two central banks to provide liquidity support to commercial banks needing foreign currency in challenging market conditions.
  - Swap lines are increasingly used worldwide to stabilize capital markets and facilitate trade.
  - Horn and others (2023) note that PBOC swap line agreements, especially when systematically rolled over, may complicate the calculation of foreign exchange reserves in countries facing BOP crises and might serve as an alternative way for China to support debtor countries to which it has significant exposure.
  - In Africa, only Egypt and Nigeria have been documented tapping and rolling over bilateral swap lines.

### Investment linkages: Chinese FDI to Africa and characteristics
- Global Chinese ODI context
  - Chinese outward direct investment (ODI) flows peaked at about $200 billion in 2016 and reached approximately $180 billion in 2021 (National Bureau of Statistics of China).
  - From 2014 to 2021, Chinese cumulative ODI nearly tripled in value, growing from almost $900 billion to about $2.8 trillion.

- Africa’s share in Chinese ODI
  - Africa’s share as a destination remains relatively small:
    - Constituted less than 3 percent of China's overall ODI flows as of 2021.
    - Constituted less than 2 percent of China’s overall ODI stock as of 2021, with the latter on a steady decline from a high of 4 percent in 2012.
  - Key ODI destinations are overwhelmingly in Asia and Latin America, which together account for almost all the ODI stock as of 2021.
  - Data may be incomplete because almost half of China’s ODI flows are recorded to Hong Kong, likely not the final destination.

- Chinese FDI into Africa (from Africa’s perspective)
  - Chinese FDI flows hovered between 6-12 percent of the total annual FDI inflows in recent years.
  - Chinese FDI flows to Africa amounted to approximately $4.8 billion in 2021.
  - Stock of Chinese investments as a share of the region’s total FDI was about 3.6 percent in 2021.
  - The CAD-Fund and other instruments have supported Chinese enterprise presence in Africa, but even a doubling of Chinese ODI stock to Africa would remain a relatively small share of total existing FDI stock.

- Sectoral and geographic concentration of Chinese ODI in Africa
  - Chinese ODI in Africa is concentrated in specific sectors, including construction, mining, and manufacturing.
  - Official statistics based on stock values are often dominated by large investments made by Chinese state-owned companies.
  - Geographic concentration is notable: investments focused on a limited number of countries, particularly natural-resource-rich and oil-exporting countries.
  - Concentration persisted, with diversification to other countries plateauing after 2015.
  - Concentration in a few key countries may constitute a vulnerability should Chinese investors decide to divest.

*Source: IMF Working Paper text extracted from "Navigating the Evolving Landscape of China and Africa’s Economic Engagements."*

### 3. Concentration, 2003–21

### 3. Concentration, 2003–21

### The Belt and Road Initiative (BRI)
- The Belt and Road Initiative (BRI), launched by China in 2013, is described as a collection of global development and infrastructure investments aimed at enhancing connectivity and fostering economic cooperation.
- Since inception, most foreign direct investment originating from China has been under the umbrella of the BRI.
- Initial focus: improving linkages between East Asia and Europe via railways, major road networks, and maritime infrastructure.
- Engagement statistics and scope:
  - Over 150 countries and 30 international organizations have signed cooperation agreements with China under the BRI.
  - Cumulative engagement surpassing $1 trillion (Nedopil 2023).
- Geographic and sectoral shifts:
  - BRI investments extended significantly to Africa and South America.
  - In Africa, key sectors financed through the BRI include transportation, energy, and mining infrastructure.
- Terms and transparency:
  - Most BRI loans are in dollars, provided on commercial terms more generous than those from private investors but costlier than funds from western donors or multilateral development banks.
  - Project-level details and terms remain opaque in many cases.
- Recent trend:
  - A retrenchment in BRI-related engagement since 2020 has affected all regions, indicating a slowdown in Chinese investment not specific to Africa.

### Labor Flows Associated with Chinese FDI in Africa
- Gross annual revenues of Chinese companies engaged in engineering and construction projects in Africa:
  - Peaked in 2015.
  - Totaled about $37 billion in 2021, a 3 percent reduction from a year prior.
- Geographic concentration (2021):
  - Top 5 countries: Nigeria, Algeria, Kenya, Angola, and the Democratic Republic of the Congo.
  - These five together account for about 40 percent of all Chinese companies’ gross annual revenues from 2021 construction projects in Africa.
  - Nigeria alone accounts for about 11 percent.
- Trends across regions:
  - Gross annual revenues of Chinese construction projects rose in other Asian countries while plateauing or declining in Africa during the pre-COVID period; this trend persisted and intensified amid the pandemic.
- Chinese workers in Africa:
  - Positive correlation between number of Chinese workers and gross revenues of Chinese companies in Africa, especially before the pandemic.
  - Number of Chinese workers in Africa declined since 2015, reaching less than 200 thousand by the end of 2019.
  - Data categories: "workers on contracted projects" and "workers doing labor services" (reported by Chinese contractors; excludes informal migrants and likely underestimates total presence).
  - In 2019, top 5 countries with Chinese workers: Algeria, Angola, Nigeria, Zambia, and Kenya; together they accounted for 52 percent of all Chinese workers in Africa; Algeria alone accounted for almost a quarter.
  - At the end of 2021, the official number of Chinese workers in Africa stood at about 93 thousand, a 64 percent reduction from the 2015 peak.
  - Algeria and Angola each experienced an almost 90 percent reduction in the number of registered Chinese workers in 2021 compared to 2015.
- Employment and training effects:
  - Hypothesis: influx of Chinese workers could impede local job and training opportunities (Dollar, 2016).
  - Evidence cited:
    - Chinese projects may be associated with positive employment effects (Guo and others 2022).
    - Increased employment stability as workers transition from primary to secondary or tertiary sectors (Zhang and others 2023).
  - Luban Workshop vocational training program:
    - Initiated in 2016 under the BRI.
    - More than 30 locations in 25 countries largely in Asia, the Middle East and Africa.
    - Focuses on servicing Chinese electric-vehicle engines, operating commercial drones, assembling robots; includes constructing schools, introducing technology, and organizing trips to Chinese vocational schools for local educators.
    - Tens of thousands of young people have graduated; Beijing announced in April 2023 the formation of a special committee to plan and construct new workshops.
  - Net assessment: reduction in Chinese worker presence due to fewer projects and COVID-19, but signs of meaningful training activities to employ locals.

### Foreign Aid
- Comparative scale:
  - US aid in fiscal year 2021 totaled approximately $28 billion, compared to about $3 billion for China.
  - China’s per capita income cited at roughly 9,000 US Dollars in nominal terms (about a quarter of the OECD average per World Bank data).
- Chinese aid composition and transparency:
  - According to The State Council Information Office of the People’s Republic of China (2014), aid includes grants (aid gratis), interest-free loans, and concessional loans.
  - Unclear how much of China’s global aid flows to Africa; during the 2018 FOCAC China pledged $15 billion in aid amount to African countries out of the total $60 billion commitment, but data on actual disbursements are not publicly available.
- Development finance vs. aid:
  - The bulk of Chinese financing to Africa falls under development finance rather than aid.
  - China provides relatively little aid in the strict sense (development projects with a grant element of 25 percent or higher); a large share comes in the form of export credits and market-rate or close-to-market-rate loans.
  - Western donors generally provide more highly concessional development finance and have less aggressive export credit programs.
- Institutional developments:
  - China is not a member of the OECD Development Assistance Committee (DAC) and classifies itself as a South-South cooperation development partner/provider rather than a “donor.”
  - In 2018, China established China International Development Cooperation Administration (CIDCA) to manage rising development cooperation; CIDCA’s budget still appears small relative to overall foreign aid spending.

### Recent Developments and China’s Growth Slowdown

A. Lending: Evolving Priorities and Risk Appetite
- Peak and retrenchment:
  - Chinese loan commitments to African countries peaked around 2016, with disbursements following a similar pattern; lending activities subsided notably already before the COVID-19 pandemic.
  - The earlier surge slowed after the commodity price collapse of 2015 amid growing debt sustainability and solvency concerns for some African countries.
- Cross-region trend:
  - Slowdown in Chinese lending is not isolated to Africa; Ray and Myers (2023) document a precipitous decline in Chinese loan commitments to Latin American and Caribbean countries between 2015 and 2020.
- Pandemic and debt initiatives:
  - DSSI context:
    - 73 countries were eligible for temporary suspension of debt-service payments owed to official bilateral creditors; 38 are in Africa, and 32 of those participated in the initiative.
    - The DSSI delivered potential savings of about $12.9 billion to 48 participating countries in 2021 (World Bank 2022).
    - G20 agreed on a Common Framework for Debt Treatments beyond the DSSI.
  - External borrowing costs:
    - Ratio of public interest payments to revenue (excluding grants) more than doubled over a decade, at 10 percent for the median African economy, and at three times the level prevailing in advanced economies (IMF 2023).
- China in restructuring:
  - China contributed to the DSSI, providing 63 percent of suspensions in 2020 and 2021, while owning just 30 percent of the claims (Brautigam and others, 2023).
  - Debt restructuring complexity due to many debt instruments and diverse creditor base; China’s involvement complicated by varying entities participating (e.g., China Exim Bank as part of OCC in Ghana; CDB classified as private creditor in Zambia).
- Risk management adjustments:
  - Chinese authorities have strengthened risk assessment frameworks and adopted formal debt sustainability frameworks (e.g., Exim Bank strengthened its risk assessment framework), possibly contributing to the slowdown in lending.

B. Investment: Shrinking Financing Envelope and Evolving Framework
- FOCAC pledges and shifts:
  - At the 2018 FOCAC, China’s nominal financing pledge was $60 billion (flat compared to the pledge three years prior); private companies encouraged to contribute $10 billion in investment projects out of the total package (Brautigam 2018).
  - 2021 FOCAC: China announced a reduction in the nominal envelope of financial commitments to Africa, from $60 billion to $40 billion over a three-year period, with half of the decrease attributed to a fall in infrastructure lending.
- Observable impacts:
  - Declines mirrored in sharp falls in Chinese companies' African construction gross revenues and presence of Chinese workers.
  - 2023 China-Africa Economic and Trade Expo saw a 50 percent drop in signed projects compared to 2019 (Africanews 2023).
- Strategic recalibration:
  - Indications that Chinese authorities may be reducing direct involvement and increasing reliance on local governments and African banks to select projects under FOCAC commitments.
  - At the third BRI Forum (October 2023), President Xi called for “high quality and well-targeted projects,” promoting a multidimensional connectivity network, “small and smart” livelihood projects, green development, digital economy, and technopolitical innovation—suggesting a potential move away from large transport, energy, and mining projects toward green energy and high-tech investments.
  - China pledged to halt new overseas coal-fired power stations and announced joint initiatives with several African countries to improve digital infrastructure (telecommunications, satellite navigation, and cloud data centers); launched a Global AI Governance Initiative.

C. China’s Conjunctural and Structural Growth Slowdown and Implications for Africa
- China’s growth trajectory:
  - Averaged around 10 percent annual growth in the 2000s.
  - Grew by less than 8 percent per year on average in the 2010s.
  - Since the COVID-19 pandemic, growth has declined further; IMF projections show average annual growth below 4 percent for 2023-2028.
- Demographic pressures:
  - In 2022, China saw its population decline for the first time in decades and is projected to face a dramatic reduction in working-age population before the middle of the century.
- Trade and commodity impacts for Africa:
  - China’s reduced demand for commodities significantly impacted African countries reliant on fuel and commodity exports.
  - The fuel component of total African exports to China fell dramatically after 2015 and contracted further during the pandemic.
- Quantified spillover estimates:
  - Empirical estimate (Abdel-Latif and El Gamal, forthcoming):
    - A 1 percentage point decline in China’s real GDP growth rate leads to about 0.25 percentage points decline in sub-Saharan Africa’s total GDP growth within a year.
    - For oil-exporting countries, the growth shortfall rises to more than 0.5 percentage points on average.
    - For other resource-intensive countries, the growth loss averages 0.2 percentage points.
- Scenario analysis approach:
  - An IMF AFRMOD open-economy general equilibrium model scenario envisions a contraction in China’s real estate sector, weaker consumption from subdued confidence, and assumes no swift policy actions to restructure property developers—used to evaluate broader spillovers to sub-Saharan Africa.

*IMF Working Paper — 3. Concentration, 2003–21 (excerpt)*

### Annex I provides more information on the model and on the definitions of the regions included therein.

### Annex I. Details of GVAR and AFRMOD Models

### A. AFRMOD — model description and composition
- AFRMOD is a specific version of the Flexible System of Global Models – FSGM tailored to sub-Saharan Africa.
- The IMF G20 Model is a version of the FSGM (Andrle and others 2015). This model is suitable for short- to medium-term scenario analyses in an internally consistent general equilibrium framework and features rich sectoral and cross-country interlinkages.
- AFRMOD focuses on a limited set of regions and countries in Africa to analyze joint responses of key parts of the world economy to shocks.
- Model composition (as described):
  - Consists of 13 individual countries, of which 5 are relatively large SSA economies and 8 advanced economies.
  - Consists of 8 country groups, of which 6 consist of SSA countries and 2 consist of other important groups of mostly AEs and EMs.

- Annex Table 1: Country Groupings in the AFRMOD Model (Type — Group name — ISO3 codes)
  - Individual — N/A — USA, CHN, FRA, DEU, IND, ITA, JPN, GBR, AGO, GHA, NGA, ZAF, ZMB
  - SSA Group — Eastern Africa — KEN, RWA, TZA, UGA
  - SSA Group — Fragile Africa — BFA, BDI, CIV, CAF, COM, ERI, GIN, GNB, STP, SLE, TGO, LBR, ZWE
  - SSA Group — Low Income Africa — ETH, GMB, MDG, MWI, MOZ
  - SSA Group — Middle Income Africa — BWA, CPV, LSO, MUS, NAM, SEN, SYC, SWZ
  - SSA Group — Sub-Saharan Africa Oil Exporters — CMR, COD, TCD, COG, GNQ, GAB, SSD
  - SSA Group — West African Economic and Monetary Union, WAEMU — BEN, MLI, NER
  - Non-SSA Group — Other Advanced Economies — AUS, CAN, DNK, HKG, ISL, ISR, KOR, NZL, NOR, SGP, SWE, CHE, TWN
  - Non-SSA Group — Other Oil Exporters — DZA, BHR, BRN, ECU, IRN, KAZ, KWT, OMN, QAT, RUS, SAU, TTO, ARE, VEN, YEM

### B. GVAR Model — coverage and groupings
- The GVAR model referenced is from Abdel-Latif and El-Gamal (2023) and includes 44 SSA countries distributed across groups.
- Annex Table 2: Country Groupings in the GVAR Model (Group name — ISO3 codes)
  - Oil Exporter — AGO, CMR, TCD, COG, GNQ, GAB, NGA
  - Other Resource-Intensive — BWA, BFO, CAR, DRC, ERI, GHA, GIN, LBR, MLI, NAM, NER, SLE, ZAF, TZA, ZMB, ZWE
  - Non-resource Intensive — BEN, BDI, CPV, COM, CIV, SWZ, ETH, GMB, GNB, KEN, LSO, MDG, MWI, MUS, MOZ, RWA, STP, SEN, SYC, TGO, UGA

*IMF Working Paper No. WP/2024/037 — Annex I. Details of GVAR and AFRMOD Models*

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_Source: https://www.imf.org/-/media/files/publications/wp/2024/english/wpiea2024037-print-pdf.pdf_