Success Factors for Chinese-Loan Financed Energy Infrastructure Projects in Africa: A Focus On China's Lending Practices

What the paper says

ABSTRACT: China's lending practices in Africa have been widely debated. Yet, their effect on the completion of related projects is not well understood. The current study fills this gap focusing on Chinese loan-financed energy infrastructure projects from 2000 to 2021. It particularly builds from the contentious issue of Chinese lending opacity and the allocation of Chinese concessional loans in Africa. According to the transparency proposition, Chinese opaque lending practices are shaped by both the demand and supply sides, with high lending under opaque terms linked to less transparent countries. I, therefore, examined the impact of government corruption on project completion, taking into account the widely acknowledged correlation between low official transparency and high government corruption. My binary logistic regression estimates indicate that these projects are more likely to be completed in less corrupt and, consequently, more transparent environments. Regarding the allocation of Chinese concessional loans, it is asserted that the concessionality of these loans is used strategically as an incentive to borrow under opaque terms, yet coupled with conditions designed to maximize China's economic payoff benefits. Some conditions entail contracting Chinese firms and labor in these projects, using Chinese materials, and disbursement of project funds directly to Chinese contractors. I find that, while Chinese concessional loans enhance project completion, the project implementation and funds disbursement conditions tied to these loans do not. These findings underscore the lack of mutuality in China's strategy of leveraging its concessional loans to secure contracts, employment, and markets in related projects, as well as to reclaim full control of project funds, yet not meaningfully contributing to the projects' completion. Finally, my model's prediction of the completion likelihood for incomplete projects indicates that energy infrastructure projects accounting for 57% (US$57.86 billion) of the Chinese loan commitments to African countries from 2000 to 2021 are at risk of not reaching completion, with individual projects exceeding a scale of US$1.5 billion bearing high risk. The paper provides specific details of these projects along with their respective completion probabilities.