An empirical analysis on whether China’s infrastructure lending is a debt trap for Africa

Abstract

ABSTRACT Since the first interest-free loans in 1960, China’s lending has played a significant role in African development. However, whether China’s debt is raising the African countries’ sovereign default risk ？This study uses the panel data of China’s lending to Africa to conduct quantitative research to answer this question. While empirical evidence shows that generally in both scenarios (with and without lag effect), China’s debt (represented by debt to GDP) is not relevant to African countries’ sovereign default risk (represented by CRP) for the whole African continent, the debtor countries’ region is also not relevant to the countries’ sovereign default risk. This study reveals that the change in China’s lending is not the only factor affecting the total debt. Sovereign default risk also depends on the GDP growth because if it grows faster than the debt, theoretically debt burden (and the default risk) may decrease rather than increase with debt.