The Chinese government is considering venturing into the local banking sector in line with the implementation of its three-year finance programmes on the continent, worth $60 billion.
The financial package was announced at the Forum on China Africa Cooperation (FOCAC) summit last year in Johannesburg, South Africa.
According to FOCAC action plan, over half of the money (about $35 billion) of concessional loans, was earmarked towards Foreign Direct Investments that China seeks to channel in financial institutions across the continent.
Speaking to the media in Kigali on Monday, Pan Hejun, the Chinese Ambassador to Rwanda, said the cooperation with financial institutions remains one of the plans on the table.
He had called a press conference to brief journalists on the outcomes of the recent FOCAC Coordinators’ Meeting, which took place in Beijing in July.
“The cooperation of financial institutions is one of the key plans. We already have examples like the International Commercial Bank of China (ICBC) which has formed strategic partnerships with some African banks, including Standard where it owns 20 per cent of the shares,” the envoy said.
FOCAC was created in 2000 to, among other things, cement Sino-African relations by establishing sustainable trade deals, political and cultural exchanges.
The $60 billion funding, announced by the Chinese President, Xi Jinping, the envoy said, is the catalyst of China-Africa cooperation in boosting the financial markets, at the same time optimising relations.
“There will be other forms of partnerships which will be extended in Rwanda in the years to come. Banks in China will have various forms of cooperation to help the sector’s capacity to lend and facilitate developmental projects,” Pan Hejun said.
The envoy acknowledged that the world economy was not in good shape, noting that Africa–China cooperation should be a win-win cooperation with common development in mind.
“This is also good for development of China through our bilateral cooperation. We are moved and look forward to implementing the Johannesburg summit recommendations for the next three years for all the projects agreed upon by the two sides,” he said.
“Part of the objectives is to invest in capacities, lend and or facilitate all these roads projects to be done. You see, without finances you can do nothing, and the expectations are that cooperation will be more closer for the well being of the population and common development”.
According to FOCAC plan of action, China will encourage Chinese financial institutions to provide financing and insurance support for China-Africa cooperation in energy, mining, agriculture, processing, manufacturing, shipping, metallurgy, construction, information and communication technology, electricity, railways, highways, ports and airports.
“The Chinese side will enhance cooperation in currency exchanges and financial services, and encourage both Chinese and African enterprises to invest and trade in local currencies. The Chinese side welcomes central banks of African countries to invest in China’s inter-bank bond market and include RMB into their foreign exchange reserves,” reads the action plan.
Rwandan bankers welcomed the plan of having Chinese financial institutions on the ground, which, they say, would stimulate competition and vibrancy in the sector, although more supervision and regulation will be required.
Sanjeev Anand, the Chief Executive Officer of BPR, the second largest bank in the country, said players in the sector will be happy to partner with them although the share holding ventures might not be rushed given the size of the banking sector in Rwanda.
“The investments in the financing sector are welcome and we will be happy to work with them. Chinese have some of the largest banks in the world and many of them are state owned which calls for other bureaucracies. But we don’t see any negative effects,” he told The New Times.
Sanjeev further stated that while it’s up to the central bank to regulate the competition in the industry, local subsidiaries will need adequate support and closer supervision.
The financial support from China in the sector, according to FOCAC, will in the future see China gradually expand the China-Africa Development Fund from the current $5 billion to $10 billion, which will also see the expansion of Special Loans to Support Small and Medium Sized Enterprises in Africa from $1 billion to $6 billion.
China will use the $35 billion of concessional loans on more favourable terms and export credit line, creation of new financing models, and optimising favorable credit terms and conditions.