Key Takeaways
*African banks are setting up branches in major Chinese cities to tap into growing trade ties between China and Africa, despite US threats to impose tariffs on countries that pursue de-dollarisation.
*The move is part of Beijing’s push for yuan-based transactions, with China encouraging African countries to issue panda bonds and use local currencies in trade.
*African banks with branches in China can better serve Chinese businesses in their countries, manage loan relationships, and issue letters of credit in yuan.
*The expansion is also driven by China’s growing economic partnership with Africa, with trade rising to $282.1 billion last year, and African banks seeking to reduce transaction costs and prepare for an expanded role of the renminbi in Africa-related financial markets.
Africa’s top lenders are opening branches in major Chinese cities in a race to tap into growing trade ties between China and Africa amid Beijing’s push for yuan-based transactions.
This is despite threats from the US, where president-elect Donald Trump has said he will impose 100 per cent tariffs on Brics countries that pursue de-dollarisation.
In October, The Access Bank UK, a subsidiary of Nigeria’s Access Bank, opened a Hong Kong branch to “foster stronger economic ties between Asia and Africa” under China’s multibillion-dollar Belt and Road Initiative, according to bank executives.
It came a few months after South Africa-based Absa Group, one of Africa’s largest lenders, opened its new non-banking subsidiary in Beijing.
Absa said the new office would provide general advisory services to clients in China for conducting transactions across Africa, with the lender positioning itself “as a facilitator of trade flows into Africa”.
These are in addition to the African banking presence already in China. Morocco-based Bank of Africa and the National Bank of Egypt both have branches in Shanghai. Africa’s largest bank by assets, Standard Bank, also operates a subsidiary in China for general activities.
Meanwhile, there has been a steady trickle of Chinese banks establishing a presence in Africa, particularly Bank of China (BOC), which has branches in Morocco, Angola, Zambia and South Africa.
Industrial and Commercial Bank of China also paid US$5.6 billion for a 20 percent stake in Standard Bank.
“The motivation behind this expansion [in Africa] is to provide loans to Chinese companies in local economies,” said Kai Xue, a Beijing-based corporate lawyer who advises on foreign direct investment and cross-border financing. “BOC in Zambia has tended to fund infrastructure projects in mining, smelting, water and roads.”
Beijing has encouraged the use of local currencies as part of its bid to de-dollarise its trade.
This shift was evident during the Forum on China-Africa Cooperation (FOCAC) summit held in Beijing in September, where for the first time, China’s financing and investment commitments were given in yuan rather than US dollars.
At the summit, Chinese President Xi Jinping said: “The Chinese government will provide 360 billion yuan of financial support [to Africa] through the next three years.” That equates to US$49.5 billion.
China is also encouraging African countries to issue panda bonds – a renminbi-denominated bond sold in China by non-Chinese issuers.
Setting up branches in China could help African banks better serve Chinese businesses in their countries, Xue said. For instance, Zambian National Commercial Bank has a loan book of over US$176 million to Chinese businesses in Zambia.
“A branch in China would help African banks lending to Chinese businesses manage these relationships and chase down loan defaulters in China,” Xue said.
He said that for an African bank, having a branch in China as well as a renminbi currency licence for yuan-based activities allowed it to issue letters of credit, extend loans or receive credit.
“Without a renminbi licence, branches are limited to basic foreign exchange transactions, though they can process US dollar-denominated letters of credit,” Xue said.
Xue is advising a government-owned African bank which is planning to open a branch in China by next year. He said the move aimed to facilitate the country’s integration with yuan transactions, and was particularly timely given discussions at October’s Brics summit in Kazan, Russia, regarding an alternative payment system – including the possible use of the petroyuan, a form of the Chinese currency intended for oil trading. Brics is an association of emerging economies, including Brazil, Russia, India, China and South Africa.
According to Mihaela Papa, director of research and principal research scientist at the MIT Centre for International Studies, African banks are capitalising on the continent’s growing economic partnership with China, its largest trading partner.
Last year, China-Africa trade rose to US$282.1 billion, a 1.5 per cent growth over 2022.
Papa said a physical presence in China would “facilitate trade and investment flows, providing financial services to Chinese clients operating in Africa, and supporting African businesses engaging with Chinese markets”.
Papa said a physical presence in China would “facilitate trade and investment flows, providing financial services to Chinese clients operating in Africa, and supporting African businesses engaging with Chinese markets”.
Reducing transaction costs is another benefit for African banks, according to Lauren Johnston, a China-Africa specialist and associate professor at the University of Sydney’s China Studies Centre.
“Branches in China would enable African banks to expand the China-related services and to prepare for an expanded role of the renminbi in Africa-related financial markets,” Johnston said.
Charlie Robertson, head of macro strategy at asset management firm FIM Partners, said that with China’s promises to roll over billions of loans and investments to Africa,n the coming years, African banks have seen the advantage of staying close to Chinese finance.
“Over time, Africa is likely to do more yuan transactions – helped by Chinese interest rates being lower than US rates,” Robertson said.
But in the US, the de-dollarisation effort is causing disquiet, with Trump threatening to impose 100 per cent tariffs if Brics countries seek to dethrone the dollar.
Johnston said the role of the US dollar in the global economy came with opportunities and privileges for the US, and “any change to that system that happens outside US control may not work to America’s benefit”.
Source: Yahoo Finance
