How green is China’s development finance? Power generation and air pollution in Africa

China has emerged as an internationally leading creditor of development finance and is now competing with traditional Western donors and lenders. Between 2000 and 2021, Chinese public sector institutions committed more than USD 1.3 trillion to low- and middle-income countries. The flagship Belt and Road Initiative, launched in 2013, has enabled unprecedented infrastructure investment in about 150 countries. Western criticism of a lack of transparency has prompted speculation about the environmental impact of Chinese lending abroad. We examine whether Chinese official finance to Africa between 2000 and 2021 is associated with “greener” electricity generation—which can serve as the backbone for a sustainable energy transition on the continent—and whether it has contributed to emission reduction. To mitigate endogeneity concerns, we employ an instrumental variable approach that relies on the exogenous variation in the availability of Chinese official finance over time. Our findings suggest that Chinese official finance has increased the adoption of renewable energy for electricity generation, although the impact differs between development-oriented and commercial finance and changes over time. Furthermore, while Chinese official finance has contributed to reducing emissions and improving electricity access, commercial projects appear to offset some of the emission reductions.