China has pledged US$10 billion in trade finance over the next three years in a new trade promotion programme to support African exports, a move that is likely to precipitate an increase in letter of credit (L/C) transactions.

On average, half of African banks' trade finance portfolios are associated with relatively low risk instruments such as L/Cs and documentary collections according to the African Development Bank while several analysts have highlighted unmet demand for trade finance as a restraining factor of African businesses and economies.

Trade promotion programme

The US$10 billion pledge was announced at the Forum on China-Africa Cooperation last week, and signals a sea change in Beijing's approach to Africa from investment in infrastructure to facilitating trade flows.

Under the new trade promotion programme, China will open "green lanes" for African agricultural exports to China, speed up inspection and quarantine procedures, and widen the scope of products enjoying zero-tariff treatment for the Africa's least developed countries with diplomatic relations with Beijing.

The aim of the programme is to facilitate US$300 billion in Chinese imports from Africa in the next three years.

Additional pledges

Beijing says it will also build a zone for in-depth China-Africa trade and economic cooperation and a China-Africa industrial park under the programme.

China will also undertake ten connectivity projects for Africa to support the programme and form an expert group on economic cooperation with the secretariat of the African Continental Free Trade Area.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.