Chinese development finance “down but not out” in Latin America (GLOBAL AMERICANS)webmaster
GLOBAL AMERICANS. 2018-03-30
Autores: Margaret Myers y Kevin P. Gallagher
Chinese state-to-state finance in Latin America dipped to a five-year low in 2017, with just $9 billion in loans from Chinese policy banks—the China Development Bank (CDB) and China Eximbank—to Latin American governments and state-owned enterprises. In general, the same year, Chinese overseas investment also slowed, largely due to new capital controls on overseas investments put in place by the Chinese government to maintain financial stability.
On top of these broader trends, Latin America and the Caribbean saw a significant drop due to a decision by the two banks to refrain from issuing new loans to an increasingly volatile Venezuela. Though a top recipient of CDB and China Eximbank loans in the past, Venezuela received no finance from Chinese banks in 2017, after receiving a comparatively small loan of only $2.2 billion in 2016 aimed at improving the country’s oil production capacity.
Although China continues to engage Venezuela diplomatically, and to promote cooperation with Caracas, Chinese officials are increasingly wary of conditions on the ground in the oil-rich nation. In a September 2017 meeting with his Venezuelan counterpart, Chinese Foreign Minister Wang Yi noted that China has always been committed to “enhancing the friendly and mutual trust between the two countries and firmly advancing mutually beneficial cooperation,” but added that China is increasingly concerned about the safety of Chinese people and property in Venezuela.
With no clear resolution in sight to Venezuela’s political and economic woes, Chinese lenders may very well refrain from funding Caracas in the coming years, leading to lower levels of total policy bank finance to the region.
Policy bank lending is also being supplemented in some instances by funding from a wider range of Chinese lenders. Between 2008 and 2016, Chinese policy shifted from a focus on simply establishing a physical banking presence in the region, to the provision of a wide variety of services, including renminbi clearing and settlement and trade finance. As a result, China’s commercial banks—China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC), Bank of China, and China Communications Bank—have expanded their presence and range of services in Brazil, Chile, Peru, Panama, Mexico, and Argentina.
China Construction Bank began building a presence in Brazil after acquiring BICBANCO in 2014. Since the acquisition, the bank’s assets have tripled, due in large part to growth in commercial lending, especially to middle market companies. In addition, CCB’s Chile branch and ICBC in Argentina will both offer RMB-denominated settlement, clearing, deposits, loans, and trade finance, as well as offshore RMB services.
At least one of China’s three regional funds also delivered new projects last year, although these account for a small portion of overall Chinese finance. The China-LAC Cooperation Fund reportedly supported two projects in Brazil—an acquisition of Duke Energy holdings and an investment in Electrosul—and one in Jamaica.
Despite the many new faces of Chinese finance in the region, China’s policy banks are likely to remain among Latin America’s top overall lenders for the foreseeable future.
Even with the relative drop in activity in 2017, China’s lending in the region continues to surpass that of other banks. CDB and Eximbank have provided upwards of $150 billion in finance to Latin America and the Caribbean since 2005, when Chinese banks began lending to the region. Chinese state-to-state finance topped lending over the same period from the World Bank, Inter-American Development Bank (IDB), and Andean Development Bank (CAF).
Chinese companies are also pursuing greater intra- and cross-regional projects in Latin America through a series of infrastructure proposals, including one—the Ciudad de Panamá-David Railway—that is explicitly linked to the China-led Belt and Road Initiative (BRI). As the BRI makes inroads in Latin America, the region can expect more support from a range of Chinese financial institutions.
In a context of limited foreign investment and slim pickings for multilateral credit to support infrastructure—especially cross-border infrastructure—China remains a vital source of capital in a region in need of sustained investment. The challenge for Latin American governments is to generate project proposals that match China’s interests in expanding infrastructure and energy throughout the region with plans for such projects that can reboot economic growth in a manner that promotes environmental integrity and social inclusion—in other words, finding a way to make Latin America as more than a taker of investment and more of a constructive shaper of investment from China.
Margaret Myers is program director of the Latin America and the World program at the Inter-American Dialogue. Follow her on twitter @MyersMargaret.
Kevin P. Gallagher is director of the Global Development Policy Center at Boston University’s Pardee School of Global Studies. Follow him on twitter @KevinPGallagher.