What Role for China’s Policy Banks in Latin America and the Caribbean?

For the second year in a row, the China-Latin America Finance Database, jointly managed by the Boston University Global Development Policy Center and the Inter-American Dialogue, recorded no new overseas finance commitments from China to Latin American governments or state-owned enterprises (SOEs) in 2021 through its two most active policy banks, the China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM).

A new policy brief  jointly published by the Inter-American Dialogue and the Boston University Global Development Policy Center explores the trends and implications in the changing China-LAC economic relationship.

Main findings:

• CDB and CHEXIM are no longer issuing the sorts of multi-billion-dollar, oil-backed loans that once characterized Chinese financial engagement with the region. There are several probable reasons why Chinese sovereign lending to the region has halted in recent years, including the effects of the global COVID-19 pandemic, CDB’s commitment to meeting development goals at home and a sometimes-problematic portfolio in LAC, including the prospect of continued losses in Venezuela.
  • China’s continued reluctance to issue new credit to Venezuela also accounts for at least some of the recent drop in Chinese lending to the region. Venezuela represents 45 percent of total policy bank finance to LAC since 2005, but neither CDB nor CHEXIM have issued loans to the country for the past five years.
• While total combined Chinese finance to the region is unlikely to ever approximate the previous peaks of policy bank lending, there is some possibility CDB and CHEXIM will again lend to relatively small amounts to LAC governments and state-owned enterprises in 2022.
  • CHEXIM will reportedly back the expansion of Argentina’s Cauchari solar project and may also play a role in some of the other agreements struck between President Alberto Fernández and Chinese leader Xi Jinping during their meeting in February 2022.
• While they aren’t providing sizable sovereign loans to LAC at present, China’s policy banks, in addition to an increasingly wide range of Chinese creditors, are still actively supporting China’s broader economic activity in the region. CDB and CHEXIM will remain engaged by issuing finance directly to Chinese and LAC companies, which is then invested in regional projects, as well as through policy coordination with regional development banks, or by partially backing regional private equity funds, such as the China-LAC Cooperation Fund.
• Although LAC economies were hit harder by the pandemic-related global recession than any other region, driving several nations into debt distress, China has not taken draconian action against countries unable to repay their Chinese debt.

Ultimately, the authors argue that even if CDB and CHEXIM barely feature in future transactions, the combined effect of Chinese policy bank activity, co-financing initiatives, commercial bank finance, private equity investment and other forms of engagement will ensure a sizable Chinese financial presence in LAC for years to come.

For more insights on the China-Latin America economic relationship, see the China-Latin America and the Caribbean Economic Bulletin, 2022 Edition.