Banking on Energy: The Determinants of Export Credit Agency Energy Financing from China and Japan

Beijing, China. Photo by Wong Zihoo via Unsplash.

China has gradually become a global leader in outbound overseas investment in a manner that is triggering significant change in China and host countries alike. Similar to other successful paths to development, government-sponsored financial institutions have played a key role in China’s outbound investment. As a result, the Export-Import Bank of China (CHEXIM) and China Development Bank (CDB) have become some of the largest export credit agencies (ECAs) in the world.

CHEXIM, China’s main ECA, acts as a provider of development finance to host governments by providing trade credits and concessional loans. CDB also acts as an ECA and provides developmental finance to overseas energy investments of China. Studying loans from these banks not only contributes to the understanding of important actors in global capital flows, but also adds insight to the interaction of China’s economic rise and international politics.

A new working paper by Junda Jin studies the determinants of energy investment from these two major ECAs, CHEXIM and CDB. Jin examines the extent to which CHEXIM and CDB behave similarly to Japan Bank for International Cooperation (JBIC), their Japanese counterpart in energy loans approval. Utilizing a new database on publicized overseas loans for energy from the two banks, the working paper econometrically analyses the determinants of CHEXIM and JBIC’s overseas energy loans in a comparative perspective. Like their Japanese counterparts, Jin finds that Chinese banks exhibit a certain degree of concern for the recipient’s domestic economy, but exhibits risk seeking tendencies as well. Unlike current JBIC energy loans, however, Chinese energy loans have a significant correlation to China’s growing energy dependence. The working paper does not find evidence of “resource grabbing” in the energy sector – which is often a focus of criticism of neo-colonialism.

Read the Working Paper