China curbs lending to Latin America

Major Chinese state-backed development lenders made less lending to Latin America last year than they did in a decade, suggesting a more cautious approach to investing in the region, according to new search of the Inter-American Dialogue and Boston University.

The five loans last year totaled $ 7.7 billion, more than the $ 6.2 billion issued in 2017, but still one of the lowest figures for state-to-state loans in the Development Bank of China (CDB) and Import-Export Bank of China (Exim) to Latin America since 2005 when they started lending to the region. Since a loan was issued in 2008, there have been no less than five in a year.

At US $ 5 billion, Venezuela accounted for nearly two-thirds of all Chinese political bank loans to Latin America in 2018. For more than a decade, the crisis-stricken country received US $ 67 billion , nearly half of all CDB and Exim bank loans to the region.

In addition to the usual borrowers from Venezuela, Brazil, Argentina and Ecuador, the Dominican Republic received its first major Chinese loan in 2018, a package of US $ 600 million for power transmission projects. The deal, which was struck at a lower interest rate than most loans, follows the establishment of diplomatic ties between the two countries in November.

Despite the low last year, the total of $ 141 billion loaned by the two banks, which are responsible for supporting China’s development goals abroad, still exceeds financial support of World Bank equivalents. and the Inter-American Development Bank, according to new data.

The usual suspects

Stuck in turmoil, Venezuela is one of a group of Latin American countries, which includes Argentina, Ecuador and Brazil, which have relied on Chinese finance to weather economic crises in recent years.

These countries represent over 90% of all loans. Yet they may not be able to count on China’s unwavering support.

“It is unclear to what extent the CBD and Exim still act as a lifeline for the region’s most fragile economies,” the report said.

Last year, a grace period extended to Venezuela by the CBD expired, meaning the petro-state must start repaying its main debt to China, not just interest. Much of the debt is secured by oil sales, which it has struggle pumping with supply lines and deliveries of machinery hit by the crisis and oil workers fleeing the country.

Observers also Noted China’s reluctance to publicly acknowledge that it has helped support Venezuela, an economy heavily dependent on international oil prices.

In addition to the high sovereign risk in places like Venezuela, many Chinese-backed projects in Latin America carry enormous environmental risks. In the past, Chinese investors have embarked on riskier ventures than Western financial institutions. Large energy and infrastructure projects still attract the majority of funding from Chinese political banks in Latin America.

Hydroelectric projects supported by China Coca Codo Sinclair in Ecuador and Rositas in Bolivia were proposed years ago, but multilateral development banks have missed the investment opportunity due to their environmental and social risks, according to the report.

Communities affected by the proposed Rositas project say they have not been consulted on its likely impacts, including flooding of pastures and hindering access to markets. President Evo Morales has suggested holding a nationwide referendum on the project in an apparent attempt to curb resistance from the local community.

Splash the money?

While Chinese companies have shown themselves sensitive to community pressure in some Latin American projects, China has also worried about its spending abroad.

Some foreign companies have been described by critics as “face projects” at a loss, which lack due diligence and only serve to strengthen Beijing’s international position as a development partner.

One might expect more caution from all of these entities as they grapple with problematic loan deals in the region.

A 2018 article published by Brief China suggested that China come to terms with the tens of billions of dollars it has tied up in problematic overseas investments. Loans from major banks as part of the signing Belt and road The initiative, which accounts for most of China’s overseas loans, has plummeted since 2015 amid sometimes censored calls to cut.

It remains to be seen whether the decline in lending to Latin America over the past two years reflects new mistrust.

“One would expect more caution from all of these entities, however, as they grapple with problematic lending arrangements in the region, try to mitigate reputational risk and navigate an environment regulatory changes at home, “report Inter-American Dialogue and Boston University. noted.

This article is republished from Dialogo Chino

Previous Chelsea Groton Bank Launches Small Business Relief Loan
Next Compliance: What to watch out for at the end of 2020 | 2020-11-24