China’s two big development banks have become genuine power players in Latin America — to the point where they wield as much if not more regional clout than either the World Bank or its regional-focused sibling, the Inter-American Development Bank.
Total lending to Latin American corporates and sovereigns in 2015 by the two Beijing-based development lenders, China Development Bank (CDB) and Export-Import Bank of China (Chexim), was $29.1bn, according to data from the Inter-American Dialogue (IAD), a US-based think tank.
That is more than the World Bank (which lent $11.8bn to the region in the 12 months to July 2015) and the IDB (which lent $11.3bn in the calendar year 2015) combined.
And the Chinese pair consistently outmatch their US-based peers. Average annual lending to the region by the mainland pair in the seven years to end-2015 was $17bn, while the World Bank disbursed an average of $13bn to Latin American corporates and sovereigns in the six years to July 2015.
Indeed, while China’s commitment to the region has waxed, the World Bank’s has if anything waned: latest data from the group show a 34% fall in lending to Latin America from a peak of $17.9bn in 2009-2010.
Little wonder China’s development banks, able to move with speed according to need, are seen in many quarters as more reliable financial partners than either of the Washington-based multilaterals.
“CDB and Chexim are the region’s new competition, the new power players,” said Kevin Gallagher, co-director of the Global Economic Governance Initiative at Boston University. “There is a big discussion in the region about who can get a quicker and bigger loan out the door quicker. The World Bank and the IDB take 18 months; the Chinese are outside with the motor running and their shovels in the truck.”
The implication for CDB and Chexim, other than the fact that their loans are a little pricier than the competition, is that they focus their attentions on nations in dire straits.
US 'WORRIED'
More half of all China lending to the region since 2007 ($65bn out of a total of $124.7bn) has been channelled into the maw of careworn Venezuela. But China is diversifying: Brazil was the biggest recipient of Chinese development loans in 2015. In February 2016, CBD, chaired by Hu Huaibang, handed a $10bn loan to the beleaguered Brazilian state oil producer Petrobras.
Few experts see either Chexim or CDB reducing their exposure to the region any time soon. “They are at the forefront of China’s commercial relations with the region,” said Xiang Songzuo, chief economist at Agricultural Bank of China. “This has improved relations between China and Latin America exponentially.
“The United States is worried about China’s influence in the region, and the World Bank is worried about the influence of [CDB]. They are both right to be worried.”
To GEIG’s Gallagher, the rise of China’s new power players should be seen in a positive light. “They are providing funding for projects — infrastructure and energy — that Latin America needs, but which others shy away from. There’s a healthy competition emerging here,” he said.
“China is offering Latin American clients a real choice, creating real competition, breaking up an old-fashioned industry oligopoly, and extending financial help to much-needed projects, and to countries where others fear to tread.”