chinaafricarealstory.docx

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chinaafricarealstory

china'sexport-importbankandafrica

PostedonFebruary2,2007

Topics:

 EconomicDevelopment

Countries:

 China

Previouslyfiledunder:

 Asia, GlobalEconomy

ANotefromtheCenterforGlobalDevelopmentbyToddMossandSarahRose.

ChineseloanstoAfricacouldleadtoanewdebtcrisis.

ToddMossisaseniorfellowandSarahRosearesearchassistantattheCenterforGlobalDevelopment.ThisCGDNotewasreprintedwithpermissionfromCGD.AccessthisNoteandrelatedpublicationsonthe CenterforGlobalDevelopment website. 

TheriseofChina'seconomicandpoliticalmighthasbeenfeltespeciallystronglyinAfrica.Chinahaslongbeenactivelyengagedonthecontinent,beginningwithcolonial-erasupportfornationalistsandmassconstructionofrailwaysandstadiumsintheearlyindependenceperiod.Morerecently,ChinahasmadearenewedpushintoAfricaaspartofitsforeignpolicystrategytosecureaccesstonaturalresourcesandreassertitselfontheglobalstage.TheExport-ImportBankofChinaisagrowing—ifstillmostlyunknown—instrumentofthatstrategy,notonlytoboosttradeandinvestment,butalsotoenhanceChineseinfluenceabroad.ThisNotepresentssomeofthebasicfactsaboutChinaExImandidentifiesseveralpotentialimplicationsforAfricaandtheWest. 

WhatisChinaExIm?

TheExport-ImportBankofChina,establishedin1994,iswhollyownedbythegovernmentanditsmanagementisappointedby,andreportsto,theStateCouncil.ChinaExIm,alongwithitstwosisterorganizations,istaskedtopromoteexportsandinvestment. 1 Itsmainactivitiesareexportcredit,internationalguarantees,loansforoverseasconstructionandinvestment,andofficiallinesofcredit.TheBank'sportfoliohasgrowndramatically,withannualdisbursementsmorethantriplinginfiveyearsto$15billion. 

ChinahasmadearenewedpushintoAfricaaspartofitsforeignpolicystrategytosecureaccesstonaturalresourcesandreassertitselfontheglobalstage.

Althoughexactcomparisonsaredifficultbecauseofreportingdifferences,itappearsthatChinaExImisnowoneofthelargestexportcreditagencies,withprimarycommercialoperationsin2005greaterthanthoseoftheleadagenciesintheUnitedStates,JapanortheUnitedKingdom.HoweverChinaisnotamemberoftheOECDandoperatesoutsidetheexportcreditrulesagreedbyothercountries. 

ChinaExIminAfrica 

TheBank'sactivitiesarenotreportedregionally,butthereisclearevidenceofsignificantandexpandingoperationsinAfrica.In2005theBankextendeditsexportbuyerscreditmarkettoAfrica.InJanuary2006thegovernmentreleaseditsofficial"AfricanPolicy"whichspecifically"encouragesandsupportsChineseenterprises'investmentandbusinessinAfrica,andwillcontinuetoprovidepreferentialloansandbuyerscreditstothisend." 2 Inaddition,severalExImprojectshavebeenannouncedinthemedia.Althoughsuchreportsaresometimesnotreliable,reportedprojectsinthepasttwoyearsaloneinclude:

∙Apossible$1.2billioninnewloanstoGhana,including$600millionforconstructionoftheBuidam;

∙$2.3billionintotalfinancingforMozambiquefortheMepandaNkuadamandhydroelectricplant,plusanotherpossible$300millionfortheMoamba-Majordam;

∙A$1.6billionloanforaChineseoilprojectinNigeria;

∙$200millioninpreferentialbuyerscreditforNigeria'sfirstcommunicationssatellite;

∙A$2billionlineofcredittoAngola,withthepossibilityofanother$9-10billion;

∙ReportsofloansandexportcreditsforotherprojectsinCongo-Brazzaville,SudanandZimbabwe.

Bycomparison,USExImsupportedtransactionsinallofsub-SaharanAfricatotaledlessthan$500millionin2005. 

ImplicationsforAfrica 

ThegrowthofChineseexportcreditinAfricaprovidesAfricangovernmentswithalternativesourcesoffinanceandhelpstodiversifytradingpartnersforcountriesthathavetendedtoremainstuckinoldcolonialpatterns.ChinaExIm,likeotherChineselending,doesnotcomewiththepolitical,environmental,orhumanrightsconditionsoftenattachedtoWesternagencyfunds.（Adherencetoa"oneChina"policyisperhapsthemostprominentexception.）ForpariahregimeslikeSudanorZimbabwe,thesecreditscanbealifeline.ForcountriessuchasGhanaorMozambiquewhichareheavilydependentonforeignaid,Chineseloanscanofferanothersourceofcapitalandpotentiallybeusedasleverageagainstdonordemands.ChinaExImisalsotargetingsectorswhereWesternprivateorofficialcapitalisoftenscarce.Chinesecompaniesandbanksareinvestingheavilyinphysicalinfrastructure,asectorwithhighdemandthatmostdonorshaveneglectedinAfricainfavorofeducationandhealth.Chinesefirms,withofficialfinancialbankingfrombankslikeExIm,havealsoenteredmarketsgenerallyshunnedbytheWesternprivatesectorbecauseofrisk,lackofinformation,orconcernsaboutcorruption. 

Chineselendingdoesnotcomewiththepolitical,environmentalorhumanrightsconditionsoftenattachedtoWesternagencyfunds.

Onthenegativeside,Chinesefirmsoftenimporttheirownlaborwhichlimitstheeconomicspillovereffects.Theflip-sideofhavinglowerlabororenvironmentalstandardsisthatevenweaklocallawstoprotectthepubliccanbesubverted.Inaddition,recenteventsinZambiahavesuggestedthatChineseinvestmentisnotimmunetothenationalistbacklashesoccasionallydirectedatforeigners. 

ChallengesforWesternPolicymakers 

TotheextentthatChineseexportcreditpromoteseconomicgrowthinAfrica,recenttrendsshouldbewelcomedbypolicymakersinWesterncapitals.Atthesametime,themountingactivitiesofChina,andChinaExIminparticular,presentssomecomplications. 

Competitiveness. TheuseofExImandtheotherofficialagenciestoeffectivelysubsidizeChina'sfirmsundoubtedlyimpactscompetitors.WhereofficialexportcreditisavailableforWesternfirms,itoftencomeswithsubstantialreportingrequirementsandotherstrings.BecausemanyoftheChinesefirmsarestate-owned,theymayalsonotbeunderthesameshareholderpressureforprofitabilityaslongastheyareservingsomeforeignpolicygoal.Leverage.Totheextentthatcreditorshaveinthepastbeenacartel,givingthembargainingpowertoextractconcessionsfromclients,theymaynowlosethatleverageonborrowinggovernments.China,forinstance,providedapotentialalternativesourceofcapitalforChad,whichweakenedthepositionoftheWorldBankinitsrecentrenegotiationsovertheuseoffundsfromtheChad-Cameroonpipelineproject. 

Transparencyandgovernance. ChinaExImdoesnotreportitsownactivitiesinthesamewayastheothersimilaragencies（forexample,thetermsofitsloansinAfricaarerarelymadepublic）andtheBankdoesnotplacereportingdemandsonitsclients.Thisnotonlyunderminesexportcreditrulesaimedatkeepingalevelplayingfield,butcouldalsohurtglobaleffortstoreducethesecrecyaroundthefinancingandcontractingoflargeinfrastructureoroilprojects,suchastheExtractiveIndustryTransparencyInitiative（EITI）.Angola,forexample,hasabletoresistIMFdemandsforincreasedbudgettransparencypartlybecauseChinaExImhasbeenwillingtolend.3 

RecenteventsinZambiasuggestthatChineseinvestmentisnotimmunetothenationalistbacklashesoccasionallydirectedatforeigners.

Environmentalandsocialstandards. Since2004ChinaExImhasrequireditsborrowerstosubmittointernalreviewandcomplywithlocallawsofthehostcountry,butthestandardsandproceduresareambiguous.ChinaisnotpartytoOECDeffortstorequireenvironmentalimpactassessmentonprojectssupportedbyexportcredit,norhaveChinesebankssigneduptotheEquatorPrincipleswhichsetsvoluntaryenvironmentalandsocialstandardsforbanksonallprojectlendinggreaterthan$10million.ProposalstoenhancethedevelopmentimpactofexportcreditalsodependonhowChinaExImresponds.4

Debtsustainability. Perhapsmostcontentiously,muchChineselendinghasbeenonthebackofdebtrelief.SeveralofChinaExIm'sborrowers（Ghana,Mozambique,Congo-Brazzaville）haverecentlyreceivedmajordebtreductionsthroughtheheavilyindebtedpoorcountries（HIPC）initiative.Newlending,whichisoftennonconcessional,couldbeaneconomicproblemiflow-incomecountriesaccumulatetoomuchdebttooquicklyandfindthemselvesbackinanunsustainablesituation.Politically,thecostsareevenhigher.TherecentG8debtreliefinitiativegrantedupto100%debtreliefforHIPCspartlyonthebasisthatthesecountriesweretoopoortobearanydebt.Ifthosesamecountriesimmediatelyborrowagain,creditors（andlegislaturesandtaxpayers）whoarestillappropriatingfundstopayfordebtreliefmay（rightly）viewsucheffortsasindirectlysubsidizingnewChineselending. 

Conclusion 

TheriseofChinaExImisapotentiallyimportanttrendforAfricandevelopmentbyprovidinganewsourceofcapital,especiallyformuch-neededinfrastructureinvestment.ThegrowingoperationsofChineseofficialbanksalsopresentanumberofchallengestopolicymakerstomitigatetheimpactofChineselendingpracticesoneffortstopromotebettergovernance,standards,anddebtsustainability.AnessentialfirststepwillbegatheringbetterinformationaboutExIm'sactivitiesandengagingwithChina—bilaterallyandthroughtheOECD,WTOandIMF—onthefullrangeofcontentiousissues. 

Footnotes 

1 TheAgriculturalDevelopmentBankofChinaandtheChinaDevelopmentBank. 

2 GovernmentofChina,"China'sAfricanPolicy,"January2006. 

3 LouisaLombard,"Africa'sChinaCard.ForeignPolicy