Chinese finance to sovereign governments, state-owned enterprises and a handful of private firms in Latin America and the Caribbean (LAC) surged to $20.1 billion in 2013. Between 2005 and the end of 2013, total financing from China’s two major policy banks, the China Development Bank (CDB) and China Export-Import Bank (CHEXIM), amounted to $102.2 billion. These estimates, as well as data on Chinese financing from previous years, are available in the China-Latin America Finance Database, a collaborative project between the Inter-American Dialogue (IAD) and the Global Economic Governance Initiative (GEGI) at Boston University.
In order to provide reliable data on sovereign finance to LAC, IAD published a report in 2012 by GEGI researchers entitled “The New Banks in Town: Chinese Finance in Latin America.” Neither China’s policy banks nor Latin American governments provide systematic or reliable financial statistics. IAD and GEGI later published the data in the form of an online, interactive database for use by policy-makers, journalists, academics and the general public. The online tool enables visitors to search Chinese finance to LAC by country, sector and year. Updated on an annual basis, the database now includes finance estimates for 2013, as well as updated information on Chinese financing to the region since 2005.
2013 FINDINGS
Our data indicates a major increase in Chinese financing to LAC in 2013, following a considerable drop in 2012. In 2012, Chinese banks issued only $3.5 billion in new finance – the lowest amount since 2006, when China began lending in earnest to LAC (Figure 1). In 2013, Chinese banks issued approximately $20.1 billion to LAC governments and companies. As indicated in Figure 1, China’s 2013 lending was only surpassed by Chinese finance in 2010, when policy banks issued $37 billion to the region. In 2013, CDB provided 79 percent of the total finance and CHEXIM provided 9 percent. For the first time, a loan came from China’s central bank, the People’s Bank of China (PBoC). The PBoC loan supported the establishment of a joint financing initiative with the Inter-American Development Bank.
Chinese finance continues to concentrate in higher risk countries, as conventionally measured in global capital markets. The Venezuelan and Argentine governments were the top borrowers in 2013, with the governments of Ecuador and Jamaica also receiving over $500 million. These countries have some of the lowest debt ratings in the region. Riskier countries receive financing far in excess of their share of LAC’s total GDP. Venezuela received $50.6 billion since 2007, or 52.4 percent of China’s total finance in the region. Ecuador and Jamaica have also received disproportionate shares of Chinese financing.
New, detailed information from Ecuador’s Statistical Bulletin on External Public Debt indicates that Chinese interest rates are similar to those of international financial institutions (IFIs) and regional development banks. According to the bulletin, Ecuador is paying interest rates on its foreign debt ranging from 2 percent to 7.9 percent (Figure 2). In accordance with our findings in New Banks in Town (2012), Chinese loans to Ecuador are among those with the highest interest rates. CHEXIM offered a 2 percent interest rate on its $80 million loan for road infrastructure, but also as indicted in New Banks in Town, CHEXIM tends to offer concessional rates on its smaller loans and commercial rates on larger ones. All other Chinese loans – from CHEXIM, CDB or BoC – fall at the higher end of the interest rate spectrum. The rates range roughly from 3.8 percent to 7.2 percent. By contrast, according to the Statistical Bulletin, international development banks charge between 2 and 3 percent on average. Private banks’ interest rates fall between 2 and 2.7 percent. Generally speaking, Chinese interest rates are higher not only in Ecuador, but throughout the region.
China continues to be a large and growing source of finance in Latin America. Chinese finance to the region since 2005 has now exceeds $100 billion. Moreover, Chinese finance has picked back up to 2009-2011 levels after a lull in 2012. Chinese banks continue to lend to risky borrowers, having issued several new loans to Venezuela, Argentina, Ecuador and Jamaica in 2013. Chinese interest rates are also still higher on average than those of international financial institutions (IFIs) and regional development banks.
