Shifting Gears: Chinese Finance in LAC, 2020

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This year, for the first time since 2006, China’s policy banks—China Development Bank (CDB) and the Export-Import Bank of China (Eximbank)—issued no new finance to Latin American and Caribbean (LAC) governments or state-run companies, according to findings from the Inter-American Dialogue’s Asia and Latin America Program and the Global China Initiative at Boston University’s Global Development Policy Center (GDP)

Our newly-published report, Shifting Gears: Chinese Finance in LAC, 2020, considers the reasons for this drop while also documenting other sources of Chinese finance to the region. See the newly-updated Dialogue-GDP China-Latin America Finance Database for information on Chinese sovereign loans to LAC since 2005. 

Main findings:

  • CDB and Eximbank issued no new loans to LAC governments and state-owned enterprises in 2020. Though a first in recent China-LAC relations, the absence of financing this year is also reflective of a broader, downward trend in Chinese finance to the region, evident since 2015. See the Dialogue-GDP China-Latin America Finance Database for details.
  • There are multiple reasons for the recent downturn in Chinese finance. For instance, in 2020, CDB and Eximbank largely focused on addressing the challenges associated with pandemic-era project management, including by issuing low-cost finance and working capital loans to Chinese companies operating overseas. 
  • China’s record of sovereign lending to the region no longer surpasses that of other major development banks. China has issued over $136 billion in credit to the region since 2005, according to Global Development Policy Center and Inter-American Dialogue estimates. But as of 2019, sovereign lending to LAC from the World Bank and the Inter-American Development Bank (IDB) exceeded China’s record over the same period.

  • Despite the continued drop in Chinese state-to-state finance in the region, it is possible that LAC nations will see some loans from China’s policy banks in 2021. Talks began in 2020 for a possible $2.4 billion loan to Ecuador, but the deal had yet to conclude by year-end. Also, in a statement to his Latin American and Caribbean counterparts in July 2020, Chinese Foreign Minister Wang Yi announced that China would offer $1 billion in loans to LAC governments to assist with the purchase of China’s Covid-19 vaccines.
  • The combined effect of Chinese policy bank activity, co-financing initiatives, commercial bank finance, and other forms of lending will ensure a sizable Chinese financial presence in the region for years to come, potentially in a wider variety of projects. China’s three regional funds—the China-LAC Industrial Cooperation Investment Fund (CLAI Fund), China-LAC Cooperation Fund (CLAC Fund), and Special Loan Program for China-Latin America Infrastructure—have backed a growing number of LAC projects in recent years, including amid the pandemic. 

 

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