Shifting Gears: Chinese Finance in LAC, 2020

Feb 22 2021

Author(s)

                                    	Array
(
    [ID] => 179
    [key] => field_54871710e426d
    [label] => Source Link
    [name] => resource_source_link
    [aria-label] => 
    [prefix] => acf
    [type] => url
    [value] => https://www.thedialogue.org/wp-content/uploads/2021/02/Chinese_Finance_LAC_2020.pdf
    [menu_order] => 0
    [instructions] => 
    [required] => 0
    [id] => 
    [class] => 
    [conditional_logic] => 0
    [parent] => 6
    [wrapper] => Array
        (
            [width] => 50
            [class] => 
            [id] => 
        )

    [wpml_cf_preferences] => 2
    [default_value] => 
    [placeholder] => 
    [_name] => resource_source_link
    [_valid] => 1
)

Region

Type

Reports

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.