Scaling Back: Chinese Development Finance in Latin American and Caribbean, 2019

Chinese policy bank finance to Latin American and Caribbean (LAC) governments and state-run companies fell to roughly $1.1 billion in 2019, down from the $2.1 billion that the China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM) provided to the region the year before. The low levels of Chinese policy bank lending in 2019 are part of a broader, downward trend in Chinese finance to LAC governments and state-owned enterprises, evident since 2015. 

In a new joint report from the Inter-American Dialogue and the Boston University Global Development Policy Center, Margaret Myers and Kevin P. Gallagher examine this downward trend and provide possible reasons for the change.

Main findings:

• China is no longer acting as a financial lifeline for the region’s more fragile economies.
  • Venezuela, which accounted for 45 percent of China’s overall lending to LAC since 2007, received no new loans from Chinese policy banks over the past three years.
  • Of the region’s top four recipients of Chinese finance, Argentina was the only country to strike a deal with the policy banks last year.
• CDB and CHEXIM issued loans to a wider range of actors but in generally smaller amounts.
  • In 2019, loan amounts averaged $275 million, compared to an average of $864 million from 2016-2019, a period marked by steadily declining Chinese finance to the region, and $1.7 billion from 2005-2015. 
• In some cases, CDB and CHEXIM provided financing directly to Chinese companies as opposed to LAC governments or state-owned enterprises (SOEs), especially in countries that have historically rejected China’s model of state-to-state lending. 
• China’s record of sovereign lending to the region no longer surpasses that of other major development banks. 
  • China has issued over $137 billion in credit to the region since 2005, 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.
• Unlike most IDB and World Bank loans to the region, Chinese state finance to LAC still focuses on hard infrastructure and energy sector development and continues to refrain from imposing policy conditions on recipients, instead promoting the use of Chinese companies and/or equipment.
• China’s slowing economic growth and diminishing reserves may be forcing Chinese banks and companies to choose overseas projects more carefully, especially as Chinese banks grapple with a sometimes problematic portfolio in Latin America. 
• Demand for Chinese state finance is also slowing among some of the main LAC recipients of policy bank loans. 
  • Over the past three years, Chinese policy banks have issued only $1.8 billion and $969 million to Argentina and Ecuador, respectively, amounting to just .10 and .05 percent of total Chinese state-to-state lending to those countries since 2005.
• Despite a clear drop in Chinese policy bank lending to LAC, an increasingly wide range of other China-backed financial institutions and platforms are actively engaging the region, including China’s three regional funds, co-financing between Chinese banks and multilateral banks in the region, and China’s four major commercial banks. 

Even if Chinese policy banks continue to lend to LAC at relatively low levels, as they did in 2017 and 2018, the combined effect of Chinese policy bank activity, co-financing initiatives, commercial bank finance, policy bank-backed investment and other forms of engagement will ensure a sizable Chinese financial presence in the region for years to come, potentially in a wider variety of projects. However, the total combined Chinese finance to the region is unlikely to ever approximate policy bank peak lending.