China becomes world’s biggest development lender
Two Chinese banks now provide as much international development finance as the next six biggest multilateral lenders combined but are greatly exposed to political, social and environmental risks, new research says.
In almost doubling the global capital base available for development projects, China has enabled developing countries with less access to international finance to bridge gaping infrastructure and energy shortfalls, according to a study by Boston University’s Global Economic Governance Initiative and the Chinese Academy of Social Sciences.
“Such a stepwise increase arrives just in time,” the paper says, pointing out that Western multilateral Development Banks (MDBs) appear to be stagnating in expanding their portfolios.
China Development Bank and the Export-Import Bank of China (CHEXIM) together lent some US$684 billion between 2007 and the end of 2014. The next six biggest lenders, which include the World Bank, the Japanese-led Asian Development Bank and the Inter-American Development Bank, are owed US$700 billion. During the same period, China’s policy banks increased energy-related finance to national governments by US$117 billion, representing a two-fold increase in the total amount.
Yet despite the impressive figures, China’s loan portfolio is subject to considerable risks. With 66% of energy-related finance concentrated in coal-fired power, the associated costs of these loans, known as externalities, are a real concern.
Furthermore, the ability of countries to service their debt to China – which is often repaid with commodities such as coal and oil – is threatened by fluctuating market prices.
In order to curb emissions and reduce risk, China should diversify its investment portfolio towards cleaner energy projects, the report says. Doing so would also help bring China’s overseas investments in line with international sustainable development goals.
July 19, 2019