Chinese lending to Latin America and the Caribbean nearly triples in 2015

Despite China’s economic slowdown, the Inter-American Dialogue’s Chinese Finance to LAC in 2015 Report indicates Chinese policy banks financed US$29 billion in 2015 to Latin American and Caribbean governments and businesses, up US$19 billion from 2014. The main recipients of funding were Venezuela, Brazil, Ecuador, receiving 95 percent of of total lending to the region. The funds from the China Development Bank (CDB) and the China Export-Import Bank (Eximbank) were focused heavily on infrastructure projects, which ostensibly could assist in moving products (agricultural produce and extractives) from “fields to ports,” easing China’s ability to obtain the resources it needs from its Latin American partners.

Not surprisingly, lending to Venezuela jumped from US$4 billion in 2014 to US$10 billion in 2015 – a much needed credit life line during economic turmoil. Yet, it was Brazil, another country with a rocky economic situation, that received the most money in 2015, US$10.8 billion. Notably, a significant portion of the lending to each country was for their state oil producers; Petrobras received a total of US$8.15 billion and PDVSA received at least US$5 billion.

Unconcerned with credit ratings like the World Bank or the Inter-American Development Bank and having received a bump in their base capital, the CDB and Eximbank are moving in, providing access to credit when the rest of the world has retreated from the recession afflicted South America. However, this does not mean China is indifferent to a potential default by borrowers. The Inter-American Dialogue’s Margret Meyers and Boston University’s Kevin Gallagher believe Venezuela received US$10 billion in 2015 as a Chinese effort to protect its investments, rather than endorsing its economy. Given this, it is likely Venezuela will receive additional Chinese state lending in 2016, despite the high risk. However, in general, China is moving away from its commodity-based repayment contracts, as commodity prices have taken a hit, but it will continue to refrain from placing social and environmental conditions on loans.

While some Chinese commercial lending sources appear to have abated, like Hong Kong Nicaragua Development (HKND) Group ghosting on Nicaragua and development of a new interoceanic canal, the Inter-American Dialogue reported Chinese commercial overall is expanding. In 2015, the Bank of China (BOC) lent US$480 million to Ecuador for infrastructure projects. The Industrial and Commercial Bank of China (ICBC) lent US$4.7 billion to Argentina for a power plant, US$2 billion Petrobras and US$4 billion to Vale. 

It appears China’s lending practices, both public and private, will change very little in 2016, as it seeks to preserve existing investments in Latin America by throwing more credit at the region. Even if contracts shift from commodity-based to more traditional repayment, Latin America will still accept the deal, as demand for financing in the region is high, but supply is low. While Chinese financial support is essential in a time of need, given that most loans go towards development of infrastructure for trade, it seems Chinese financing may perpetuate the “resource curse” that plagues Latin American economies.