According to the report, two Chinese state controlled banks have lent more to developing countries than the World Bank. The China Development Bank and the China Export Import Bank offered loans of at least $110 bn to governments and firms in developing countries in 2009 and 2010.
The research was undertaken by the Financial Times newspaper. Between mid-2008 and mid-2010, the World Bank’s lending arm issued loans of just over $100bn. The two Chinese banks do not publish a detailed breakdown of their overseas loans, so this research is based on public announcements about specific deals from them, their borrowers or the Chinese government.
The Chinese lenders are so-called policy banks – they have a mandate to further whatever Beijing sees as its national interest. One of China Development Bank’s specific tasks is to try to alleviate and, where possible, eliminate bottlenecks in supplies of raw materials or land for China’s economy. It also tries to open up foreign markets for Chinese companies.
Chinese banks were offering loans to producers of raw materials at a time when it was hard for them to attract financing from elsewhere. That helped secure long-term energy deals, including oil supplies from Russia, Venezuela and Brazil. The Chinese government, which is sitting on $2 trillion (£1.26 trillion) of foreign exchange reserves, has ample amounts of cash to fund loans which help promote its strategic objectives.
But what is interesting is that in the private sector, it is a different story. Outward Foreign Direct Investment (FDI) by Chinese companies (not including banks) was around $50bn last year – around half the FDI that flowed from foreign companies into China. This is the world’s second-largest economy but its outward flow of FDI is just the fifth largest in the world. That suggests that Chinese companies still do not have the confidence to make big acquisitions overseas in order to grow, or of course that they are unable to.
What does not help is the sometimes murky relationship between the government and some of the country’s biggest firms which can make the targets of such acquisitions or potential merger partners nervous about doing deals with the Chinese.