Among the large number of state-owned financial institutions, China Exim Bank and China Development Bank (CDB) are the two primary agencies implementing China’s new pledge to Africa; the former is responsible for the preferential credit component (US$5 billion) and the latter for the FDI support fund (US$5 billion).
China Exim Bank Founded in 1994, China Exim bank is wholly owned by the state and operates under the guidance of the central government. It is the sole bank handling Chinese government concessional loans.21 Together with China Development Bank (CDB) and China Agriculture Development Bank, the Exim Bank is tasked to promote exports and foreign investment. Its export credits focus on infrastructure (roads, power plants, oil and gas pipelines, telecommunications, and water projects); its investment loans target the energy, mining, and industrial sectors. The bank’s main source of funding is the bond market. Unlike export credit agencies in other countries, the government does not guarantee the bank’s liabilities.
China Exim Bank’s business (excluding concessional loans) almost quadrupled in 2001–06 (Figure 8). Available data suggest that China Exim Bank’s primary commercial operations in 2006 were larger than those of comparable institutions in major industrial countries, such as the U.S. Exim Bank and the Japan Bank for International Cooperation (Figure 9).22 Because China Exim Bank’s main business is commercial lending, the impact of its lending activities, which include both commercial and concessional loans, in Africa therefore is far larger than providing preferential credits on behalf of the government.
China Exim Bank has made efforts to enhance its collaboration with multilateral, bilateral, and private lending institutions active in Africa. In May 2007, it signed a memorandum of understanding with the World Bank to improve cooperation, beginning with road and energy projects.
China Development Bank Since CDB was established in 1994, its main mission has been to build China’s infrastructure (national highway and rail networks, gas pipelines, water projects, and power plants); vital economic sectors (petroleum-chemical refining, telecommunications); and the western provinces. It also gives loans to Chinese businesses as part of the national Going Global strategy, which makes CDB China’s most important bank in this regard. More recently, CDB has launched the China-Africa Development Fund, in line with the government’s pledge, to support Chinese FDI in Africa through equity participation as well as other means.
In 2006 CDB had a balance sheet of 2.3 trillion yuan, about US$290 billion. Its business has grown rapidly; outstanding loans more than doubled between 2002 and 2006. CDB provides loans in both yuan and foreign currencies. Short-term loans are used to fill client financing needs before medium- and long-term loan contracts are completed. CDB’s main source of funding is the bond market. Like China Exim Bank, it enjoys the same credit rating as China’s sovereign ratings.
China Export and Credit Insurance Corporation (SINOSURE)
SINOSURE started operations in 2001. Its goal is to support Chinese exports and investment abroad by insuring against buyer and country risks, such as foreign exchange restrictions, expropriation, nationalization, and war. In 2006 the volume of new business reached US$29.4 billion, up from just US$2.8 billion in 2002 (Table 3). Although only 3 percent of its short-term insurance was for Africa in 2006, Africa accounted for near 30 percent of SINOSURE’s medium- and long-term business, second only to Asia (Figure 10).
Other State Entities China’s “big four” (Industrial and Commercial Bank, Bank of China, Construction Bank, and Agriculture Bank) and other commercial banks command most of the country’s financial savings. Because these banks compete in the credit market, some of their lending may affect the foreign trade and investment of Chinese enterprises. Also, many enterprises and financial institutions supported by provincial and local governments are active in Africa-related business. Their operations are not necessarily coordinated.
IMF Working Paper African Department What Drives China’s Growing Role in Africa?
Prepared by Jian-Ye Wang October 2007
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