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China ExIm Bank and Africa:

New Lending, New Challenges

odd Moss and Sarah Rose

odd Moss and Sarah Rose*

November 2006

Todd Moss (tmoss@cgdev.org) is a senior fellow and Sarah Rose (srose@cgdev.org) is a research assistant at the Center for Global

Development.

Policy Summar

Policy Summary:

•

Wise up.

Wise up. Recognize that

China is already a major

force in Africa and that China

ExIm is playing a key role.

•

Don’

Don’t Panic.

t Panic.

t Panic. China’s

activities reflect its stated

foreign policy strategy; it is

using tools similar to those of

other powers.

•

Use what you have.

Where China is acting

outside norms, there are

existing institutions to be

tapped, such as the WTO to

enforce rules on subsidies and

the IMF to prevent a new

African debt problem.

•

Engage for the long-ter

Engage for the long-term.

Work to bring China into the

OECD tent on disclosure and

other rules.

Source: 2005 Annual Report of the Export-Import Bank of China

Figure 1: China ExIm, Main operations

International

guarantees

Export

buyers credit

Export sellers

credit

2000 2001 2002 2003 2004 2005

rise of China’s economic and political might

has been felt especially strongly in Africa. China

has long been actively engaged on the continent,

beginning with colonial-era support for nationalists

and mass construction of railways and stadiums in

the early independence period. More recently,

China has made a renewed push into Africa as part

of its foreign policy strategy to secure access to

natural resources and reassert itself on the global

stage. The Export-Import Bank of China is a

growing—if still mostly unknown—instrument of that

strategy, not only to boost trade and investment, but

also to enhance Chinese influence abroad. This

Note presents some of the basic facts about China

ExIm and identifies several potential implications for

Africa and the West.

What is China ExIm.

The Export-Import Bank of China, established in

1994, is wholly owned by the government and its

management is appointed by, and reports to, the

State Council. China ExIm, along with its two sister

organizations, is tasked to promote exports and

investment.

Its main activities are export credit,

international guarantees, loans for overseas

construction and investment, and official lines of

credit. The Bank’s portfolio has grown

dramatically, with annual disbursements more

than tripling in five years to $15 billion (Figure 1).

Although exact comparisons are difficult because

of reporting differences, it appears that China

ExIm is now one of the largest export credit

agencies, with primary commercial operations in

2005 greater than those of the lead agencies in

the United States, Japan or the United Kingdom

(Figure 2). However China is not a member of

the OECD and operates outside the export credit

rules agreed by other countries.

China ExIm in Africa

The Bank’s activities are not reported regionally,

but there is clear evidence of significant and

expanding operations in Africa. In 2005 the

Bank extended its export buyers credit market to

Africa. In January 2006 the government

released its official “African Policy” which

specifically “encourages and supports Chinese

enterprises’ investment and business in Africa,

and will continue to provide preferential loans

and buyers credits to this end.”

In addition,

several ExIm projects have been announced in

the media. Although such reports are sometimes

not reliable, reported projects in the past two

years alone include:

•

A possible $1.2 billion in new loans to Ghana,

including $600 million for construction of the Bui

dam;

•

$2.3 billion in total financing for Mozambique

for the Mepanda Nkua dam and hydroelectric

plant, plus another possible $300 million for the

Moamba-Major dam;

•A $1.6 billion loan for a Chinese oil project in

Nigeria;

•$200 million in preferential buyers credit for

Nigeria’s first communications satellite;

•

A $2 billion line of credit to Angola, with the

possibility of another $9-10 billion;

•Reports of loans and export credits for other

projects in Congo-Brazzaville, Sudan and

Zimbabwe.

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Figure 2: Major Export Credit Agencies, selected activities

Sources: 2005 Annual Report of the Export-Import Bank of China, 2005 Annual Report of the Export-

Import Bank of the United States, Japan Bank for International Cooperation Annual Report 2005, and

2005-06 Annual Review and Resource Account of the Export Credits Guarantee Department (UK).

Note: Data for China is for 2005 disbursements, U.S. for 2005 authorizations, Japan for FY2004

commitments, and UK for FY05/06 issuances. Figures do not include official development assistance.

By comparison, US ExIm supported transactions in

all of sub-Saharan Africa totaled less than $500

million in 2005.

Implications for Africa

The growth of Chinese export credit in Africa

provides African governments with alternative

sources of finance and helps to diversify trading

partners for countries that have tended to remain

stuck in old colonial patterns. China ExIm, like other

Chinese lending, does not come with the political,

environmental, or human rights conditions often

attached to Western agency funds. (Adherence to

a “one China” policy is perhaps the most prominent

exception.) For pariah regimes like Sudan or

Zimbabwe, these credits can be a lifeline. For

countries such as Ghana or Mozambique which are

heavily dependent on foreign aid, Chinese loans

can offer another source of capital and potentially

be used as leverage against donor demands.

China ExIm is also targeting sectors where Western

private or official capital is often scarce. Chinese

companies and banks are investing heavily in physical

infrastructure, a sector with high demand that most

donors have neglected in Africa in favor of education

and health. Chinese firms, with official financial

banking from banks like ExIm, have also entered

markets generally shunned by the Western private

sector because of risk, lack of information, or concerns

about corruption.

On the negative side, Chinese firms often import their

own labor which limits the economic spillover effects.

The flip-side of having lower labor or environmental

standards is that even weak local laws to protect the

public can be subverted. In addition, recent events in

Zambia have suggested that Chinese investment is not

immune to the nationalist backlashes occasionally

directed at foreigners.

China Exim

US Exim

JBIC

ECGD

International

Guarantees

Export Buyers

Credit

Export Sellers

Credit

Export Credit

Insurance

Total

Guarantees

Loans

Overseas Investment

Insurance

Supplier

Credit

Insurance

Buyer &

Supplier Credit

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Challenges for W

Challenges for Wester

ester

estern Policymakers

n Policymakers

To the extent that Chinese export credit promotes

economic growth in Africa, recent trends should be

welcomed by policymakers in Western capitals. At

the same time, the mounting activities of China, and

China ExIm in particular, presents some

complications.

Competitiveness. The use of ExIm and the other

official agencies to effectively subsidize China’s

firms undoubtedly impacts competitors. Where

official export credit is available for Western firms, it

often comes with substantial reporting requirements

and other strings. Because many of the Chinese

firms are state-owned, they may also not be under

the same shareholder pressure for profitability as

long as they are serving some foreign policy goal.

Leverage. To the extent that creditors have in the

past been a cartel, giving them bargaining power

to extract concessions from clients, they may now

lose that leverage on borrowing governments.

China, for instance, provided a potential alternative

source of capital for Chad, which weakened the

position of the World Bank in its recent re-

negotiations over the use of funds from the Chad-

Cameroon pipeline project.

Transparency and governance. China ExIm does

not report its own activities in the same way as the

other similar agencies (for example, the terms of its

loans in Africa are rarely made public) and the

Bank does not place reporting demands on its

clients. This not only undermines export credit rules

aimed at keeping a level playing field, but could

also hurt global efforts to reduce the secrecy around

the financing and contracting of large infrastructure

or oil projects, such as the Extractive Industry

Transparency Initiative (EITI). Angola, for example,

has able to resist IMF demands for increased

budget transparency partly because China ExIm has

been willing to lend.

Environmental and social standards. Since 2004

China ExIm has required its borrowers to submit to

internal review and comply with local laws of the

host country, but the standards and procedures are

ambiguous. China is not party to OECD efforts to

require environmental impact assessment on projects

supported by export credit, nor have Chinese banks

signed up to the Equator Principles which sets

voluntary environmental and social standards for

banks on all project lending greater than $10

million. Proposals to enhance the development

impact of export credit also depend on how

China ExIm responds.

Debt sustainability. Perhaps most contentiously,

much Chinese lending has been on the back of

debt relief. Several of China ExIm’s borrowers

(Ghana, Mozambique, Congo-Brazzaville) have

recently received major debt reductions through

the heavily indebted poor countries (HIPC)

initiative. New lending, which is often non-

concessional, could be an economic problem if

low-income countries accumulate too much debt

too quickly and find themselves back in an

unsustainable situation. Politically, the costs are

even higher. The recent G8 debt relief initiative

granted up to 100% debt relief for HIPCs partly

on the basis that these countries were too poor to

bear any debt. If those same countries

immediately borrow again, creditors (and

legislatures and taxpayers) who are still

appropriating funds to pay for debt relief may

(rightly) view such efforts as indirectly subsidizing

new Chinese lending.

Conclusion

The rise of China ExIm is a potentially important

trend for African development by providing a new

source of capital, especially for much-needed

infrastructure investment. The growing operations

of Chinese official banks also present a number of

challenges to policymakers to mitigate the impact

of Chinese lending practices on efforts to promote

better governance, standards, and debt

sustainability. An essential first step will be

gathering better information about ExIm’s activities

and engaging with China—bilaterally and

through the OECD, WTO and IMF—on the full

range of contentious issues.

Endnotes

The Agricultural Development Bank of China and the China

Development Bank.

Government of China, “China’s African Policy,” Januar y

2006.

Louisa Lombard, “Africa’s China Card. Foreign Policy,”

Foreign Policy, web exclusive, April 2006.

James Harmon, et al. “Diverging Paths: What Future for Export

Credit Agencies in Development Finance.” World Resources

Institute, 2005.