Tuesday, June 28, 2011

The Untold Story of China Development Bank

I've just finished reading Erica Downs' excellent monograph: Inside China, Inc.: China Development Bank' Cross-Border Energy Deals (Brookings Institution: March 2011).

Another extremely well-researched and well-written contribution from Erica, this balanced study busts some myths (inter alia, these deals do not mean China is "locking up" sources of energy) and confirms some concerns (China's ability to coordinate -- sometimes -- in financing and supporting a package of deals mean it is going to be hard for US companies to compete).

Although there is very little on China in Africa, this study is well worth reading to get a better handle on how China Development Bank (CDB) works overseas. Between 2006 and 2010, CDB's loan exposure in Africa increased from $1 billion to $10 billion and this is only going to go up.

Moreoever, it is packed with fascinating detail -- almost all of it openly available in Chinese and other media sources -- on how CDB embarks on the major financing deals that have made it stand out as one of China's deepest pockets. The information on the variety of terms (interest rates, maturities) of these deals alone is a major contribution. It confirms what I've seen in Africa: large deals are nearly always structured using variable LIBOR-plus interest rates, and on terms that are often just slightly better than those available from global commercial banks.

The better terms do not reflect direct subsidies, Erica points out, but rather the government backing for CDB, a policy bank. This backing means that CDB has the ability to take more risks and accept a longer term reward than would a purely commercial bank. Still, CDB cares about its profits and its bottom line. As I've also noted, CDB often uses major international law firms like White & Case to help structure these deals.

The multiple media sources Erica relied on also tell me that reporters in other parts of the world (even in China!) are getting much better detail on these deals than reporters are getting in Africa. It also suggests that that there may be no inherent Chinese prohibition on this information. For example, Brazil's Petrobras, the state-owned oil company, has transparently reported on its deals with China in its annual reports. Yet CDB did not grant Erica an interview, which also shows it has a way to go on openness.


Anonymous said...

Professor Brautigam, what about the "untold story" of the recent visit of al-Bashir to China? Is this no news for your blog on China and Africa? It might be too hard to find a "balanced angle" on this topic, I guess. So better the silence.

Anonymous said...

“Dar es Salaam — Tanzania is set to borrow $700 million (about Sh1.05 billion) from the Export-Import Bank of China to fund a power plant for boosting the national grid and connecting the southern regions.” http://allafrica.com/stories/201107041500.html


Robert C. O'Brien said...

Excellent blog. Just tweeted about it. Twitter: @robertcobrien

Deborah Brautigam said...

Thanks for these comments. About al-Bashir's visit to China, it would make a good blog posting, particularly given the interesting back and forth in the press on the US position (first it was reported that we gave this visit our blessing, then it was reported that we certainly did not!) I would say that it's a direct blow to the ICC and what it stands for, but it's also not a surprise, given that the ICC indictment was opposed by the AU (and the League of Arab States) and China takes its cue from these groups in regional matters (Egypt, Nigeria, and Kenya have all invited al-Bashir to their countries since the ICC indictment). We also saw this in China's vote in favor of sanctions against Libya in the UN. In addition, Sudan is at a critical juncture, with the South due to become independent this month. Everyone has been working to persuade al-Bashir to let South Sudan go peacefully, and it looks as though this is succeeding. Beijing is trying to be on good terms with Juba without dumping Khartoum.

Joey McCarthy said...

Hi Deborah,

I have also read that report by Erica Down. Very informative, though you are right that it focuses on more Central Asia & Latin America than Africa.

Another good report you may not have read is an IEA report by Julie Jiang & Jonothan Sinton http://www.iea.org/papers/2011/overseas_china.pdf

Funnily enough, conspiracy theories abound that it - while a fair analytical treatment - is an 'olive branch' by the IEA to China to precipitate China joining the IEA. See http://www.ft.com/intl/cms/s/0/bebd70ce-5c33-11e0-8f48-00144feab49a.html#axzz1RlrpHFxd

Looking forward to your talk tomorrow at the ANU China Update. It is good to have some qualitative people to balance out all the economists.


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Anonymous said...

If you think that Bashir is letting the South go peacefully, then you are ignoring the same signs the mass media are - the recent slaughter in the Nuba Mountains was not done on impulse. None of South/Sudan's neighbors want to deal with the Sudanese refugee problem again in our lifetime, but they do not have the economic carrot that Beijing has.