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| photo credit: Agence France Press |
While I appreciate Hochberg's valient defense of his bank's performance in Africa, his characterization of Chinese large infrastructure transactions in Africa as "subsidized by the Chinese government ... at every level" is simply incorrect.
Hochberg mixes up apples and oranges. The large infrastructure transactions that are secured through commodity exports to China (not the same as "secured through resources for Chinese state owned companies") are not concessional. China Eximbank does have a small subset of concessional loans at fixed interest rates of 2 or 3 percent and repayment over 20 years. This interest rate is subsidized, but these are not the loans that finance the large, resource-secured transactions. Worldwide, between 1995 and 2009, China Eximbank committed $11 billion in concessional loans, total, whereas its commitments of non-concessional credits to Angola alone came to $10 billion during that period.
Hochberg states that his bank would need to provide "taxpayer subsidized loans if we were to compete toe to toe with the financing being provided by the Chinese." But this isn't exactly true, as we can see if we look at the rates for U.S. Ex-Im Bank's loans.
Forgive me if I get a bit technical now. U.S. Ex-Im Bank's fixed rates (CIRR) for loans in early November 2011 ranged from 1.47 percent to 3.35 percent depending on the term of the loan (repayment period). But the U.S. Ex-Im Bank's major business involves providing guarantees or "cover" for private bank loans. Quoting U.S. Ex-Im Bank: "Generally, a floating rate pure cover interest rate will be based on LIBOR [London Interbank Offered Rate] and have a spread in the range of 0 to 100 basis points (for larger transactions) or 20 to 400 basis points (for smaller transactions)."
One hundred basis points = 1 percent. So our Ex-Im Bank will guarantee floating rate loans based on LIBOR plus a margin (spread) of 0 to 4 percent. Similarly, China Eximbank's large infrastructure export credits are at floating rates based on LIBOR plus a margin of 100 to 300 basis points (1 to 3 percent) or even higher. They usually need to be repaid over a period of 13 to 17 years. There is no indication that these large Chinese infrastructure loans are subsidized. So the loans that we guarantee can be cheaper than China Eximbank's export credits, or they can be more expensive. Or so it looks to me. But I'd be interested in how it looks to readers of this post.
Finally, I was pleased to see data in Hochberg's letter to show that U.S. Export-Import Bank support to projects in sub-Saharan Africa has gone up from an average of $455 million annually (FY2006-FY2009) to $800 million (FY2010), and $1.4 billion (FY2011). At this rate of growth, we may stand a chance of catching up to China Eximbank... which is probably putting in around $6 billion annually.
Addendum on December 8, 2011: Thanks to Dr. Helmut Reisen, head of research at the OECD's Development Centre, here are links to the approved current export credit rates for most OECD currencies:
http://www.oecd.org/dataoecd/15/47/39085836.pdf
http://www.oecd.org/dataoecd/13/59/39787191.pdf
More generally:
http://www.oecd.org/statisticsdata/0,3381,en_2649_34169_1_119656_1_1_37431,00.html
4 comments:
Very well written article. I've found that the Chinese seem to be a bit more startup friendly than the US, with Sinosure backing capital loans to startups without the need for a 1 year operating period that EXIM requires. In addition, Chinese manufacturers are more export savvy than their US counterparts.
A reader provided information that U.S. Eximbank's Annual Reports contain the interest rates (but not the terms) of all loans it makes directly. These look in most cases quite low, and not so different from China's concessional loans. It doesn't contain any LIBOR plus interest rates for loans guaranteed by U.S. Eximbank, however, and this is the bulk of U.S. Eximbank's work. Still, interesting stuff. For more, see http://www.exim.gov/about/reports/ar/2011/Loans_and_Long-Term_Guarantees.edited.11-17-11.pdf
You've completely forgotten about the exposure fee ExIm Bank charges in addition to the interest rate on guarantees (LIBOR + spread) or direct loans (CIRR). http://www.exim.gov/tools/fee_calc.cfm
When you add the exposure fee to the interest rate and then consider the terms ExIm are confined by in the OECD arrangement on export credits (http://www.oecd.org/department/0,3355,en_2649_34171_1_1_1_1_1,00.html), one can only conclude that China subsidizes most, if not all, transactions. They are not pricing to risk for the tenors they offer at supposed "commercial terms."
I haven't forgotten about fees. China Eximbank also charges "management fees, commitment fees and other fees relevant to the loan. For projects not covered or partially covered by export credit insurance, the Bank will charge exposure fees on the exposed part of the loan." This is standard for export credit agencies. When China Eximbank can secure a loan with an escrow account and an off-take arrangement, they can offer a lower loan rate as risks are lower.
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