Wednesday, December 7, 2011

US Eximbank versus China Eximbank

photo credit: Agence France Press
The head of the U.S. Export-Import Bank, Fred Hochberg, has responded in an open letter (November 4, 2011) to suggestions made by Stephen Hayes, president of the Corporate Council on Africa in his November 1, 2011 testimony before the Senate Foreign Relations Committee that we could do better in supporting our companies' business efforts in Africa. I've just stumbled on this while looking (in vain) for data on the terms of loans for specific transactions that U.S. Ex-Im Bank has supported.

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:
More generally:,3381,en_2649_34169_1_119656_1_1_37431,00.html


Anonymous said...

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.

Deborah Brautigam said...

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

Anonymous said...

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).

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 (,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."

Deborah Brautigam said...

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.

Anonymous said...

Albeit somewhat late as to the article date, China's recent loan activity in Ghana of US$3 billion equivalent also comes with a requirement that Ghana import Chinese labor to build their infrastructure projects, ...something of high concern with less value to the Ghanians.

Deborah Brautigam said...

Actually, it does not appear to be true that China is requiring Ghana to import Chinese labor to build these projects. As I noted in an earlier blog post on this agreement, under clause three of the Master Facility Agreement, a minimum of 60 per cent of each tranche was required to be paid to the People's Republic of China (PRC) contractors, a clause which allows about 40 percent of the facility to be applied towards local content sourcing, or sources other than the PRC. Those companies will have to follow Ghana's laws ... to the extent they are enforced. I understand that Professor George Ayittey has made the argument about the agreement requiring Chinese labor, but I have not seen him provide any evidence about this. Indeed, if this was true it would be the very first time such a requirement was imposed in Africa.

Anonymous said...


Jeff with Bentz Boats, here in Lewiston, Idaho USA. I see the Chinese gave a loan of $1.5 billion in Nigeria yeaterday for rail road improvements and all tied to the CCECC company and China ExIm Bank. The Chinese are out of raw minerals and rare earth minerals in China and Africa is their place on interest. There are small pockets of Chinese workers being arrested in Sierra Leone and Burkina Faso for illegally mining. Groups of 30 and 40. The workers are coming with the Chinese as they set up shop in Africa. I try to follow the mining industry in Africa and see that in all sorts of villages the Chinese are showing up and helping build and develop the wells, roads, housing and other infrastructure all tied to mining and village displacement. Setting up official embassys too. In Sierra Leone they loaned another $1.5 billion to get access to and buy iron ore. In addition to that project they brought in their own rails, ties, locomotives and rail ore cars all to get the ore to the ports and off to China to build steel. Its really amazing if you connect the dots on where they are all over the continent of Africa and they are showing up in South America too.They have nothing left at home but the damage they have left behind from extraction there. In Sierra Leone the EPA there is trying to look at making demands for restoration after mining so they do not have environmental damage after mineral extraction which leads to water contamination and disease worse then malaria and colera. Great article too, by the way. I found it in looking into who funded the Nigerian rail project and who was building it.