This note analyses the functioning of Chinese export finance activities and their potential implications for OECD members and China’s partner developing countries.
From analysis, it emerges that over the past decades, China’s policy banks (China Eximbank, Sinosure, China Development Bank, and China Agricultural Development Bank) have provided an increasing amount of export credit financing which may take several different forms including preferential export buyers’ credits, export sellers’ credits, mixed credits, natural resource-backed loans or lines of credit, concessional loans, and export special economic zones.
Chinese export finance activities have played an important role for China’s “going-global” strategy: they have strengthened China’s economic relationships with several developing countries especially in Africa, ensured China of significant access to natural resources, and enhanced China’s sphere of influence.
At the same time, Chinese export credits have become a competitive threat to exporters from the OECD. China is not a member of the OECD and is therefore not obliged to comply with the OECD guidelines that: limit tied aid; regulate credit practices; impose maximum repayment terms, country risk classification and minimum interest rates; require the exchange of information; and impose social, environmental and governance standards on financing activities. This creates an unfair advantage for Chinese exporters.
Chinese export credit financing can also have important implications for China’s partner countries. In particular, it can lead to new debt sustainability issues, slower reform processes in countries with weak governance systems, drain local natural resources without contributing enough to development, and it can also become a threat for local products and workers.