Financing: State Capitalism Overseas

Click to increase image sizeClick to decrease image size

Notes

1 SAFE simplified the procedures for Chinese holding companies to transfer capital to their overseas subsidiaries, expanded the available sources of funds for Chinese entities to provide to their overseas subsidiaries, and removed many of the verification and approval procedures involved in foreignexchange transactions for outward foreign direct investment. See State Administration of Foreign Exchange, ‘国家外汇管理局关于进一步改进和调整直接投资外汇管理政策 的通知’ [Circular of the State Administration on Foreign Exchange on Further Improving and Adjusting Foreign Exchange Controls for Direct Investment] (Hui Fa [2012] No. 59) (“Circular 59”), 22 November 2012, https://web.archive.org/web/20121127202913/http://www.safe.gov.cn/resources/wcmpages//wps/wcm/connect/safe_web_store/safe_web/zcfg/zbxmwhgl/zjtzwhgl/node_zcfg_zbxm_kjtz_store/2eab2d004d86fae7a24ea6fd3fd7c3dc/.

2 Beijing subjected three types of capital outflows to new capital controls: foreign investments with a value higher than US$10bn, foreign-property acquisitions by SOEs that cost more than US$1bn, and overseas acquisitions in industries outside the investor’s core business. In late 2016, a joint statement by the National Development and Reform Commission (NDRC), Ministry of Commerce (MOFCOM), PBoC and SAFE advised that Beijing would continue to welcome ‘capable companies to join the BRI’ but that regulators would rein in what they saw as ‘irrational outbound investments’ in overseas real estate, hotels, the entertainment industry and sports clubs. In the first quarter of 2017, the aggregate number of Chinese companies’ foreign-investment deals plunged by 74% compared to the same period of the previous year. Tightened capital controls slowed capital flight but also reduced private and SOE investment in BRI partner countries. See Lingling Wei, ‘China Issuing “Strict Controls” on Overseas Investment’, Wall Street Journal, 26 November 2016, https://www.wsj.com/articles/china-issuing-strict-controls-onoverseas-investment-1480071529; Ministry of Commerce of the People’s Republic of China, ‘发展改革委、商务部、人民银行、外汇局四部门负责人就当前对外投资 形势下加强对外投资监管答记者问’ [The supervisors of the National Development and Reform Commission, the Ministry of Commerce, the People’s Bank of China, the State Administration of Foreign Exchange to answer reporters questions on strengthening the supervision of foreign investment], 6 December 2016, http://www.mofcom.gov.cn/article/ae/ai/201612/20161202082006.shtml; and ‘China’s Capital Controls Trigger a Backlash after Scrapped Deals’, Bloomberg, 7 March 2017, https://www.bloomberg.com/news/articles/2017-03-07/china-s-capital-controls-trigger-a-backlashafter-deals-thwarted?sref=E12GbFGe.

3 Pragyan Deb, Able Gjonbalaj and Swarnali Ahmed Hannan, ‘The Drivers, Implications and Outlook for China’s Shrinking Current Account Surplus’, IMF Working Paper WP/19/244, November 2019, https://www.imf.org/-/media/Files/Publications/WP/2019/wpiea2019244print-pdf.ashx.

4 Gabriel Wildau, ‘China Deploys State Enterprises to Economic Stimulus Effort’, Financial Times, 21 June 2016, https://www.ft.com/content/3d10e5cc-3754-11e6-a780b48ed7b6126f.

5 ‘China’s Debt Tops 300% of GDP, Now 15% of Global Total’, Reuters, 18 July 2019, https://www.reuters.com/article/us-china-economy-debt/chinas-debt-tops-300-of-gdp-now-15-ofglobal-total-iif-idUSKCN1UD0KD.

6 ‘China’s $40 Trillion Man Has the Toughest Job in Finance’, Bloomberg, 26 November 2019, https://www.bloomberg.com/news/features/2019-11-26/china-s-guo-shuqing-hasthe-toughest-job-in-global-finance.

7 Cecilia Joy-Perez and Derek Scissors, ‘Be Wary of Spending on the Belt and Road’, American Enterprise Institute, 14 November 2018, https://www.aei.org/research-products/report/be-wary-of-spending-on-the-belt-and-road/.

8 Veasna Kong et al., ‘The Belt and Road Initiative – Six Years On’, Moody’s Analytics, June 2019, https://www.moodysanalytics.com/-/media/article/2019/belt-and-road-initiative.pdf.

9 Frank Tang, ‘Coronavirus: China Unveils US$500 Billion Fiscal Stimulus, but Refrains from Going All-in’, South China Morning Post, 22 May 2020, https://www.scmp.com/economy/china-economy/article/3085654/coronaviruschina-unveils-us500-billion-fiscal-stimulus.

10 Stella Yifan Xie, ‘China Lets Yuan Rise Steadily, Pressuring Exporters’, Wall Street Journal, 25 February 2021, https://www.wsj.com/articles/china-lets-yuan-rise-steadily-pressuringexporters-11614261708.

11 ‘China Was Largest Recipient of FDI in 2020: Report’, Reuters, 24 January 2021, https://www.reuters.com/article/us-china-economy-fdi/china-was-largest-recipient-of-fdi-in-2020report-idUSKBN29T0TC.

12 Jonathan Cheng, ‘China Exports Boom to Record Year, While COVID-19 Ravages Global Economy’, Wall Street Journal, 14 January 2021, https://www.wsj.com/articles/china-exports-boom-to-record-yearwhile-COVID-19-ravages-global-economy-11610610939?mod=article_inline.

13 Xie, ‘China Lets Yuan Rise Steadily, Pressuring Exporters’.

14 Hudson Lockett, ‘China Allows First Commercial Bank to Go Bankrupt in Almost 20 Years’, Financial Times, 6 August 2020, https://www.ft.com/content/014d324f-0423-4345-ab54-532b98165e29.

15 Tom Hancock and Chris Antsey, ‘US Growth Seen Outpacing China’s for First Time since 1976’, Bloomberg, 20 May 2022, https://www.bloomberg.com/news/articles/2022-05-20/us-growth-seen-outpacing-china-s-for-firsttime-since-1976.

16 Saeed Shah, ‘China’s Belt-and-Road Initiative Puts a Squeeze on Pakistan’, Wall Street Journal, 3 April 2019, https://www.wsj.com/articles/chinas-belt-and-road-initiative-puts-a-squeezeon-pakistan-11554289201.

17 Although official data is not available for China’s loan disbursements to high-income countries, China’s largest loan to a high- income country – US$1.9bn to Hungary for the Budapest–Belgrade high-speed railway – was finalised only in June 2020, with the first disbursements likely taking place later that year. We can therefore be reasonably confident that China’s loan disbursements reached an all-time high in 2020.

18 Approximately US$45bn in new loan agreements in 2021–22 would be required to maintain the value of Chinese government lenders’ portfolios at the end of 2022, if no debt repayments are suspended during that period; this calculation is based on the disbursement of approximately 20% of the loans’ value within their first year. The suspension of debt repayments remains likely, however, so the lending required to maintain the current portfolio size will be lower.

19 Anna Gelpern et al., ‘How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments’, Peterson Institute for International Economics, Kiel Institute for the World Economy, Center for Global Development and AidData at William & Mary, 2021, https://www.aiddata.org/publications/how-china-lends.

20 Ibid.

21 Ibid.

22 Ibid.

23 Deborah Bräutigam and Kevin P. Gallagher, ‘Bartering Globalization: China’s Commodity-backed Finance in Africa and Latin America’, Global Policy, vol. 5, no. 3, 2014, https://onlinelibrary.wiley.com/doi/abs/10.1111/1758-5899.12138.

24 David Mihalyi, Aisha Adam and Jyhjong Hwang, ‘Resource-backed Loans: Pitfalls and Potential’, Natural Resource Governance Institute, February 2020, https://resourcegovernance.org/sites/default/files/documents/resourcebacked-loans-pitfalls-and-potential.pdf.

25 Gelpern et al., ‘How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments’.

26 Organization for Economic Co-operation and Development, ‘The Belt and Road Initiative in the Global Trade, Investment and Finance Landscape’, in OECD Business and Finance Outlook 2018 (Paris: OECD Publishing, 2018), pp. 61–101, https://doi.org/10.1787/bus_fin_out-2018-6-en.

27 Daniel R. Russel and Blake Berger, ‘Navigating the Belt and Road Initiative’, The Asia Society, June 2019, p. 12, https://web.archive.org/web/20220312114900/https://asiasociety.org/sites/default/files/2019-06/Navigating%20the%20Belt%20and%20Road%20Initiative_0.pdf.

28 Martin Raiser and Michele Ruta, ‘Managing the Risks of the Belt and Road’, World Bank Blogs, 20 June 2019, https://blogs.worldbank.org/eastasiapacific/managing-the-risks-of-the-beltand-road.

29 Ministry of Finance of the People’s Republic of China, ‘财政部发布’一带一路可持续性 分析框架’ [ The Ministry of Finance releases ‘Debt Sustainability Framework for the BRI], 25 April 2019, http://www.mof.gov.cn/zhengwuxinxi/caizhengxinwen/201904/t20190425_3234663.htm.

30 Shahbaz Rana, ‘China Seeks Additional Guarantees for $6b New Loan’, Express Tribune, 23 December 2020, https://tribune.com.pk/story/2277059/china-seeks-additionalguarantees-for-6b-new-loan.

31 Chris Yelland, ‘So Where Is the Money from China? Still Coming, Says the DPE’, Daily Maverick, 6 May 2019, https://www.dailymaverick.co.za/article/2019-05-06-so-where-is-the-moneyfrom-china-still-coming-says-the-dpe/.

32 Agatha Kratz, Daniel Rosen and Matthew Mingey, ‘Booster or Brake: COVID and the Belt and Road Initiative’, Rhodium Group, 15 April 2020, https://rhg.com/research/booster-orbrake-covid-and-the-belt-and-road-initiative/.

33 Ministry of Finance of the People’s Republic of China and Asian Development Bank, Asian Infrastructure Investment Bank, European Bank for Reconstruction and Development, European Investment Bank, New Development Bank and the World Bank Group, ‘Memorandum of Understanding on Collaboration on Matters to Establish the Multilateral Cooperation Center for Development Finance’, 25 March 2019, https://www.aiib.org/en/about-aiib/who-we-are/partnership/_download/collaboration-on-matters.pdf.

34 Ibid.

35 Zhao Jianhua, ‘多边开发融资合作中心基 金正式建立’ [The Multilateral Development Finance Cooperation Center Fund is formally established]’, China.org.cn, 9 July 2020, http://ydyl.china.com.cn/2020-07/09/content_76253104.htm.

36 Asian Infrastructure Investment Bank, ‘Minutes of the Meeting of the Board of Directors of the Asian Infrastructure Investment Bank Held on June 29–30, 2020’, 2020, https://www.aiib.org/en/about-aiib/governance/board-directors/.content/index/_download/Sec2020-140-Minutes-of-the-Virtual-Meeting-of-the-Board-of-Directors-June-29-30-2020.pdf.

37 Multilateral Cooperation Center for Development Finance, ‘Rules of Procedure for the Governing Committee of the MCDF Finance Facility’, 2022, https://www.themcdf.org/en/who-we-are/governance/governingcommittee/index.html.

38 Ibid.

39 Thomas S. Eder, Rebecca Arcesati and Jacob Mardell, ‘Networking the “Belt and Road” – the Future Is Digital’, Mercator Institute for China Studies, 28 August 2019, https://merics.org/en/tracker/networking-belt-and-road-future-digital.

40 Ken Davies, ‘China Investment Policy: An Update’, OECD Working Papers on International Investment, no. 2013/01, OECD Publishing, 2013, http://dx.doi.org/10.1787/5k469l1hmvbt-en.

41 ‘China’s COSCO Secures $26 Bln Financing Pledge from CDB’, Reuters, 12 January 2017, https://www.reuters.com/article/cosco-china-development-bank-idUKL4N1F22SF.

42 Export–Import Bank of China, Annual Report 2019, June 2020, https://www.eximbank.com.tw/en-us/AnnualReport/Documents/2019%20Annual%20Report.pdf.

43 OECD, ‘The Belt and Road Initiative in the Global Trade, Investment and Finance Landscape’.

44 ‘Financing and Funding for the Belt & Road Initiative’, Belt and Road News, 17 May 2019, https://web.archive.org/web/20200408122357/https://www.beltandroad.news/2019/05/17/financing-andfunding-for-the-belt-road-initiative/.

45 Wang Dan, ‘Silk Road Fund’s Investment & Cooperation with Belt and Road Countries’, Belt and Road News, 26 April 2020, https://web.archive.org/web/20200512135226/https://www.beltandroad.news/2020/04/26/silk-road-funds-investment-cooperation-withbelt-road-countries/.

46 Ammar Malik et al., ‘Banking on the Belt and Road: Insights from a New Global Dataset of 13,427 Chinese Development Projects’, AidData at William & Mary, September 2021, pp. 35, 44, https://docs.aiddata.org/ad4/pdfs/Banking_on_the_Belt_and_Road_Insights_from_a_new_global_dataset_of_13427_Chinese_development_projects.pdf.

47 Shiro Armstrong, ‘Japan Joins to Shape the Belt and Road’, East Asia Forum, 28 October 2018, https://www.eastasiaforum.org/2018/10/28/japan-joins-to-shape-chinas-belt-and-road/.