Notable Decline hits China’s lending to LatAm

For the time being, China’s massive sovereign lending to Latin America is stopped. According to the latest update of The Dialogue and Boston University’s China-Latin America Finance Database, China’s policy banks – the China Development Bank (CDB) and China Exim Bank (Exim) – granted no new loans to the region in 2021 for the second year in a row.

Despite the fact that the lack of new loans coincides with the economic downturn caused by the Covid-19 pandemic, which prompted CDB and Exim to focus on existing overseas projects and supporting China’s own development, the figures have decreased year on year since the US$21.3 billion was issued in 2015. There is a new emphasis on risk aversion and profitability, according to Margaret Myers, head of The Dialogue’s Asia and Latin America Initiative.

“China’s continued efforts to align outward engagement with domestic growth objectives has led to a focus on specific, often high-tech, sectors that promote its own industrial upgrading,” Myers says. “Its financial institutions are increasingly trying to identify bankable, ‘high-quality’ projects.”

The drop in state-to-state partnerships that characterised the early stages of the China–Latin America alliance – and yielded uneven results – coincides with a growing diversity of financial actors involved.

Despite this, policy bank financing to Latin America cannot be excluded from the forecast, according to the research, and the policy bank lending freeze should not be misunderstood as a lack of interest.

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