By Kemol King
China Export-Import (Ex-Im) Bank and China Development Bank (CDB) are two of the world’s biggest lenders in the sector, but do not adhere to international guidelines on export financing promulgated by the Organisation for Economic Cooperation and Development (OECD).
According to Kevin Gallagher, a professor at Boston University, by the end of 2014, CDB and Ex-Im Bank had outstanding loans to foreign borrowers of nearly $700B, about the same as the total outstanding loans of the World Bank and the five leading regional development banks combined.
The OECD, since 1976, had started to formulate a series of policies to guide export credits. The purpose of this arrangement, according to the OECD, is “to encourage competition on the basis of which exporter provides the highest quality and the best service at a competitive price.”
This is due to the fact that companies seemed to be competing on the basis of their attractiveness as creditors by which countries would have been receiving more favourable export subsidies or financing terms from their governments.
The participants in this arrangement are the richest and most developed nations in the world. Even though the IMF reports that China has the world’s highest gross domestic product (GDP) by Purchasing Power Parity (PPP) and the second highest nominal GDP, China has not joined the treaty that governs the export financing guidelines of the OECD.
For decades, Chinese exporter financiers have been operating outside of international guidelines, a situation which, according to the Chairman of the US Export-Import Bank, Fred Hochberg, gives Chinese lenders an unfair advantage.
In July, Financial Times reported that China’s development banks are “seeking to spread the burden of funding international projects” by examining the international guidelines, which govern export financing worldwide.
However, China’s aggressive campaign to propagate its Belt and Road Initiative has seen the country exporting massive loans to small nations, some of which haven’t been able to repay them and have suffered the surrender of their assets, as with the case of Zambia.
That country surrendered its Kenneth Kaunda International Airport, which China is set to take over. China has come under international scrutiny for its lending methods, which have been referred to as debt trap diplomacy.
Richard Krah, an activist and columnist for a Ghanaian publication, had said that China is “recolonising Africa” through its lending methods.
Even though, in July, Financial Times reported China’s desire to share the burden of export financing with other nations, the country still signed a memorandum of understanding with Guyana for infrastructural projects under the same Belt and Road Initiative, later that month.
So far, China has started financing multiple projects, both related and unrelated to the Belt and Road initiative, totaling US$52M.
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