Chinese lenders do not test int’l borrowers for sustainable financing - Study

Chinese lenders do not test int’l borrowers for sustainable financing – Study

Sep 30, 2018 News

By Kemol King
A 2016 Report on a study done into the sustainability frameworks of Chinese banks has found that the leading Chinese development banks have no proper frameworks to scrutinize their borrowers for sustainable financing.
The study, called Emerging Sustainability Frameworks, related the need for lenders, China Development Bank and Ex-Im Bank of China, to hold borrowers accountable for the expending of their loans in a manner that is in-keeping with socially and environmentally friendly policies, especially as the policies relate to international borrowers.
China Development Bank has developed some internal environmental and social financing processes. The bank describes its role as supporting China’s national development strategies while promoting sustainable business management.
Unfortunately, even though CDB professes that its mandate includes sustainable development policies, these policies and their content are not publicly available, the study reports. The bank has promised not to approve loans until its borrowers have agreed to ensure social and environmental compliance.
However, it is unclear how it ensures this compliance, internally. It is also unclear whether these claims are also applicable to foreign borrowers.
Ex-Im Bank of China, who has been a prime chess figure in China’s lending scheme to Guyana, has less environmental and social policies than CDB – “There is limited information regarding how social considerations concretely figure considerations in a loan cycle.”
Overseas projects, as with its concessional loans to Guyana, do not have any requirements that would compel the Chinese Bank to test for sustainable financing of the project.
The bank can require the inclusion of certain sustainable guidelines in their loan agreements, but it is unclear whether that is regularly done. The main consideration for Ex-Im Bank when granting loans is having foreign borrowers agree to award contracts to Chinese contractors.
The study concluded that “neither CDB nor China Exim has developed institutional accountability mechanisms which the public or civil society groups may access to address cases of potential noncompliance by either the borrower or the bank.
“Nor are there independent mechanisms to ensure consistent enforcement and implementation of sustainable finance policies.”
It recommends that these banks develop a “formal procedure to increase accountability and transparency,” as it would “enable Chinese banks to better align with international peers and encourage stronger environmental and social compliance from borrowers.”
This study was conducted by Friends of the Earth, an international network of social and environmental organizations who focus their efforts on the social, political and human rights contexts of environmental issues, and address the economic and development aspects of sustainability.
This seeming lack of disregard for how foreign borrowers expend export finances brings China’s lending motives into question since China has come under international scrutiny for its lending methods.
An example of this is the concessional loan agreement of US$138M granted by China Ex-Im to Guyana for the renovation of the Cheddi Jagan International Airport. That loan had been granted since 2012.
Earlier this year, The Islamic Development Bank (IsDB) froze a US$5M loan to Somalia after just one year, when an audit revealed that no substantial progress could have been demonstrated by the project coordinator.
China’s lending methods have forced multiple countries, including Zambia and Greece, to surrender national assets to them after failing to repay loans.
These developments paint a contrast between two banks with drastically different lending schemes. Both banks have conducted business with Guyana and intend to make more finances available to the country in the future.
China and Guyana have signed a memorandum of understanding, signaling Guyana’s participation in their Belt and Road Initiative. The IsDB, on the other hand, has made a US$900M resource envelope available to Guyana for the country’s development.
China Ex-Im has very lax measures for holding its international borrowers to heel, while IsDB employs more stringent practices to ensure its developing export finance recipients work toward meeting the UN’s sustainable development goals.

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