Lending in China

Published on Author heardd16

As a number of developing countries have fallen into deep recession over the past year, one developing country has recognized an opportunity to assert itself as a prominent international financial institution. As commodity prices flounder, developing countries Venezuela, Argentina, and Russia have been propped up by loans from China’s immense savings glut. In an attempt to strengthen the international value of the Yuan, China has taken on a role similar to the World Bank and International Monetary Fund, supporting recessionary economies in developing countries and often directly financing specific projects. Similar to the World Bank’s tree planting project encountered by Peter Hessler in his book Country Driving, China in many cases will finance, for example, independent oil company operations in Russia. Unlike established international bankers, China often stipulates that borrowers award contracts to Chinese construction companies in place of higher repayment.


Although China’s presence as an international lending power stands in opposition the IMF and World Bank, the author of the referenced article concludes, “China is not looking to overthrow the existing order so much as claw its way into it.” The author also alludes to historical cases, such as England in the mid 19th century and the Fed’s recent transactions with foreign banks following the financial crisis, in which international lending has bolstered the domestic currency. It is interesting to me to see China so quickly divesting the savings glut stockpiled over so many years, especially since I remember studying China’s savings glut specifically in my macroeconomics class as a first year. I also note for the first time the disparity between developing countries such as Venezuela, Argentina, and Russia, whose economies are so closely tied to commodity pricings, and China, who seems to have a diverse enough economy to withstand falls in various commodity pricings and still have such high projected economic growth.


One Response to Lending in China

  1. China is indeed more active. They would like a greater role at the IMF, but the current leaders are reluctant to make way, which would require that China take a larger equity stake in the IMF, and receive a corresponding increase in voting rights in its governance. China is currently a borrower from the World Bank, which is harder and harder to justify. So they are at present constrained in what they can do through international agencies.

    Of course direct lending comes with strings, as it does with the US Exim Bank and similar institutions. Now choosing whom to lend to is hard. The countries most eager to borrow are often those other countries are reluctant to lend to, and for good reason. Being the new kid on the block is hard; you may end up with on the losing team again and again. China should be cautious!