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Chinese Finance of Overseas Infrastructure

Chinese Finance of Overseas Infrastructure. Professor Deborah Brautigam School of International Service American University Washington DC. (1) History Lessons China’s Domestic Infrastructure Focus in 1978: “120 Projects”. 30 Electric Power Stations 6 Trunk Railways 8 Coal Mines

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Chinese Finance of Overseas Infrastructure

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  1. Chinese Finance of Overseas Infrastructure Professor Deborah Brautigam School of International Service American University Washington DC

  2. (1) History LessonsChina’s Domestic Infrastructure Focus in 1978: “120 Projects” • 30 Electric Power Stations • 6 Trunk Railways • 8 Coal Mines • 10 Steel Plants • 5 Harbors • 9 Non-ferrous Metal Complexes • 10 New Oil & Gas Fields

  3. How to Finance These? • Deng Xiaoping (1975 “20 Points”) “In order to hasten the exploration of our coal and petroleum, it is possible that on the condition of equality and mutual benefit, and in accordance with accepted practices of international trade such as deferred and installment payments, we may sign long-term contracts with foreign countries and fix several production sites where they will supply complete sets of modern equipment required by us, and we will pay for them with the coal and oil we produce.”

  4. Japan’s Long-Term Trade Agreement with China (1978) • $10 billion modern complete plants & turn-key projects from Japan: line of credit (deferred payment basis) • Repay with $10 billion in exports of crude oil and coal

  5. Tazara/ Tan-Zam Railway (1976) Kinkon & Tinkisso Hydropower in Guinea (1974) Bouenza Hydropower in Congo (1980) Goma Hydropower in Sierra Leone (1986) Nouakchott Deep Sea Port (1986) Plaisance Airport Terminal Mauritius (1983) CAR Broadcasting Station (1983) Luapula Bridge Zambia (1983) Woretawoldya Highway Ethiopia (1983) Rebuilding Railway Botswana (1986) Hargeysa Water Supply Somalia (1987) Bardera Dam Somalia (1987) Nouakchott Water Supply (1987) Madagascar No. 35 Highway (1988) Ouesso Water Supply Congo (1990) China’s Finance of African Infrastructure: Past Examples

  6. (2) From Aid to Economic Cooperation: Building Business China International Hydroelectric Corporation feasibility study for Imboulou (Republic of Congo) Hydroelectric Station (1982) 2nd Bamako Bridge (King Fahd Bridge), Mali, built by Chinese company … financed by Saudi Arabia (1990-1992)

  7. China and the West • West: aid (ODA) now de-linked from investment, trade • China: a different model, mostly not aid/ODA • Chinese government funds (“economic cooperation”) => investment, trade

  8. (3) Chinese Overseas Finance: Institutions & Instruments (ODA/Non-ODA) • MOFCOM Grants & Zero-Interest Loans • Eximbank 1994 • Concessional rmb loans (ODA) 1995 • Export buyer’s credits 2000 • Preferential export buyers credits (not ODA) • Export sellers credits => suppliers’ credits • Guarantees • Other Policy Loans (China Development Bank) • Equity (China-Africa Development Fund) • Commercial Banks (ICBC, China Constr. Bank)

  9. China Eximbank Annual Disbursements 2002-2009 (worldwide)

  10. Commodity-linked Infrastructure Credits: 4 Varieties (A) Commodity-Backed line of credit for multiple projects (Angola, Eq. Guinea) -- Deferred payment in commodities (oil) -- “Agency of restraint”

  11. Resource-backed Infrastructure Credits & Loans • Widely misunderstood as ODA (official aid) • Market-rate line of export buyer’s credit? • Non-transparent • Tied to Chinese goods & services • “Request based” • Secured by resources

  12. Ag. Machinery & equipment $22m 4 Irrigation systems $93m Luanda electricity system: $45m Water treatment system repair in 3 cities: $21m 5 agricultural training institutions 6 polytechnical colleges 5 secondary schools: $26m Kifangondo-Caxito road: $211m 86 ambulances 6 provincial health centers Rehab. 7 regional hospitals …etc. etc. Angola: 33 Projects for $1b (2004-2007)

  13. (B) Commodity-Backed Single Project Loan-Compensatory Trade Agreement -- Ghana Bui Dam package (cocoa) -- Congo Imboulou Dam (oil)

  14. (C) Commodity-Backed lines of credit combined with natural resource exploitation DRC: Gécamines JV Non-concessional

  15. Source: Le Monde 2009 DRC Infrastructure & “Chinese corridor”

  16. (4) Loan package to develop oil or mineral resource & related infrastructure Sudan: 1996 concessional loan Gabon? Mauritania? So far, rather rare.

  17. Source: MOFCOM (courtesy of Jean-Claude Berthelemy)

  18. Economic Cooperation Turnover, Top 5 Countries

  19. Other Issues • Lower embezzlement risks • But high “kickback” risks with “request-based” project finance • Collusive bidding risks • Independent consultant engineers & quality control • Value for money?

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