According to a new analysis, China’s two policy banks made 28 new loans totaling US$10.5 billion in 2020 and 2021, the fewest in recent years as Beijing shifts its focus to what it deems “small is beautiful” initiatives.
According to data provided by the Boston University Global Development Policy Centre, financing from the China Development Bank (CDB) and the Export-Import Bank of China (China EximBank) reflects a sustained fall in Chinese overseas development funding since it peaked in 2016.
After a prolonged financing boom for projects under the multibillion-dollar Belt and Road Initiative, the analysis showed that foreign development financing from CDB and China EximBank has been on a declining trend for several years.
Some 1,099 Chinese overseas development finance commitments – totalling US$498 billion – were made to 100 countries between 2008 and 2021, according to China’s Overseas Development Finance Database, which is managed by the Boston University centre.
Rebecca Ray, a senior academic researcher at the centre and the author of the study, said China’s overseas development finance had fallen in total value but also in terms of the average loan commitment size.
“This trend is emblematic of the ‘small is beautiful’ approach to Chinese economic engagement in recent years, which prioritises smaller and more targeted projects,” Ray said, adding that it “emphasises projects with smaller geographic footprints and lower risks to sensitive ecosystems and Indigenous communities”.
Addressing the third belt and road symposium in November 2021, President Xi Jinping said high-quality “small and beautiful” projects, which are sustainable and improve people’s livelihoods, should be a priority in overseas cooperation. China’s central bank has since issued new regulations capping external lending by the country’s banks.
Ray said that while China has shifted away from its most ambitious years of development finance, it has continued to lend in more measured ways, increasingly going for “smart and small” – prioritising high-quality, targeted support over large-scale general support.
According to the study, loan commitments in 2021 were limited to just two sectors: transport and public administration. Transport lending was limited to one project where planning began well before the Covid-19 pandemic but the loan was signed in the last year – the 24km (15-mile) Dhaka-Ashulia Elevated Expressway in Bangladesh.
Public administration and discretionary finance included loans for trade finance and general budgetary support for Angola, Pakistan, Sri Lanka, Trinidad and Tobago, and Turkey. Rather than starting new projects, this lending represents support for countries as they emerge from the pandemic and return to previous growth and infrastructure development trajectories.
The study said transport remained the only specific sector with loan commitments in 2021, representing a larger trend over the last several years. As overall lending has fallen dramatically, support for transport has fallen by less than for other sectors.
This was “unsurprising” given that transport is a core theme of belt and road lending, according to Ray.
She said the shift away from general-purpose support for oil and gas state owned enterprises (SOEs) and public-private partnerships (PPPs) was another example of China’s move towards “small is beautiful” overseas lending.
Kevin P. Gallagher, director of the Boston University Global Development Policy Centre, said conditions in China and in host countries were less conducive to large amounts of development finance than they were a decade ago.
“This is concerning, as the need for development finance is at an all-time high due to the polycrisis of financial instability, climate change and pandemic,” Gallagher said.
The study found that developing countries’ interest in financing for development appears to be increasing. Argentina and Pakistan, two countries that frequently get Chinese loans, reportedly approached China this year seeking funding.
Even still, the report noted, “the economic effects of the Covid-19 pandemic have triggered a global debt crisis, reducing borrowers’ capacity to take on additional debt.” “It is unlikely that new issuances of debt will rebound to previous levels while renegotiations for debt service payments are ongoing,” the statement reads.