Chinese Banks Lending Yuan Offshore at Discount Rates

As China’s cash squeeze claims victims across the nation — from a bailout-seeking shipyard to a solar-panel maker missing a bond payment — there are places where Chinese money remains cheap and plentiful. Like Nigeria.

China Development Bank Corp. and Export-Import Bank of China are lending billions of yuan to some of the world’s riskiest regimes at interest rates hundreds of basis points below the cheapest commercial loans available at home. That lending in turn generates overseas contracts to build airports, roads and shopping malls for state-owned Chinese companies that are mired in debt.

“As opportunities go down and risks go up at home, these policy banks have gained a lot of power and they want to sustain themselves,” Kevin Gallagher, author of the 2010 book “The Dragon in the Room” about Chinese investment in Latin America, said in a telephone interview. “The majority of the countries that are getting the finance are countries with bond spreads that are through the roof.”

CDB, with a loan book more than three times the size of the World Bank’s, and China Eximbank are wholly owned by the state with a mandate to support Chinese foreign policy. Officials from the lenders accompany the nation’s leaders across the globe dispensing funds to forge ties from Costa Rica to Russia, helping secure supplies of oil, gas and minerals and creating work for some of China’s biggest state-owned enterprises.

Bloomberg

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