China's Global Claims
Paper Session
Saturday, Jan. 8, 2022 10:00 AM - 12:00 PM (EST)
- Chair: Carmen M. Reinhart, World Bank and Harvard University
Global Footprints of Monetary Policy
Abstract
We study the international transmission of the monetary policy of the two world’s giants: China and the US. From East to West, the channels of global transmission differ markedly. US monetary policy shocks affect the global economy primarily through their effects on integrated financial markets, global asset prices, and capital flows. EMEs in particular see both a reduction in inflows and a surge in outflows when the market tide turns as a result of a US monetary contraction. Conversely, international trade, commodity prices and global value chains are the main channels through which Chinese monetary policy transmits worldwide. AEs with a strong manufacturing sector are particularly sensitive to these disturbances.Banking Across Borders: Are Chinese Banks Different?
Abstract
We explore the global footprint of Chinese banks and compare it with that of other bank nationalities. Chinese banks have become the largest cross-border creditors for almost half of all emerging market and developing economies (EMDEs). Their global reach resembles that of banks from advanced economies (AEs). We take a nationality approach as international banks, and Chinese banks in particular, grant a substantial share of their cross-border loans from affiliates located abroad. But differences remain. Using a gravity model with a novel measure of distance capturing the role of foreign affiliates across all bank nationalities, we find that larger distances deter crossborder bank lending to EMDEs more than to AEs. For Chinese banks, however, distance deters lending to EMDEs less than for peer EMDE banks. We show that for all banks combined, bilateral economic interactions like trade, FDI and portfolio investment, positively correlate with lending. Chinese banks' lending to EMDEs also strongly correlates with trade, but not with FDI and, unlike other banks, it correlates negatively with portfolio investment.How China Lends
Abstract
China is the world’s largest official creditor, but we lack basic facts about the terms and conditions of itslending. Very few contracts between Chinese lenders and their government borrowers have ever been
published or studied. This paper is the first systematic analysis of the legal terms of China’s foreign
lending. We collect and analyze 100 contracts between Chinese state-owned entities and government
borrowers in 24 developing countries in Africa, Asia, Eastern Europe, Latin America, and Oceania, and
compare them with those of other bilateral, multilateral, and commercial creditors. Three main insights
emerge. First, the Chinese contracts contain unusual confidentiality clauses that bar borrowers from
revealing the terms or even the existence of the debt. Second, Chinese lenders seek advantage over
other creditors, using collateral arrangements such as lender-controlled revenue accounts and promises
to keep the debt out of collective restructuring (“no Paris Club” clauses). Third, cancellation,
acceleration, and stabilization clauses in Chinese contracts potentially allow the lenders to influence
debtors’ domestic and foreign policies. Even if these terms were unenforceable in court, the mix of
confidentiality, seniority, and policy influence could limit the sovereign debtor’s crisis management
options and complicate debt renegotiation. Overall, the contracts use creative design to manage credit
risks and overcome enforcement hurdles, presenting China as a muscular and commercially-savvy
lender to the developing world.
Discussant(s)
Stijn Claessens
,
Bank for International Settlements
Maurice Obstfeld
,
University of California-Berkeley
Jesse Schreger
,
Columbia University
Patrick Bolton
,
Columbia University
JEL Classifications
- F3 - International Finance
- F4 - Macroeconomic Aspects of International Trade and Finance