Bartering Globalization: China's Commodity‐backed Finance in Africa and Latin America
| DOI | http://doi.org/10.1111/1758-5899.12138 |
| Published date | 01 September 2014 |
| Author | Kevin P. Gallagher,Deborah Bräutigam |
| Date | 01 September 2014 |
Bartering Globalization: China’s Commodity-
backed Finance in Africa and Latin America
Deborah Br€
autigam
Johns Hopkins University
Kevin P. Gallagher
Boston University
Abstract
In just over a decade, China has become a source of finance for emerging market and developing country govern-
ments. Recipient governments and the Chinese have been less than transparent with respect to the scale, terms and
composition of this finance, engendering a great deal of speculation about its nature. This article provides preliminary
estimates of Chinese finance to both Africa and Latin America since the turn of the century, with a specific focus on
‘commodity-backed’or ‘resource-secured’loans. We estimate that Chinese banks have provided approximately $132 bil-
lion in financing to African and Latin American governments and state-owned firms since 2003. Just over half of these,
or $75 billion, are in the form of resource-secured finance. Contrary to many of the claims in the popular press, we
found that Chinese finance is generally not out of line with interest rates found in global capital markets, does not
bring windfall commodity profits to China, and does not mandate the use of Chinese workers.
Policy Implications
•Chinese banks have become major development financiers, but their lack of transparency has left many policy-
makers understandably uneasy about the size and nature of their loans.
•In engaging China on its overseas finance, OECD policy makers need to understand that they are not dealing with
a fellow donor. The bulk of Chinese finance is not subsidized and should be seen as export credits rather than for-
eign assistance.
•Countries receiving these credits can be reassured that as far as we can see, there is no evidence that they lock in
low commodity prices, or mandate the use of Chinese workers.
•China's package loans, while relatively rare, are attractive to recipients. Policy makers in competing countries might
explore how they can use this model of project finance to reduce payment risks for their own loans.
•Policy makers that negotiate these loans have some leeway to demand employment, training, and local content
conditions, and should make the most of these opportunities.
Chinese bank finance has become a very significant part
of the international political economy of Latin America
and Africa. Yet despite this new prominence, scholars,
journalists and policy makers have largely been working
in the dark as they try to analyze the implications of this
finance. Separately, the two authors of this article have
led teams that have developed databases of Chinese
finance in their respective regions (Gallagher et al., 2012;
Brautigam, 2009).
We have a particular interest in understanding ‘com-
modity-backed’or ‘resource-secured’financing given that
it has been the subject of a great deal of speculative
concern. There have been claims that Chinese finance is
in the form of ‘sweetheart deals’whereby China offers
abnormally low interest rates to attract emerging market
and developing country governments. Conversely, there
have been claims that China’s resource-secured loans
have allowed China to gain windfall profits from the
recent commodity price surge. Finally, there has also
been great concern over the extent to which Chinese
finance is tied to Chinese suppliers and mandates the
use of Chinese workers.
We estimate that China has committed around $132
billion in financing to African and Latin American
governments between 2003 and 2011. Just over half, or
$75 billion, is in the form of resource-secured finance,
involving the export of oil, cocoa, platinum and dia-
monds. Contrary to many of the claims in the popular
Global Policy Volume 5 . Issue 3 . September 2014
346
Special Section Article
©2014 University of Durham and John Wiley & Sons, Ltd. Global Policy (2014) 5:3 doi: 10.1111/1758-5899.12138
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