The Rise and Rise of China’s Exim Bank

EXIM

China’s growth as a trading power has been financially underpinned by the mighty Export Import Bank  of China (Exim Bank). Formed in 1994, government owned and headquartered in Beijing the Bank has led the way in extending trade finance for China’s imports and exports, as well providing lending on a massive scale for Chinese projects overseas, everything from infrastructure, natural resources to manufacturing. Along with the China Development Bank it is one of Beijing’s policy banks, existing to provide credit to companies, but also to achieve the long term goals of the state, such as acquiring mineral resources, enabling Chinese companies to break into new markets and ensuring Chinese trade can flow fast and efficiently.

The Exim bank will naturally take a significant role in shaping the new Belt and Road Initiative – much has been made of the brand new AIIB but China already has a experienced development Bank in place which is heavily involved countries across Eurasia, it financed around 1000 projects along the Silk Road in 2015 and is now ready to do even more.

One such example is a new US$ 2.89 billion motorway from Lahore to Karachi – this would connect Pakistan’s two largest cities and indeed the country, linking North and South and providing an unprecedented economic stimulus on a scale few others can match. Perhaps only the World Bank or ADB could finance a project of this size.

Looking at the bigger picture the road would provide another medium of transport linking the Arabian Sea (and its proximity to the Gulf) to Western China, in theory allowing goods to avoid travelling through that strategic chokepoint the Straits of Malacca. Most Western firms would baulk at providing such levels of finance to a single project in an unstable country like Pakistan, but China for solid geopolitical purposes, (but much less certain market reasons) has bet heavily on its Southern neighbour

Although associated with developing countries the Bank has also engaged in European countries like Greece. Exim has become heavily involved in the Greek shipping industry, investing in building new ships (often built in China) and port operations and was also behind the recent move by Cosco to operate the Piraeus port (Greek’s largest). It now looks set to take a controlling stake in the port as it is privatized by the Greek government to raise much needed funds.

Exim Bank’s future looks bright as it continues to underpin China’s huge trading network, assist the government in rolling out policy goals like the Belt and Road Initiative, which will require the Bank’s financial firepower and extensive expertise.

The main challenge facing the organisation must be the concentration and level of financing made in risky emerging and frontier economies, the threat of a downturn across these markets, coupled with a slowdown in China and the Bank could suddenly face a surfeit of bad debt which it could be saddled with for political reasons. China would not want to pull the plug on geo-politicially sensitive projects in allied countries (like the motorway mentioned above). Over the next few years the Bank has to carefully balance the needs of the state and ensuring it only invests in creditworthy projects.



Categories: Company Case Studies, Development finance, Frontier Markets, Geo-Economics, Kula Ring Trade Blog, Silk Road

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  1. Seven Key Projects that will define China’s One Belt, One Road initiative – Rising Powers
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