Power behind the throne? China Development Bank’s global influence

Few banks exert as much power and influence across the globe as the China Development Bank. Although it is not China’s biggest bank, when it comes to overseas operations it is in a league of its own – with USD 267 billion in loans invested abroad which is heavily weighted towards the developing world.

The Bank’s international experience is also sure to place it in the vanguard of China’s efforts to develop the One Belt, One Road (OBOR) initiative and assist the international efforts of the Asian Infrastructure and Investment Bank (AIIB), and above all remain a champion of China’s go global process.

Below I take a look the Bank’s financial strengths as well as consider its position as a policy tool of the Chinese government, its focus on lending to Chinese companies abroad as well as infrastructure and natural resource projects gives it particular meaning in Beijing.

Financials

In short the Bank’s financial performance is excellent, non-performing loans have remained well below 1%, total assets (a bank’s assets are usually the loans it makes to customers) have essentially doubled in the last 5 years and now total a head spinning RMB 10,317 billion … which is about USD 1,617 billion, in other words a trillion and a half dollars, a lot even today when financial analysis regularly deals in the trillions. The International Bank for Reconstruction and Development IBRD (the World Banks’ lending arm had total assets of USD 343, 225 billion in in the same year, as way of comparison.

Policy

The Bank currently faces an interesting juncture – how will it react to the emergence of the AIIB and the New Development Bank (NDB), will these act as catalysts for the CDB, co-financing projects together or will the Chinese government marginalise the CDB in the international arena and instruct the Bank to refocus on domestic development to allow the AIIB and NDB to shine. This seems unlikely the scale of the financing required by Chinese companies in the developing world which looks set to rise ever further thanks to the New Silk Road/OBOR along with now well established markets in Latin America and Africa will require the Bank’s experience.

In Henry Sanderson’s book about the CDB he described it as the most powerful bank in the world because of its huge impact in terms of financing projects in poorer countries and in turn the effect this had in transforming people’s lives. This is true in a sense – the CDB’s new lending has overtaken the World Bank in Africa and Latin America (raw power), but it still lags behind in terms of its public profile and intellectual leadership (soft power).

The CDB works quietly and has built an impressive portfolio, but discussion of the Bank is relatively scant, few have ever heard of the institution. The World Bank in comparison produces papers, reports and statistics and is spoken of as the vanguard of US hegemony, so even if you disagree with the Bank – it’s far reaching influence and ideology cannot be denied.

The CDB does have power, but it is less obvious than other institutions and the rest of the world has not caught up with this reality yet. The CDB’s lending has extended across multiple countries – bankrolling Chinese firms, foreign governments, resource deals and many other sectors.

But in many developing countries it has displaced western banks (private and public) as the biggest single source of funding, making it very much the power behind the throne, particularly in nations dependent on natural resources, where governments know that the CDB’s credit lines can be the difference between an industry remaining viable or government finances remaining in the black.

SWOT Analysis

Strengths

The Bank is prominent in infrastructure lending, which may slow in China, but the Silk Road project should more than make up for that.

Debts issued by the CDB are considered to be government deb, in other words they are risk-free. Giving it a big advantage in being able to lend cheaply.

Weaknesses

The Bank has lent a lot to the oil and gas sector, and this could be under serious threat thanks to the oil price crash. The CDB lent a great deal to Venezuela, this could be under serious threat as the government there struggles to balance the books.

China’s government has begun to shift the bank’s focus away from commercial projects, which are riskier but also potentially more lucrative than infrastructure financing.

In recent years, CDB has issued loans to finance oil and gas projects abroad; due to crashing energy prices, some of those loans have become bad performers, forcing the bank to renegotiate payment terms.

Opportunities

China’s continuing commitment to domestic infrastructure projects, including urban renewal, port construction, and telecom networks, should generate plenty of business for CDB.

CDB has developed extensive relationships in emerging and frontier economies and is poised to capitalize on economic growth there.

Threats

China has invested considerable political and financial capital in the new Asia Infrastructure Investment Bank; how that bank will work in tandem with the CDB remains to be seen.

Rivals will react to the Bank’s increasing power by stepping up their efforts to compete with the Bank.