Snapshot: Chinese LAC investment in 2017

Chinese investment in Latin America and the Caribbean has been on a downswing but remains highly active in the region, according to a March 2018 report produced by the Inter-American Dialogue and Boston University's Global Economic Global Development Policy Center.

The report announced that total financing from the China Development Bank (CDB) and China Eximbank finance to LAC governments and state-run companies dropped to approximately US$9bn in 2017, "a considerable decrease from the US$21bn disbursed by Chinese policy banks in 2016."

The new study positions 2017 as the lowest year for Chinese state bank finance to LAC since 2012, despite a proliferation of new Chinese infrastructure proposals in LAC and growing reference to the region in relation to China's Belt and Road Initiative.

However, even with the relative drop in activity in 2017, the study indicates that China's record of lending in the region continues to surpass that of other major lenders. Including last year's US$9bn, CDB and Eximbank have provided upwards of US$150bn in finance to LAC since 2005, when Chinese banks began lending to the region. Chinese state-to-state finance tops lending over same period from the World Bank, Inter-American Development Bank (IDB) and the CAF-Development Bank of Latin America.

Other findings in the study include:

• As in previous years, Chinese policy bank loans in 2017 were directed toward a relatively small subset of countries. Brazil and Argentina accounted for 91% of total lending to the region, with 59% (US$5.3bn) issued to Brazil alone.
• Though a top recipient of CDB and Eximbank loans in the past, Venezuela received no finance from policy banks in 2017, after a loan of only US$2.2bn in 2016, aimed at improving the country's oil production capacity.
• Chinese finance to the region in 2017 focused yet again on infrastructure development and, to a lesser extent, raw materials extraction. The largest Chinese loan in 2017 -- to Brazil for US$5bn -- was given to Petrobras in exchange for oil shipments.
• As China's financial sector grows, a wider range of lenders is issuing finance in LAC. In addition to policy bank lending, China's commercial banks are increasingly active in Latin America and other regions, often in cooperation with other international banks. At least one of China's three regional funds also delivered new projects last year.

Silk road extension

As noted in the report, in 2017 Chinese officials referred to LAC as a "natural extension" of the Maritime Silk Road, while adding that the region is an "indispensable participant" in the construction of the Belt and Road Initiative (BRI), a China-led effort to strengthen engagement along a "new Silk Road" through infrastructure development and other connectivity enhancing projects.

Though welcoming of Latin American involvement in the BRI "framework," China has stopped short of formalizing the region's participation in the initiative, or providing finance from the Asian Infrastructure Investment Bank (AIIB) or the Silk Road Fund, a US$40bn fund established by China to make its Belt and Road ambitions a reality.

Chinese companies are nonetheless pursuing greater intra- and cross-regional connectivity through a series of infrastructure proposals, including one -- the Ciudad de Panamá-David Railway -- that is explicitly linked to the BRI.

"Chinese policy bank lending to LAC in 2017 largely supported infrastructure development, including in the energy sector," read the report. "More of the same can be expected in the coming years. The challenge for Latin American governments in the coming years will be to propose deals that are both attractive to Chinese partners and economically and environmentally sustainable."