China's Overseas Lending

68 Pages Posted: 2 Aug 2019

See all articles by Sebastian Horn

Sebastian Horn

Kiel Institute for the World Economy; Ludwig Maximilian University of Munich (LMU)

Carmen Reinhart

Harvard University, Harvard Kennedy School (HKS), Belfer Center for Science and International Affairs (BCSIA) ; Harvard University - Harvard Kennedy School (HKS)

Christoph Trebesch

Kiel Institute for the World Economy; Centre for Economic Policy Research (CEPR)

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Date Written: July 2019

Abstract

Compared with China's dominance in world trade, its expanding role in global finance is poorly documented and understood. Over the past decades, China has exported record amounts of capital to the rest of the world. Many of these financial flows are not reported to the IMF, the BIS or the World Bank. "Hidden debts" to China are especially significant for about three dozen developing countries, and distort the risk assessment in both policy surveillance and the market pricing of sovereign debt. We establish the size, destination, and characteristics of China's overseas lending. We identify three key distinguishing features. First, almost all of China's lending and investment abroad is official. As a result, the standard "push" and "pull" drivers of private cross-border flows do not play the same role in this case. Second, the documentation of China's capital exports is (at best) opaque. China does not report on its official lending and there is no comprehensive standardized data on Chinese overseas debt stocks and flows. Third, the type of flows is tailored by recipient. Advanced and higher middle-income countries tend to receive portfolio debt flows, via sovereign bond purchases of the People's Bank of China. Lower income developing economies mostly receive direct loans from China's state-owned banks, often at market rates and backed by collateral such as oil. Our new dataset covers a total of 1,974 Chinese loans and 2,947 Chinese grants to 152 countries from 1949 to 2017. We find that about one half of China's overseas loans to the developing world are "hidden".

Keywords: Belt and Road initiative, China, hidden debts, International Capital Flows, official finance, sovereign risk

JEL Classification: F21, F34, F42, F6, G15, H63, N25

Suggested Citation

Horn, Sebastian and Reinhart, Carmen and Trebesch, Christoph, China's Overseas Lending (July 2019). CEPR Discussion Paper No. DP13867, Available at SSRN: https://ssrn.com/abstract=3428391

Sebastian Horn (Contact Author)

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Carmen Reinhart

Harvard University, Harvard Kennedy School (HKS), Belfer Center for Science and International Affairs (BCSIA) ( email )

79 JFK Street
Cambridge, MA 02138
United States
617-496-8643 (Phone)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Christoph Trebesch

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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