Transcript Chinese Finance of Overseas Infrastructure

Chinese Finance of Overseas
Infrastructure
Professor Deborah Brautigam
School of International Service
American University
Washington DC
(1) History Lessons
China’s Domestic Infrastructure
Focus in 1978: “120 Projects”
•
•
•
•
•
•
•
30 Electric Power Stations
6 Trunk Railways
8 Coal Mines
10 Steel Plants
5 Harbors
9 Non-ferrous Metal Complexes
10 New Oil & Gas Fields
How to Finance These?
• Deng Xiaoping (1975 “20 Points”)
“In order to hasten the exploration of our coal and
petroleum, it is possible that on the condition of
equality and mutual benefit, and in accordance
with accepted practices of international trade
such as deferred and installment payments,
we may sign long-term contracts with foreign
countries and fix several production sites where
they will supply complete sets of modern
equipment required by us, and we will pay for
them with the coal and oil we produce.”
Japan’s Long-Term Trade
Agreement with China (1978)
• $10 billion modern complete plants & turnkey projects from Japan: line of credit
(deferred payment basis)
• Repay with $10 billion in exports of crude
oil and coal
China’s Finance of African
Infrastructure: Past Examples
Tazara/ Tan-Zam Railway
(1976)
Kinkon & Tinkisso
Hydropower in Guinea
(1974)
Bouenza Hydropower in
Congo (1980)
Goma Hydropower in
Sierra Leone (1986)
Nouakchott Deep Sea Port
(1986)
Plaisance Airport Terminal
Mauritius (1983)
CAR Broadcasting Station
(1983)
Luapula Bridge Zambia
(1983)
Woretawoldya Highway
Ethiopia (1983)
Rebuilding Railway
Botswana (1986)
Hargeysa Water Supply
Somalia (1987)
Bardera Dam Somalia
(1987)
Nouakchott Water Supply
(1987)
Madagascar No. 35
Highway (1988)
Ouesso Water Supply
Congo (1990)
(2) From Aid to Economic
Cooperation: Building Business
China International Hydroelectric
Corporation feasibility study for Imboulou
(Republic of Congo) Hydroelectric Station
(1982)
2nd Bamako Bridge (King Fahd Bridge), Mali,
built by Chinese company … financed by
Saudi Arabia (1990-1992)
China and the West
• West: aid (ODA) now de-linked from
investment, trade
• China: a different model, mostly not
aid/ODA
• Chinese government funds (“economic
cooperation”) => investment, trade
(3) Chinese Overseas Finance:
Institutions & Instruments
(ODA/Non-ODA)
• MOFCOM Grants & Zero-Interest Loans
• Eximbank 1994
–
–
–
–
–
Concessional rmb loans (ODA) 1995
Export buyer’s credits 2000
Preferential export buyers credits (not ODA)
Export sellers credits => suppliers’ credits
Guarantees
• Other Policy Loans (China Development Bank)
• Equity (China-Africa Development Fund)
• Commercial Banks (ICBC, China Constr. Bank)
China Eximbank Annual
Disbursements 2002-2009
(worldwide)
•
•
Commodity-linked
Infrastructure Credits: 4 Varieties
(A) Commodity-Backed line of credit for
multiple projects (Angola, Eq. Guinea)
-- Deferred payment in commodities (oil)
-- “Agency of restraint”
Resource-backed Infrastructure
Credits & Loans
•
•
•
•
•
•
Widely misunderstood as ODA (official aid)
Market-rate line of export buyer’s credit?
Non-transparent
Tied to Chinese goods & services
“Request based”
Secured by resources
Angola: 33 Projects for $1b
(2004-2007)
• Ag. Machinery &
equipment $22m
• 4 Irrigation systems
$93m
• Luanda electricity
system: $45m
• Water treatment
system repair in 3
cities: $21m
• 5 agricultural training
institutions
• 6 polytechnical
colleges
• 5 secondary schools:
$26m
• Kifangondo-Caxito
road: $211m
• 86 ambulances
• 6 provincial health
centers
• Rehab. 7 regional
hospitals …etc. etc.
(B) Commodity-Backed Single
Project Loan-Compensatory Trade
Agreement
-- Ghana Bui Dam package (cocoa)
-- Congo Imboulou Dam (oil)
(C) Commodity-Backed lines of
credit combined with natural
resource exploitation
• DRC: Gécamines JV
• Non-concessional
DRC Infrastructure & “Chinese corridor”
Source: Le Monde 2009
(4) Loan package to develop oil
or mineral resource & related
infrastructure
Sudan: 1996 concessional loan
Gabon? Mauritania?
So far, rather rare.
Table 1: Chinese Companies: Annual Turnover
from Construction Projects in Africa, 1998-2008
25000
US$10,000
20000
15000
10000
5000
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: MOFCOM (courtesy of Jean-Claude Berthelemy)
Economic Cooperation Turnover,
Top 5 Countries
3500
3000
2500
2000
1500
1000
500
0
Equatorial Guinea
08
20
07
20
06
20
05
20
Ethiopia
04
20
03
20
02
20
Nigeria
01
20
00
20
99
19
98
19
Angola
Sudan
Other Issues
• Lower embezzlement risks
• But high “kickback” risks with “requestbased” project finance
• Collusive bidding risks
• Independent consultant engineers &
quality control
• Value for money?