IMF Working Papers

Chinese Banks and Their EMDE Borrowers: Have Their Relationships Changed in Times of Geoeconomic Fragmentation?

By Catherine Casanova, Eugenio M Cerutti, Swapan-Kumar Pradhan

September 23, 2024

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Catherine Casanova, Eugenio M Cerutti, and Swapan-Kumar Pradhan. "Chinese Banks and Their EMDE Borrowers: Have Their Relationships Changed in Times of Geoeconomic Fragmentation?", IMF Working Papers 2024, 205 (2024), accessed November 21, 2024, https://doi.org/10.5089/9798400289859.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

While Chinese banks have become the top cross-border lender to EMDEs, their expansion has slowed recently, both in terms of volume and market share. Also, the strong correlation of China’s bilateral trade and its banks’ cross-border lending has weakened, while during 2020-22 lending became more positively correlated with FDI. In our paper, we analyse these patterns and we explore the role of borrower risk variables and foreign policies. Our findings show that, although the shifting correlation from trade to FDI is a general EMDE phenomenon, China’s Belt and Road Initiative reinforces it. By contrast, borrowers that potentially benefit from geoeconomic fragmentation do not display stronger FDI-lending relationships. We also find that Chinese banks exhibit different levels of risk tolerance relative to other bank nationalities as borrower country risk variables are positively correlated with Chinese banks’ market shares, but not with their amounts of cross-border lending.

Subject: Balance of payments, Bank credit, COVID-19, Cross-border banking, Debt burden, External debt, Financial services, Foreign direct investment, Health, Money, Public debt

Keywords: Bank credit, Borrower indebtedness, Chinese banks, COVID-19, Cross-border banking, Debt burden, FDI, Foreign direct investment, Geoeconomic fragmentation, Global, Pandemic, Ross-border lending, Sanctions, Trade

Publication Details

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