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

Catherine Casanova, Eugenio Cerutti and Swapan-Kumar Pradhan

No 2024/205, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: ross-border lending; Chinese banks; Trade; FDI; Borrower indebtedness; Pandemic; Sanctions; Geoeconomic fragmentation; cross-border lending; borrower country risk variable; FDI-lending relationship; EMDE borrower; borrower characteristic; Chinese bank; CN bank; Bank credit; Cross-border banking; Foreign direct investment; Global (search for similar items in EconPapers)
Pages: 51
Date: 2024-09-23
New Economics Papers: this item is included in nep-ban, nep-cna and nep-int
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Working Paper: Chinese Banks and their EMDE Borrowers: Have Their Relationships Changed in Times of Geoeconomic Fragmentation (2024)
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