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

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Listed:
  • Catherine Casanova
  • Mr. Eugenio M Cerutti
  • Swapan-Kumar Pradhan

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.

Suggested Citation

  • Catherine Casanova & Mr. Eugenio M Cerutti & Swapan-Kumar Pradhan, 2024. "Chinese Banks and Their EMDE Borrowers: Have Their Relationships Changed in Times of Geoeconomic Fragmentation?," IMF Working Papers 2024/205, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2024/205
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    References listed on IDEAS

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    1. Stefan Avdjiev & Előd Takáts, 2019. "Monetary Policy Spillovers and Currency Networks in Cross-Border Bank Lending: Lessons from the 2013 Fed Taper Tantrum," Review of Finance, European Finance Association, vol. 23(5), pages 993-1029.
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    More about this item

    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;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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