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Banking Across Borders: Are Chinese Banks Different?��By Eugenio, Catherine, and Swapan-Kumar

Discussion by Valentina Bruno

2023 Basel Committee Research Group and OCC Workshop

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And the answer is (w.r.t. AE banks)…

YES	NO
Ownership and Asset structure

Only 2.4% market share of AE cross-border lending

Stronger trade-lending relationship with EMEs: importance of bilateral trade in explaining Chinese banks’ cross border lending

Cross-border lending and portfolio investments to EMEs are negatively correlated

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And the answer is (w.r.t. AE banks)…

YES	NO
	Global operations are similar to major AEs
	Act more like US and European banks and their affiliates

	24% market share of EME cross-border lending (Japan 11.2%)
	Most important creditor for 66 out of 183 borrowers

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Economic channels of foreign lending

The paper deals with a really important issue, which has taken on huge geopolitical importance recently.

The debt restructuring for developing economies, for example.

Bruno and Hauswald, RoF, 2014: Foreign lending alleviates financial constraints.

Foreign banks mitigate the consequence of informational and legal obstacles to lending, especially in developing credit markets.

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A new distance measure

Geographical distance poses a barrier for cross-border lending.
Perspective of bank nationality.
Novel distance measure focusing on banks’ organizational structure that includes headquarters + affiliates.
Different from a “simple” distance measure based on bank residence

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Huang, Panizza, Portes (2021)

Funding is channeled to risky sectors

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https://voxeu.org/article/china-s-overseas-lending-and-looming-developing-country-debt-crisis

50% of China lending (public debt) not captured by official statistics - Hidden Debt

(Horn, Reinhart, Trebesch, 2021)

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Drilling down into Chinese lending

Global footprint is similar to AE banks.

Is the nature and magnitude of lending resembling that of AE banks?

Importance of bilateral trade in explaining Chinese banks’ cross border lending

What trade?

Driving forces of global business to assess potential risks and spillovers

What risks?

BIS consolidated vs. location banking statistics

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Commercial banks share the labor with “policy” banks, like China Development Bank or the Export-Import Bank. Those tend to fund low-yielding projects like ports and railways, while the Big Four often back the “bankable” amenities around them, such as shopping centres or property development. Significant lending also appears to be done by non-bank subsidiaries of Chinese banks.

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“Chinese-style” cross-border lending

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“Chinese-style” cross-border lending

https://www.thedialogue.org/map_list/

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https://www.europarl.europa.eu/RegData/etudes/BRIE/2022/702572/EXPO_BRI(2022)702572_EN.pdf

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China does not report the consolidated banking statistics to the BIS - only the locational banking statistics. The consolidated statistics “see through” the interoffice flows and just record the final lending to the ultimate borrowers.

This is the true nationality measure of the lending.

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Concluding remarks

Is the nature and magnitude of lending resembling that of AE banks?

Specialized in a few sectors.
They often fund Chinese-built infrastructure in emerging markets.
Peak in 2015, then declined

What trade?

Specific exports (food and minerals)

What risk?

Systemic or political?

“Distance measure” Chinese-style: Asymmetric information vs. Strategic investments. Geopolitical distance vs. Geographical distance.