Jevon Minto
Introduction
This paper estimates that between 2000 and 2018, Chinese policy banks made loan commitments of 8.9 billion dollars to govern- ments and state-run companies in nine countries in the Caribbean Community (caricom). These countries: Jamaica, Antigua and Barbuda, Barbados, Guyana, Trinidad and Tobago, Dominica, Suriname, The Bahamas and Grenada are the only members of caricom, (made up of twenty countries1), with diplomatic ties to the People’s Republic of China (prc). Of the forty-five proj- ects analyzed, the China Export and Import Bank (chexim) financed 94% of these projects; 4% of the projects were financed by the China Development Bank (cdb) and the remaining 2% by the Industrial and Commercial Bank of China (icbi). Chinese state-to-state funding in the region was the lowest on record in 2018, with approximately 241.6 million dollars in loans from the China Development Bank and China Eximbank to caricom governments and state-owned enterprises. Seven of these projects, estimated at 4.2 billion dollars, have either become white elephant
1 This takes into consideration the 15 full members of the Community and its five as- sociate member states.
projects, canceled due to environmental concerns or have been put on hold due to legal and/or sustainability concerns. This raises several issues relating to the feasibility studies that inform the decisions of these banks. As is the case throughout Latin America, Chinese finance to caricom focuses overwhelmingly on infra- structure development, with the sector accounting for 53% of all projects between 2000 and 2018 valued at 3.5 billion dollars. This is followed by mining and energy projects (13%), tourism (8%), port projects (6%), and several other multi-sectoral projects (17%). The largest project ever financed by Chinese policy banks is the con- troversial Baha Mar Resort development project in the Bahamas in 2010, costing 2.4 billion dollars. All the countries surveyed in this research, except the Bahamas, have joined the Belt and Road Initiative (bri), in hopes of getting more concessional financing to close the domestic infrastructure gap. As Chinese Banks have come to experience the risks inherent in financing development in the Caribbean, they are becoming more stringent in their loan re- quirements. Amid these developments and the recent issuance of a debt sustainability framework under the bri, could Chinese policy banks begin to curtail financing to the Caribbean?
Background and Methodology
Chinese lending activities throughout the developing world (includ- ing volume, sector concentration, associated risks, periods of flux, stagnation and increase) are well documented. In Africa, The China-Africa Research Initiative at the John Hopkins University School of Advanced International Studies has concluded that since 2000, China has provided 143 billion dollars in loans to fifty-five African countries (Bräutigam and Wang 2016). In the Oceania region, the Lowy Institute traced 6 billion dollars in Chi- nese official financial flows to fourteen countries since 2002 (Brant 2018). Since 2012, Latin America and the World Program at The Inter-American Dialogue has engaged in a comprehensive annual assessment of Chinese loan commitments to Latin America and the
Caribbean (lac). Among the key findings emanating from their reports are that since 2005, Chinese policy banks (mainly the cdb & the exim) have extended more than 141 billion dollars in loan commitments to the region and state-owned firms. In terms of concentration, Chinese financing is mainly in energy and infra- structure. Venezuela, Brazil, Ecuador, and Argentina have emerged as the top recipients of that lending (Gallagher and Myers 2019).
In the Caribbean, quantitative and qualitatively assessments are poorly documented and understood. None of the Inter-Amer- ican Dialogue reports produced since 2012 give prominence to the Caribbean. This can be partially explained by the fact that these studies exclude loans under 50 million dollars. A second explana- tion is the exclusion from these studies of several other sovereign states with diplomatic ties to the prc (Dominica, Antigua and Barbuda, and Grenada). In this analysis, fifteen loans under 50 million dollars were spread amongst all nine states, amounting to 545.95 million dollars. Thus, this study fills an important gap but also derives inferences and insights from the annual reports of the Inter-American Dialogue while mimicking its methodology.
The findings from this study make a compelling case for a higher level of specialization in the wider Sino-lac relationship, because, despite the significant expansion in China and Latin America re- lations, trade, investment and development assistance patterns are heterogeneous throughout the different sub-regions (Dussel Peters, Armony and Cui 2018).
To compile this list and include the forty projects analyzed in this report, the database of the Inter-American Dialogue was con- sulted in addition to the China Global Energy Finance Database of the Boston University and the Monitor of China’s ofdi in Latin America and the Caribbean. Independently, several budget state- ments presented before the parliament of the countries studied in this article were consulted; in the case of Trinidad and Tobago, the Annual Economic Survey reports published by its Central Bank were consulted. In the case of Suriname, caricom’s Dutch- speaking member state, several reports from its Debt Management Office were surveyed, which provided detailed information on
Foreign Loan Agreements. A wide variety of other publicly acces- sible sources were also consulted, from newspaper articles across the region to Government-issued press releases.
This paper is divided into three sections. This first section pro- vides a general overview of China’s relationship with the member states of caricom, taking into consideration their historical ties, political alignment and economic cooperation, and ends by look- ing at the role of Chinese policy banks in the deepening of the bi-re- gional partnership. Section II provides a comprehensive analysis of China´s financing in the nine countries surveyed. It examines the main Chinese banking institutions present; providing calcu- lations on composition and characteristics of Chinese loans to the region and looks at primary and secondary sector concentrations;
examining the narrative surrounding debt sustainability and pro- viding an analysis of the outlook of the future as more and more Caribbean countries sign up to the Belt and Road Initiative (bri).
Section III concludes the discussion whilst highlighting the main conditions and challenges in the China-Caribbean relationship and provides policy suggestions.
Trade, Investment, Finance and Historical Underpinnings of Sino-Caribbean Relations
China-Caribbean relations date back to the nineteenth century with the introduction of Chinese laborers on sugar plantations throughout the region following the abolition of slavery (Dong 2015:205). Since then, relations have expanded and developed amid several socio-political and economic milestones at an in- ternational level. In the twentieth century the 1949 founding of the People’s Republic of China (prc), the liberation of Caribbean states from colonialism and the 1971 expulsion of the Republic of China (Taiwan) from the United Nations (un) and its sub-organi- zations, are among the main factors that shaped China-Caribbean relations. After the prc replaced Taiwan as a un member state, Sino-Caribbean relations expanded as several caricom states
establish diplomatic ties with the prc; Jamaica and Guyana (1972), Suriname and Trinidad and Tobago (1974), Barbados (1977), An- tigua and Barbuda (1983), the Bahamas (1997), Dominica (2004) and Grenada (1985, 1989, 2005). It is important to note that at the time of writing this article, five Caribbean states2 still maintain diplomatic ties with Taiwan. During the decade that followed the 1990s, China and several Caribbean states (Barbados and Jamaica included) signed bilateral investment treaties followed by Baha- mas, Guyana, Trinidad and Tobago in the 2000s. The twenty-first century witnessed a substantial expansion in Sino-Caribbean relations with high-level delegations from both sides exchanging visits to seek funding and find investment projects coupled with a more institutionalized partnership, as seen in the 2005 establish- ment of the China-Caribbean Economic and Trade Cooperation Forum and the China-Caribbean Joint Business Council (Bernal 2013). With these developments, the trade investment and develop- ment assistance volume also increased, with notable fluctuations.
Trade between the Caribbean and China moved from 167 mil- lion dollars in 2000 to 1.7 billion dollars in 2014, representing an 18.2% annual growth increase, more than ten times the figures from 2000 peaking at 2.3 billion dollars in 2016 (Maier, McLeod, Peters and Amos 2017). Chinese Outward Foreign Direct Invest- ment (ofdi) in the Caribbean is minuscule compared to the wider Latin American region. A report published by the Atlantic Council and the Organization for Economic Cooperation and Development (oecd) found that since 2003, Chinese firms have invested over 110 billion dollars in the region but that the Carib- bean attracted less than 10 billion dollars of that amount between 2001-2016 (Avendano, Melguizo and Miner 2017). In addition to trade and ofdi, Chinese development assistance has become a centerpiece of its relationship with the Caribbean, with that coun- try providing more and more bilateral, regional, and multilateral assistance to caricom states and institutions. The growing provi- sion of assistance is influenced by the China-Taiwan diplomatic
2 St. Vincent & the Grenadines, Belize, Haiti, St. Kitts & Nevis and, St. Lucia.
rivalry (Díaz 2016:150), a reduction in aid flows from traditional development partners to the region due to a reclassification from a lower-middle to a middle-income country (Bourne 2015:27).
Notwithstanding these developments, China-Caribbean relations do not match the breadth and depth of the relations between China and the rest of the region. There are several reasons for this, with resource endowment being the main differentiating factor mainly because “the resources in the Caribbean are not as rich as those available in the rest of Ibero-America, and the Caribbean’s capacity to absorb Chinese imports are limited compared to the rest of the region” (Dong 2015:205).
The Role of Chinese Policy Banks
Behind the substantial deepening of China-caricom relations is the Import-Export Bank of China (chexim), and the Chinese Development Bank (cdb). They have emerged as two of the most important players in the growing Sino-Caribbean relationship, pumping billions of dollars into fostering the rapid expansion of Chinese trade and investments across the region. These banks perform this function in-keeping with their role as tools of the gov- ernment whose loans are used to support the policy objectives of the State. These two banks are amongst the most important overseas creditors for China as they come to dominate overseas lending. Between 2000 and 2017 they were responsible for more than 75% of all direct cross-border lending activities (Horn, Re- inhart and Trebesch 2019). The China Exim Bank is ranked as the world’s third-largest export credit agency (eca), providing as much as 130 billion dollars in government export financing sup- port in 2018. With this lending trajectory, the us exim Bank warned in its 2018 annual report that China is leading a new export lending arms race by “weaponizing” its ECAs. According to the report, “The Chinese export credit system’s performance over the last ten to fifteen years has impressed upon other ECAs a sense of urgency to change policies and programs or risk losing access
to large swaths of key markets” (Ekblom 2019). cdb is the world’s largest development finance institution (Gallagher 2016). Created during the 1994 reform period, these banks are both owned by and subordinated to the Chinese State council and explicitly sup- port China’s policies at home and abroad. They offer loans mainly to fund infrastructure, energy, and mining projects (Gransow 2015;
Gallagher 2016). Although these two institutions form an inte- gral part of China’s export finance infrastructure, they differ in their roles. The cdb supports China’s macro policies by advancing loans to foreign projects that will acquire goods and services from China’s major strategic companies. cdb’s credit lines offer exclu- sively market-based interest rates (Alves 2012:101). The policies that it supports are outlined in the five-year plans and focuses on sectors such as electric power, roads, railways, petroleum and pet- rochemicals, coal, ports, telecommunications, and agriculture. On the other hand, The exim Bank seeks to help Chinese companies obtain investment opportunities abroad through the provision of export credits to Chinese companies, loans for overseas construc- tion and investment projects, and concessional loans to foreign governments (Gallagher 2016). It is also a mandate of the policy bank to provide concessional loans with low interest rates (Gal- lagher, Irwin and Koleski 2012).
Estimates of Chinese Financing in the Caribbean
Since 2000, Chinese policy banks have extended an estimated 8.9 billion dollars in loan commitments to the nine member countries of the Caribbean Community (caricom) with diplomatic ties to the communist state. This study finds that almost 90% of this figure was disbursed in the second decade of the current cen- tury, with only 1.1 billion dollars reaching the region between 2000 and 2009. A loan in 2010 of 2.45 billion dollars provided by china Exim towards the construction of the controversial Baha Mar casino-based resort in the Bahamas accounts for 27%
of the 8.9 billion dollars. After these commitments peaked at 2.8
billion dollars in 2010, they have dropped to new lows, falling to 241.6 million dollars in 2018. Last year only three countries;
Trinidad and Tobago, Antigua and Guyana received financing from Chinese policy banks. Figures in 2018 were the lowest on record since 2012 and the fifth-lowest since the beginning of the current century. This drop is consistent with a larger trend across the wider Latin American region. Margaret Myers and Kevin P.
Gallagher (2018) observe that “Chinese state-to-state finance in Latin America dipped to a five-year low in 2017, the same year [that] Chinese overseas investment also slowed, largely due to new capital controls on overseas investments put in place by the Chinese government to maintain financial stability.” A decision by the Jamaican Government not to borrow any new loans (Henry 2019) also led to the decline mainly because every year since 2010, Chinese policy provided on average 348 million dollars in financ- ing to Jamaica or Chinese firms in the island nation, primarily in the form of multi-year infrastructure projects. To put that into perspective, in 2016, the Caribbean Development Bank (cdb) approved a loan and grants of up to 306 million dollars for nine- teen borrowing member countries, the highest approved loan between 2010 and 2016 (cdb 2017). Despite the decline last year, there are indications that flows could recover in 2020 and beyond.
There are several projects that Chinese banks are being asked to finance; a 220 million dollar international airport in the Dominica (Dominica News Online 2017); a 205 million dollar airport in Suriname (Chickrie 2018) and Jamaica signed a Memorandum of Understanding earlier this year with the China Harbour Engineer- ing Company (chec) for a new multi-year infrastructure termed the Greater Infrastructure Development Programme, gidp (opm Communications 2019). In Guyana, authorities are exploring the development of a deepwater port project and the construction of a highway to cut transport times to northern Brazil by providing a faster route to the Panama Canal (Youke 2019). In Antigua and Barbuda the Government has signed an agreement with Chinese investors to build a major resort and residential development project valued at 740 million dollars, which is set to include a
manufacturing hub (Escarfullett 2018). While in Grenada, the cdb is helping the country draft a multibillion-dollar national development strategy (Chen 2017). In the following order, Baha- mas (2.6 billion dollars), Jamaica (2.2 billion dollars), Trinidad and Tobago (1.1 billion dollars), and Suriname (709 million dollars) re- ceived the most financing from Chinese policy banks. Grenada received the least amount at 79 million dollars. This study can- not provide conclusive data on the average interest rate at which Chinese policy banks lend to the region, such financing terms are rarely made public when projects are announced. Of the forty- five projects analyzed for this research, only nine had data on fi- nancing conditions; six projects, each with a transaction of 40 million dollars or over carried a 2% interest rate, five of these had a twenty-year repayment period and for the most part, a five-year moratorium. For the outstanding three, one had a 3.5% interest rate on a loan that was provided by the icbi and a 98 million dollars loan issued to Suriname by China exim which had a 3%
interest rate. The ninth project, valued at 340 million dollars, car- ried a 3% interest rate. Jamaica’s Finance Minister has indicated that 99% of the loans secured from China are at fixed interest rates of 2 and 3%, which “are among the lowest interest rates in our entire loan portfolio” (Bryan 2018). If this holds true region-wide, the outstanding thirty-six projects should carry similar interest rates. Two other notable findings of this research were two land for loan deals in the construction of the North-South Highway project in Jamaica and the construction and financing of the vc Bird Airport in Antigua and Barbuda.
Table 1. Chinese Financing to caricom States (2000-2018) Year Borrowing Country Borrower Lender Amount
$USM Purpose Sector
2004 Suriname Government chexim 43.35 Paramaribo Road
Resurface Infrastructure 2005 Jamaica Government chexim 35 Trelawny Sports
Stadium Infrastructure 2005 Guyana Government chexim 200 Skeldon
Sugar Factory
Modernization Infrastructure 2006 Jamaica Government chexim 2.5 Water Plant
Rehabilitation &
Expansion Infrastructure 2007 Antigua Government chexim 7.8 St. Joseph Medical
Center Health
2007 Suriname Government chexim 215 Binder Layer
Afobakka Road Infrastructure
2007 Guyana Government cdb 46 Linden Bauxite
Operations Mining 2008 Guyana Government chexim 40 Electricity
Upgrade Energy
2008 Antigua Government chexim 40 Energy plant Energy 2008 Jamaica Government chexim 45 Montego Bay
Convention
Center Infrastructure 2008 T&T Government chexim 400 Alutrint Smelter
Complex Mining
2009 Jamaica Government chexim 100 Trade Financing Trade 2010 Bahamas BMC
Properties chexim 2450 Baha Mar Resort
Develop Tourism
2010 Jamaica Government chexim 58.1 Palisadoes Shoreline
Protection Infrastructure 2010 Jamaica Government chexim 340
Jamaica Development Infrastructure Programme
Infrastructure
2010 Guyana Government chexim 32 Construction of Digital Network Other 2011 Jamaica Government chexim 71 Economic
Housing Project Housing 2011 Bahamas Government chexim 58 Nassau Airport
Expansion Infrastructure 2011 Antigua Government chexim 75 VC Bird Airport
Expansion Infrastructure 2011 Antigua Government chexim 47 Wadadli Power
Plant Energy
2012 Guyana Government chexim 130 Cheddi Jagan Airport
Expansion Infrastructure
2012 Bahamas Government chexim 40 Abaco Infrastructure
Projects Infrastructure 2012 Suriname Government chexim 47.3 100 Housing
Projects Housing
2013 T&T Government cdb 150 Couva Children’s
Hospital Health
2013 T&T Government chexim 85 Sporting Facilities Infrastructure 2013 Guyana Government cdb 413.2 Amalia Falls
Hydroelectric
Plant Energy
2013 Jamaica Government chexim 352
Major Infrastructure Development Programme
Infrastructure
2013 Jamaica chec chexim 456 North South
Highway Project Infrastructure
2013 Dominica Government chexim 70 Hotel Tourism
2013 Dominica Government chexim 40 Multi-sectoral Other 2014 T&T Government chexim 750 La Brea Port Port 2014 Grenada Government chexim 13 St. Marks Flood
Mitigation Project Infrastructure 2015 Grenada Government chexim 66 Maurice Bishop
Airport Upgrade Infrastructure 2015 Barbados Government chexim 170 Sam Lord’s Hotel
Rehabilitation Tourism 2015 Bahamas Government chexim 250 The Pointe Hotel Tourism 2015 Suriname Government icbi 70.8 Road Project Infrastructure 2016 Guyana Government chexim 45.5 East Demerara
Road Widening
Project Infrastructure 2016 Jamaica Government cdb 454 Alumina Refinery
Opening/Upgrade Mining 2016 Suriname Government chexim 235 National
Infrastructure
Project Infrastructure 2016 Suriname Government chexim 98 Broadband
Project Other
2017 T&T Government chexim 21.5 Acquisition of Patrol Vessel Other
2017 Jamaica Government chexim 326 SCHIP Infrastructure
2018 Guyana Government chexim 37.6 Expansion of
Digital Network Other 2018 Antigua Government chexim 100 Cargo & Port
Harbor Port
2018 T&T Government chexim 104 Industrial Park Port Source: author’s elaboration based on data gathered from sources outlined
in methodology.
Figure 1. Chinese Finance to caricom by State $usm (2000-2018)
Source: author´s elaboration based on Table 1.
Sector Concentration
53% of the 8 billion dollars that Chinese policy banks extended to the region were focused on infrastructure projects, 6% on port projects and 13% in the mining and energy sector. This trend followed the pattern observed by researchers in Latin America, Africa and the Oceanic region. Gallagher 2016 provides a useful explanation when he writes that “cdb & chexim provide financ- ing in these sectors because they seek to directly support economic growth rather than social welfare.” It is also in accord with the mission statement on the website of the exim Bank which states that its projects must “be able to generate foreign exchange rev- enue and create jobs in the borrowing country, hence the focus on supporting infrastructures such as energy, transportation, telecommunication projects and high-efficiency sectors such as manufacturing, processing, and agriculture in the borrowing coun- try.” Tourism as a sector received 8% of all loans provided to the region by these policy banks. The remaining 17% was spread across soft sectors such as housing development, health care and water and sanitation (see Figure 2 below).
0 500 1000 1500 2000 2500 3000
Grenada Dominica Antigua and Barbuda Barbados Bahamas Suriname Guyana Trinidad Jamaica
Amount