Chinese banks and their EMDE borrowers: have their relationships changed in times of geoeconomic fragmentation?
September 2024, updated March 2026
Summary
Focus
Although Chinese banks stand out as the top cross-border lender to most emerging market and developing economies (EMDEs), their global expansion has recently slowed. We use their outstanding amounts and market shares in up to 86 EMDEs over the 2017 to 2024 period to explore the role of bilateral economic ties, borrower risk variables and foreign policies. For bilateral economic ties, we study trade, foreign direct investment (FDI) and portfolio flows between China and its borrower countries. We use debt burden measures and perceived corruption as borrower risk variables. With respect to foreign policies, we analyse both China-specific policies such as the Belt and Road Initiative and borrower-specific policies, some of which reflect geoeconomic fragmentation trends.
Contribution
Our contributions are threefold. First, by exploring both outstanding amounts and market shares, we provide a novel analysis of the evolution of Chinese banks' cross-border lending that focuses on not only Chinese banks but also their lending relative to that of other reporting countries' banks. Second, we expand the type of borrower country characteristics included in the typical panel analyses of cross-border lending to examine borrowers' risk perceptions. Third, we shed light on the relationship between Chinese banks' global business and Chinese policy initiatives, such as the Belt and Road Initiative or central bank swap lines, as well as the potential role of geoeconomic fragmentation trends.
Findings
Against the backdrop of a generally slower expansion following the Covid-19 pandemic, three findings emerge from our analysis. First, correlation patterns have shifted from cross-border lending and trade to lending and FDI. Second, Chinese banks exhibit different levels of risk tolerance relative to other countries' banks, as borrower country risk variables are positively correlated with Chinese banks' market shares but not with their amounts of cross-border lending. Third, China's Belt and Road Initiative reinforces the shifting correlation from trade to FDI, while borrowers that could benefit from geoeconomic fragmentation do not display stronger FDI-lending relationships.
Abstract
Although Chinese banks remain the top cross-border lenders to EMDEs, their expansion slowed and changed. The strong correlation between China's bilateral trade and its banks' cross-border lending weakened, while lending became more correlated with FDI during 2020-24. We analyse this shift, borrower risk and foreign policy considerations. Our findings suggest that the shift from trade to FDI is stronger for borrowers participating in the Belt and Road Initiative, but not for those benefiting from geoeconomic fragmentation. We also find that Chinese banks exhibit higher risk tolerance, as borrower risk variables positively correlate with market shares, but not with amounts lent.
JEL Classification: F34, F36, F65, G21
Keywords: cross-border lending, chinese banks, trade, FDI, borrower indebtedness, pandemic, sanctions, geoeconomic fragmentation
