By Alison Lowe
Nassau Guardian Business Editor
NASSAU, Bahamas -- The Bahamas and its multi-billion dollar Baha Mar resort should not have as much reason to fear the effects of a Chinese “credit crackdown” as other countries and projects, an economic observer has noted, as evidence emerges that major Chinese lenders are clamping down on access to credit and engaging in more “aggressive” loan management.
James Smith, former governor of the Central Bank and economic advisor to the present government, said that he doubts very seriously that The Bahamas is on the radar of Chinese lenders such as the China Development Bank and the Export-Import Bank of China as a candidate for credit cutbacks.
Smith made his comments in an interview with Guardian Business after the Financial Times reported that the China Development Bank has begun asking some international clients to postpone drawing down previously committed credit lines, in moves which the newspaper said highlight how strains on the country’s financial system are reverberating abroad.
While the crackdown is mainly aimed at reining in rapid credit growth that has been associated with the country’s “shadow bank” system, the Financial Times reports that even the state-owned China Development Bank has felt the impact.
Meanwhile, the newspaper also noted that the Export-Import Bank of China, Baha Mar’s lender, which offered the resort development a $2.4 billion loan, is now being seen to show “greater willingness” to put international borrowers into bankruptcy and sell their assets to recover value from failed loans, indicating that it too may have been impacted by the “crackdown” underway in China.
Commenting on the report, Smith said that if China is to look anywhere for places where it may wish to take more aggressive action in relation to credit extended in order to avoid losses, or reduce lending overall, it would most likely be to places like Africa and India where it has lent much larger sums than in The Bahamas, and also to more risky projects and countries.
“I doubt Baha Mar would fall into that category – the funding in The Bahamas and in the Caribbean is a very miniscule part of their total funding worldwide,” he said.
“This is probably a question of quantum; Baha Mar’s exposure is $2 billion, while in other places it’s well in excess of $50 billion. In addition, Baha Mar is due to open at the end of the year and so it will be finished drawing down soon.”
However, the reports highlight one of the less discussed potential consequences of obtaining credit from China, which stepped in following the financial crisis – as it did in the case of Baha Mar – to provide credit liberally where others feared to tread due to a reduced lending appetite in the wake of the 2008 collapse.
Its lending over the past five to six years has seen the country become a larger creditor to governments and companies in the developing world than the World Bank.
When its lending spree began, the Asian giant was deemed an economic miracle on an inexorable path to development, while today many economic analysts suggest that the question is not when the country may suffer an economic slowdown, but how “hard” or “soft” it will be, with concerns escalating about the health of the country’s financial system.
Now with a massive portfolio of international borrowers, the extent to which each may potentially be subject to any efforts the government now sees fit to take to address its own internal challenges relating to the financial sector and how to best reconfigure its growth model to one focused on domestic – rather than foreign – consumption remains to be seen.
The Financial Times reported that among the loans which the China Development Bank had asked international borrowers not to draw down on include two Indian companies, including an infrastructure developer and a shipping group. The size of the credit lines was not disclosed.
Republished with permission of the Nassau Guardian