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Chinese Development Finance:
Reaching a Tipping Point
Daniel Poon, Economist
formerly with UNCTAD and ILO
Brazil-China Innovation Dialogue 2016
Rio de Janeiro – November 22-23
1
Outline of Presentation:
Drivers of China’s Next Development Stage
Economic Upgrading
Outward Investment & Development
Finance
Industrial Over-
capacity & Reform
2
China Development Finance: In pictures
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But … why stop there?
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Part 1
Annual Outward FDI Flows($ billions, %)
2005-2007* 2012 2013 2014 2015
World 1,445.0 1,309.0 1,311.0 1,318.0 1,474.0
US211.0 318.2 307.9 316.5 300.0
14.6% 24.3% 23.5% 24.0% 20.4%
China18.8 87.8 107.8 123.1 127.6
1.3% 6.7% 8.2% 9.3% 8.7%
Japan56.5 122.5 135.7 113.6 128.7
3.9% 9.4% 10.4% 8.6% 8.7%
Germany120.2 62.2 40.4 106.2 94.3
8.3% 4.8% 3.1% 8.1% 6.4%
*annual average
Source: UNCTAD
5
China Outward Development Financing:
Comparative Estimates China’s two main policy banks – CDB and C-EXIM – hold more
total assets than the combined sum of assets of Western-backed MDBs.
CDB and C-EXIM have over $2 trillion in total assets; Western-backed MDBs hold over $700bn.
China development banks’ international holdings are roughly 30 percent of total assets = $569bn in global assets, or ¾ of Western-backed MDBs global assets
However, trends in composition of development/export finance are already visible...
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Source: Gallagher et al. (2016)7
OECD ‘Helsinki Rules’: Arrangement on
Export Credits
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Changing Composition of Development
Finance (DF)
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Source: US Export-Import Bank (various years).
0%
10%
20%
30%
40%
50%
60%
70%
0
50
100
150
200
250
2011 2012 2013 2014
Per
cen
tage
Bill
ion
s
OECD DF BRIC DF China DF (left scale)
OECD Regulated/Total DF OECD Unregulated+BRIC/Total DF OECD Unregulated/OECD Total DF (right scale)
Short-Term Export Credit and Working
Capital Volumes, 2015
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图1 中国信保出口信用保险承保金额对一般贸易出口的渗透率
OECD arrangement: Inside and Out
Source: US Export-Import Bank (2015). 11
Source: US Export-Import Bank (2016). 12
Further Loans? (In addition to AIIB and
NDB)
Source: Gallagher et al. (2016)13
China’s Contribution to Development
Cooperation?
Incidentally, Lin and Wang (2015) have proposed a
broader definition of development financing, arguing
that:
“To ‘integrate’ emerging economies into a global support
system for development and to lower the transaction
cost would require us to keep an open mind to the
Chinese perspective about international development,
especially allowing for developing countries to help each
other on the basis of ‘equality and mutual respect,
reciprocity, and mutual benefit’.”
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Part 2
Economic Upgrading: Planning Overview
Source: USCC (2016)
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Made in China 2025: Some Highlights
Raise manufacturing sector R&D spending: from 0.95 in 2015, to 1.26 in 2020,
to 1.68 in 2025 (as a share of sales).
Manufacturing innovation centres: 15 manufacturing innovation centres by
2020, 40 by 2025.
Intelligent manufacturing and High-end equipment innovation plans:
significantly boost level of ‘smart’ manufacturing in key areas by 2020,
establish independent design and manufacturing of advanced equipment
capabilities by 2020 (aviation, transportation, marine engineering,
manufacturing, nuclear, healthcare).
Core industrial capability deepening: Raise ratio of domestic core components
and materials to 40% by 2020, 70% by 2025 of domestic supply (in certain
areas foreign products represent over 80% of domestic supply.
Green manufacturing plan: cut emissions by 20% by 2020, from 2012 base
levels.
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Made in China 2025: Priority Sectors
IT (semiconductors, telecom equipment, software),
high-end machinery and robotics,
aerospace equipment,
marine engineering equipment and shipping,
light rail equipment,
conservation and new energy vehicles,
electricity generation equipment,
agriculture machinery equipment,
new materials,
bio-medicine and high-performance medical devices
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Industrial Upgrading: Sub-Sectoral Plans
Source: USCC (2016)
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Creation of Domestic Investment Funds I
Advanced Manufacturing Industry Investment Fund
(先进制造业产业投资基金)
Announced in July 2016, initially capitalized with RMB 20bn (~$3bn).
RMB 6bn contribution from central government led by NDRC, MoF, and MIIT.
Other state-owned investors include: State Development & Investment Corp. (SDIC, 国家开发投资公司) and Industrial and Commercial Bank of China (ICBC).
To implement ‘Made in China 2025’ plan and to act as a ‘first-mover’ investor to attract ‘social capital’ in key projects, companies and industries.
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Creation of Domestic Investment Funds II
State Venture Capital Fund
(中国国有资本风险投资基金)
Announced in August 2016, initially capitalized with RMB 200bn (~$30bn).
Main shareholder: China Guoxin Holdings Co. (中国国新控股有限责任公司), which is owned by State-Owned Assets Supervision and Administration Commission (SASAC)
Other investors are: Postal Savings Bank of China, China Construction Bank, and Shenzhen Investment Holdings Co.
To invest mainly for enterprise technology innovation, and industry upgrading projects; to use market mechanisms to promote national innovation and development strategies; to strengthen oversight of state assets, and push forward the mixed ownership economy. 20
Creation of Domestic Investment Funds III
State Structural Adjustment Fund
(中国国有企业结构调整基金)
Announced in September 2016, planned capitalization of RMB 350bn (~$50bn).
Main shareholder: China Reform Holdings Co. (中国国新控股有限责任公司), which is owned by State-Owned Assets Supervision and Administration Commission (SASAC)
Other investors are: Postal Savings Bank of China, China Merchants Bank, China North Industries Group, Sinopec, Shenhua Group, China Mobile, CRRC Corp Ltd (中国中车集团公司), China Communications Construction Co. (中国交通建设股份有限公司), and Beijing Financial Street Investment Group (北京金融街投资有限公司)。
Four main areas of investment: 1) Strategic activities, 2) Upgrading/Transformative activities, 3) M&A/Reform activities, 4) Asset management activities.
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Illustrative Example? Semiconductors
Reuters reporting that programmable-chip maker Lattice Semiconductor Corp. is being acquired by Canyon Bridge Capital Partners for $1.3bn.
Canyon Bridge based in Palo Alto, California. Its limited partners come mainly from Beijing-based China Reform Fund, which is owned primarily by China Reform Holdings Co.
Tsinghua Unigroup, China’s largest chip designer, began building a minority position of just under 10% in Lattice earlier this year, but later abruptly began selling shares – it now holds a 5% stake.
Note: China also established a ~$20bn national semiconductor fund in Sept 2014, other regional/local funds are expected to provide an additional $97.5bn in investment financing for this sector.
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