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Anyone wanting a primer on the secret of China's economic success need look no further than China Development Bank (CDB)—which has displaced the World Bank as the world's biggest development bank, lending billions to countries around the globe to further Chinese policy goals. In China’s Superbank, Bloomberg authors Michael Forsythe and Henry Sanderson outline how the bank is at the center of China's ...
Anyone wanting a primer on the secret of China's economic success need look no further than China Development Bank (CDB)—which has displaced the World Bank as the world's biggest development bank, lending billions to countries around the globe to further Chinese policy goals. In China’s Superbank, Bloomberg authors Michael Forsythe and Henry Sanderson outline how the bank is at the center of China's domestic economic growth and how it is helping to expand China's influence in strategically important overseas markets.
100 percent owned by the Chinese government, the CDB holds the key to understanding the inner workings of China's state-led economic development model, and its most glaring flaws. The bank is at the center of the country's efforts to build a world-class network of highways, railroads, and power grids, pioneering a lending scheme to local governments that threatens to spawn trillions of yuan in bad loans. It is doling out credit lines by the billions to Chinese solar and wind power makers, threatening to bury global competitors with a flood of cheap products. Another $45 billion in credit has been given to the country's two biggest telecom equipment makers who are using the money to win contracts around the globe, helping fulfill the goal of China's leaders for its leading companies to "go global."
Bringing the story of China Development Bank to life by crisscrossing China to investigate the quality of its loans, China’s Superbank travels the globe, from Africa, where its China-Africa fund is displacing Western lenders in a battle for influence, to the oil fields of Venezuela.
As China's influence continues to grow around the world, many people are asking how far it will extend. China’s Superbank addresses these vital questions, looking at the institution at the heart of this growth.
The global expansion of China, and the secret to its investment-driven growth at home, can't be explained without a good understanding of the one institution that ties the phenomenon that is China Inc. together: China Development Bank. The introductory chapter explains in broad terms the extent of the bank's involvement in China's global expansion and its domestic infrastructure boom. As western financial institutions came close to collapse in 2008 China Development Bank began its expansion overseas, lending billions for Chinese companies to buy assets and taking a stake in one of the world's biggest financial firms, Barclays Plc. Since then Chen Yuan, the bank's chairman, has defended the need for a state-owned policy bank to propel China's growth. Other emerging industrializing countries, such as the British empire and the British East India Company, have also used state-led companies to boost their country's access to resources. In many ways, China Development Bank is a modern-day equivalent, sending teams of executives to oversee projects from Venezuela to Egypt.
Chapter II: Building the Bank
1. Chen Yuan and his father's planning apparatus
2. Origins of the bank, 1994
3. Chen takes over
4. Risk management and lending innovations
5. Building a bond market
This chapter will introduce Chen Yuan and his father, whose bronze bust sits in the lobby of CDB Capital's office in Beijing. Chen Yun helped write China's first five-year plan in the 1950s and oversaw the planning apparatus that gave rise in 1994 to the China Development Bank. The contrast between father and son shows the evolution of a Communist cadre from a Marxist revolutionary to a globe-trotting, English-speaking banker who sends his children to America for their educations. Chen Yuan overcame the disappointment of being passed over for the job of China's central bank governor to build what many consider the best-run bank in China. He introduced heretofore unknown principles of risk management into the least likely of lenders, a bank designed to serve the goals of the socialist state. Chen's bank is unique among Chinese lenders in that it is financed almost completely by bond sales. The majority state-owned commercial banks that are now the world's biggest banks by market capitalization rely on deposits to fund their lending. The result is that China's bond market owes its existence in many ways to CDB.
Chapter III: Going Global in Service of the State: Lines of credit to Huawei, ZTE and Clean Energy Industry
1. Huawei, ZTE get lines of credit to loan overseas and world reaction
2. Solar, Wind companies build capacity with CDB loans
3. The world cries foul
In 2004 China Development Bank began a relationship with Huawei Technologies Co., then a second-rate maker of telecoms equipment. Within a few years Huawei and its crosstown rival ZTE Corp. had a combined $45 billion line of credit from CDB that allowed them to give loans to customers from Mexico to Bangladesh for the purchase of their equipment. The result: Huawei is now the world's no. 2 telecom equipment maker and ZTE occupies the No. 5 position. Now CDB is repeating its success with some of China's biggest alternative energy companies, including Suntech Power Holdings Co. and Yingli Green Energy Holding Co. The goal in both instances is the same: serve the state. The tech loans further China's goal of nurturing global champions that can take on multinationals in the U.S. and Europe. That goal plus the push to reduce China's chocking pollution drives the loan push to the solar and wind companies. The problem is that the loans may be unfairly helping Chinese companies, according to a growing chorus of officials in the U.S. and Europe, most recently U.S. Undersecretary of State Robert Hormats, who said on May 3 that China''s state capitalism is ''putting our companies at a competitive disadvantage.'' The U.S. is investigating the role China's soft loans play in hurting the U.S. clean energy industry.
Chapter IV: Going Global in Service of the State: New Colonialism in Venezuela and oil-for-loans with Brazil, Russia, Turkmenistan
1. Chavez Ties Fate to China
2. CDB Loan-for-oil Innovation
3. Haggling With Russia
4. Dominating Central Asia
5. Feeding Brazilian Ambition
In April, the bank dispatched a team of 100 officials to Venezuela to help supervise investments in the country from the $20.6 billion loan CDB arranged in 2010. Chinese loans fund projects such as public housing that are being built by Chinese companies, resulting in a double windfall for China Inc. The overarching goal is to secure oil and gas supplies for the motherland, the world's biggest energy consumer. CDB negotiators drive hard bargains, hiring teams of New York lawyers to negotiate oil-for-loans programs and holding out for years when, as in the case of Russia, the other party won't agree to favorable terms. In a developing world starved for cash, China, through CDB, is providing the liquidity. Can CDB succeed in the developing world where so many well-known western banks have failed? Venezuela is ranked as one of the two countries in the world most likely to default -- the other being Greece, another recipient of CDB loans -- by CMA Datavision.
Chapter V: Going Global in Service of the State: The China-Africa Development Fund
1. Making Friends in Kenya
2. Zimbabwe, Angola
James Mwangi, the CEO of Equity Bank Ltd., Kenya's biggest lender by customers, was in a good mood at the Summer Davos meeting in Tianjin in September 2010. His bank has just signed a 4 billion-shillings loan ($50 million) agreement with China Development Bank in May. The loan allowed them to lend to small and medium-sized companies for half the normal interest rate in the country, he said. The bank's 7.8 billion yuan China-Africa Development Fund invests in Chinese companies doing business in Africa, including in a ferrochrome plant in Zimbabwe, just as global lenders scale back lending to the continent. It dwarfs competitors such as the British Commonwealth Development Corporation and France's Proparco.
Chapter VI: Conflicts of Capital: Private Equity with Chinese Characteristics
1. A State Monopoly
2. Deck Chairs on the Titanic; Equity stakes in indebted companies: a case study
Global private equity firms such as KKR and Carlyle are rushing to China as quickly as their private jets will carry them signing deals with local governments to get access. Yet China Development Bank is a step ahead. The only bank in China to be granted a private equity license, its China Development Bank Capital company is run by Zhang Xuguang, a smooth-looking businessman who favors stripy suits and big ties. CDB's credit rating and state-backing can give companies the connections global private equity players lack. With investments in the Tianjin Eco-City project as well as steel and iron companies, it hopes to raise over 3 billion yuan for a fund of funds. A splashy rollout of the fund in December featured video clips from private-equity legend David Bonderman and shots of the Statue of Liberty and Wall Street.
Chapter VII: Risking it All: Loans to Local Government Investment Vehicles
Can China escape the credit boom-and-bust cycle that has plagued global economies for centuries? Under a stimulus plan in 2009 to help China weather the financial crisis, the government ordered banks to lend to thousands of local-government backed companies across the country, stoking an infrastructure spending spree which kept China's economy booming. China Development Bank is now dealing with the results of this lending that threatens Chen Yuan's carefully-cultured policy of operating like a professional, global, bank. His bank is more exposed to so-called local government financing vehicles than any lender in China, and these companies borrow money using land as collateral. Any downturn in the property market may undercut their collateral and help stoke a banking crisis. CDB is now underwriting bonds to the same LGFVs that it has lend money to, and in some cases it is buying equity stakes, giving them more funds to pay their original debts.
1. Case study: Leshan
2. Case study: Luoji City
Chapter VIII: Conclusion
Future of the bank: commercialization and loss of sovereign status. Is it a servant of the state or a global bank?