China’s Russian loans

CHINA ADVISORY - Report 17 Mar 2022 by Andrew Collier

China is now considered Russia’s most important partner due to their close strategic, political, and economic relationship. How do we value this relationship? One way is to examine the loans China has made to Russia over the past decade. Using the Aiddata loan database from William and Mary college in the U.S., we analyze which institutions are lending and what sectors are most important. This helps to understand the nature of the institutional support China is providing to Russia and what this may mean for the internal politics within China as it debates how much support to provide.

The Aiddata calculation of China’s global loans is one of the most complete databases on China’s foreign loans. The data covers loans from 2002 to 2017 and includes projects up to 2021. The total for the period of loans made was $176 billion in 2017 US dollars. The data we analyzed excludes loans without complete information.

Summary
* Russia has not been a major borrower for China, generally accounting for far less than 10 percent of its overseas loans (with some exceptions during certain years).

* Most of the loans are state-to-state: loans by state agencies in China (mainly the China Development Bank) to state firms in Russia.

* Almost 40 percent of all loans have been made in USD, which will be problematic for China given U.S. sanctions. Will China be forced to retract its loans?

* At least three-quarters of all loans were to energy and mining projects.

* Almost 90 percent of loans were made by Chinese state agencies, which reflects the importance of commodities to the Chinese state.

* The Chinese government ownership of the majority of the loans will make any resolution of financial problems a central government decision. The almost complete lack of private sector involvement (unlike some loans made to other countries, such as those for Belt and Road initiatives) makes the Russia flows particularly politically sensitive and also signals the lack of attractiveness of the Russian economy to China’s commercial banks.

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