China’s Lending in Latin America: A Development Opportunity or a Debt Trap?

This paper focuses on China and its financial relations with Latin America. It aims to examine recent claims about China’s lending practices and its effects on selected economies in Latin America. Recent political pundits and policy makers claim that China’s lending behavior is predatory and it is meant to ensnare countries into unsustainable high levels of debt. The term “debt-trap diplomacy” has been used to describe such behavior. As China becomes a very important trade partner and foreign lender in Latin America, it is key for policy makers to determine whether financing from China is indeed predatory or if it is a development opportunity for countries in the region. We start with China’s economic background and history as a foreign lender and a description of its main policy banks, China Development Bank (CDB) and the Export-Import Bank (ExImp). Then, we describe China’s lending practices such as commodity-backed loans and other particular characteristics. Finally, we analyze China’s relationship with three important nations in Latin America, namely, Venezuela, Brazil and Peru to examine their financial relationship with China, and its possible effect on debt sustainability.https://digitalcommons.cortland.edu/posters/1037/thumbnail.jp