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FRI,MAY13,2016

ChinaLatinAmerica:BeijingStillLending,ButforHowLong?
WithLatinAmerica'soilproducershurtingunderlowoilpricesandfromselfinflictedinjuriesrangingfrom
corruptiontomismanagementChina,whoseeconomyisalsoslowing,couldbeforgivenforstayingonthesidelines
andprioritizingtherecoveryofsomeofitsloanstotheregion.Instead,Beijinghascontinuedtolend,andgenerously
atthat.ButhowmuchlongerisitreadytosupportitsfragileSouthAmericanallies?InVenezuela'scase,timemaybe
runningout.
Chinarespondedtothecontinent'sdifficultieslastyearbyalmosttriplingitsloanstotheregionto$29billion,the
secondhighestyearonrecordforChinesebankfinancetoLatinAmerica,toppedonlybylendingin2010,the
WashingtonbasedInterAmericanDialogueestimates.Thisyearcouldseemoreofthesame.ChinaDevelopment
Bank(CDB),thelargestofChina'spolicybanks,whichpromotegovernmenteconomicpriorities,recentlyagreeda
new$10billionoilloanwithBrazil'sstatePetrobras.A$2billionloantoEcuador,likelyagainstoilrepaymentsto
PetroChina,wasannouncedjustafterthemidAprilearthquake.
OilbackedloanshavebeenoneofChina'spreferredlendingtoolstoSouthAmericaaswellastoRussia.Repaid
inoil,theyimproveChina'senergysecuritybydiversifyingitsoilsupplies,andavoidforeigncurrencyrisks.Usually,
China'sCDBlendsmoneytoagovernment,oranoilcompany,againstacertainvolumeofcrudetobesoldata
certainpricestaterefinersSinopecandPetroChinareceivethesevolumes,forwhichtheymakepaymentsintoa
CDBaccount.
But2016couldyetseeachangeindirection,atleastwhenitcomestoVenezuela,whichisonthebrinkofdefault.
Lastyear,oneloanwasrenewedanduppedby$1billion,whileafresh$5billionloanwasgiventostatePetroleos
deVenezuelatohelpboostitsoilproduction.Butthecountryisunlikelytogetafreshloanthisyear,orevenaloan
renewal,accordingtotheInterAmericanDialogue'sMargaretMyers.
TheVenezuelaProblem
Injustunderadecadeupto2015,Venezuelaabsorbed$65billioninloansfromChina,makingitbyfarthebiggest
recipientofChina'slargesseonthecontinent,expertssay.ButChinesedisappointmentaboutstrugglingupstream
investmentsinVenezuelaandCaracas'inabilitytodeliverhopedforvolumesofcrudewithbothsidesatonepoint
toutinga1millionbarrelperdaytarget,againstanactualrateof321,500b/din2015,thehighestyearlyaverageon
recordhavecurtailedBeijing'searlyenthusiasm.
"Thelow[Venezuelancrude]volumes,especiallyatrelativelylowprices,callintoquestionhowlongitisgoingtotake
Venezuelatopaybackitsloans,"MattFerchen,aChinaLatinAmericaexpertattheCarnegieTsinghuaCenterfor
GlobalPolicyinBeijing,said,describingtheVenezuelanoilloansasafailure.
FearsthatVenezuelacoulddefaultbyendyearhavealsoraisedthequestionofwhetheritwoulddefaultontheoil
loans,too(related).ButbarringtheVenezuelanoppositiontakingpoweranddecidingtodismisstheloansaltogether,
thesearelikelytobehonored,althoughmaybeatanevenslowerpace,saysFerchen(ECFeb.19'16)."Adefaulton
anoilbackedloanwouldbeapoliticaldecision.Thegovernmentcouldalwayssay:'Wewillmeetourobligations,we

havetheoil,butitwilltakelonger.'"
ItseemslikelythatChina,howeverdisappointed,isreadyforthatoption."Becauseofpoorperformance,Chinese
[nationaloilcompanies]willhavetoagreetotakelessoilforacertainperiodandtoextendcrudetermcontracts,"a
ChinaNationalPetroleumCorp.(CNPC)sourcetoldEnergyCompass,adding:"ButitistotallyuptoLatin
America'sgovernments,CNPCwillhavetoobey."Venezuelansuppliesaccountedfor4.8%ofChina'stotalcrude
importslastyear,andtotalLatinAmericanvolumes12.7%.ButChinadoesn'tlackforalternatives."Wedon'trelyon
LatinAmerica'soil.ThereisalotofoilinSaudiArabia,RussiaandAfrica,"saidtheCNPCsource.
Whatevertheshorttermissues,VenezuelawillremainonChina'sradarforthelongterm,thankstoitslarge
undevelopedreserves,USenergyacademicThomasO'DonnelltoldEnergyCompass:"Itisnotimpossiblethatthey
agreemoreloans,butthetermswouldbeveryspecific.Chinesecompaniesarepushingbackagainstinvestingin
fields.Theywantmoreconcessions."
Brazil'swoeshavealsolikelydisappointedChina,whichhadloanedalmost$22billiontothecountryasofend2015
(ECApr.22'16).ButBraziliancrudesalestoChinaalmostdoubledlastyearto280,000b/d,whichcouldmeanthat
BrazilhasuppeddeliveriestoChinatocompensateforloweroilpricesandkeeprepaymentsontrack,orthatthis
year'sPetrobrasdealkickedoffearly.Brazil'sfirstoilbackedloanfromChina,in2009,calledforsalesof150,000
b/dduringthefirstyear,then200,000b/dfortheremainingnineyears.
Therecent$10billionoilloanagreedbetweenChinaandPetrobrasshowsthatsuchdealsstillhaveafuture,despite
somemisgivingsonBeijing'spartandevenasChinaisbuildingnewmultilaterallendingagencies,suchastheBrics
backedNewDevelopmentBankandtheAsianInfrastructureInvestmentBank(ECApr.24'15)."Chinesepolicy
bankswillalwaysbemoreamenableandquickertodealwith,moreflexible.TheygiveChinamoreleverageand
moreflexibility,"EnergyAspects'AsiaanalystMichalMeidantoldEnergyCompass.
MaryelleDemongeot,Singapore,DawnLee,Beijing,andJasonFargo,NewYork
CompassPoints
CONNECTION:DifficulteconomictimesmeanLatinAmericanproducersneedChineseloansmorethanever.
Petrobrasthismonthannouncedplanstostarttappinga$1billionloanfromChina'sotherlargepolicybank,the
ExportImportBankofChina,thisyearratherthannext.
SIGNIFICANCE:OilloanshaveallowedChinatodiversifyitsoilsupplies,withimportsfromSouthAmericamore
thantriplingbetween200815eveniftheyhavenotfulfilledallexpectations.
NEXT:WatchtoseewhetherBeijingcutsoffCaracas,andwhetherthenewBricsbankstepsintoreplacesomeof
China'sunilateralloanswithmultilateralones.
China'sMainImportsofLatinAmericanCrude
2014
2013
2012
2011
2010
2009
2008 2007
('000b/d) 2015
Venezuela 321,493 276,888 316,250 306,224 231,390 151,612 105,767 129,518 82,658
Brazil
279,495 140,618 105,246 121,575 118,540 161,615 81,539 60,518 46,502
Colombia 178,060 198,554 79,102 58,252 59,839 40,169 24,868 22,847 16,913
Ecuador
28,060 14,994 14,242 17,898 7,663 16,273 35,933 20,987 4,711
Argentina
8,774 6,474 16,916 24,170 46,972 22,803 14,457 15,442 31,458
Source:EnergyIntelligenceanalysisofcrudeimportdatafromtheGeneralAdministrationofCustomsofChina