The secretive Chinese leviathan that bankrolls the world

ASIA BRIEFING:The world's most powerful bank is one most people have probably never heard of. It's not Goldman Sachs, JP Morgan, HSBC or Bank of America.

It’s the China Development Bank, a giant, non-transparent institution, wholly owned by the Chinese government, and weighty enough to have a profound influence on global geopolitics and business. This is the lender that bankrolls China’s foreign policy initiatives.

While development banks have long existed to finance political projects, infrastructure and other initiatives, nothing comes close to China Development Bank (CDB) in scope.

China’s double-digit economic growth in the past few years is inextricably linked to the rise of the CDB. Anyone who has visited China will have been impressed by the massive infrastructure investment in road and rail, and in glistening new urban centres. Chances are the funding for these projects came via this bank.

In their impressive and comprehensive new book, China’s Superbank: Debt, Oil and Influence – How China Development Bank is Rewriting the Rules of Finance, Beijing-based Bloomberg journalists Henry Sanderson and Michael Forsythe explore how CDB has transformed China’s landscape in just over a decade by pumping trillions of yuan into various domestic projects.

“If you want to understand China – both at home and how it is influencing the world – examining China Development Bank is a very good place to start,” they write.

The book is another useful insight into the workings of the Chinese state apparatus to come out of the Bloomberg bureau in Beijing – in July it printed an exposé about the family finances of Xi Jinping, and its website has been blocked since.

One of the most striking aspects of the CDB story is how the bank managed to balance being a state-owned company with maintaining sufficient independence to function as a commercial business.

China’s most powerful banker, then, is Chen Yuan, who has been chairman of CDB since 1998. He is the son of Chen Yun, one of the “Eight Immortals” of the Communist revolution, which makes him a “princeling” like China’s new leader, Xi Jinping. During his tenure he has cut the non-performing loans ratio from over 40 per cent to less than 1 per cent, and turned the bank into China’s overseas lender.

China-Africa Development Fund

A key aspect of the CDB’s portfolio is the China-Africa Development Fund, China’s largest private equity fund investing in Africa. Through the fund, the CDB is trying to implement a manufacturing-based focus on development finance in places like Ethiopia, but also boosting infrastructure to allow exports to thrive.

It’s not just Africa. The CDB has lent Venezuela nearly €31 billion over a four-year period to develop infrastructure – and also, no doubt, to help smooth the wheels for the steady flow of oil and gas from there.

The CDB has set up lines of credit worth more than €72 billion to clean energy and telecoms firms. The biggest recipient of this credit, Huawei Technologies, has been able to expand into the world’s second-largest telecoms equipment manufacturer.

“In one decade, CDB has become the financial enabler of both China’s global expansion and domestic boom,” the book’s authors said. “The bank is not an easy nut to crack, with lack of transparency as one of the main concerns about its increasing dominance across the globe.

“So at times we adopted a Maoist method to get access: we used guerilla tactics.”