Banking across borders: Are Chinese banks different?

Chinese banks have become the largest cross-border creditors for almost half of all emerging market and developing economies (EMDEs). While they look similar to other EMDE banks in terms of ownership and balance-sheet structure, their global cross-border lending resembles that of banks from advanced economies along several dimensions, especially when lending to EMDEs. We find that geographical distance poses a barrier for cross-border lending, including for Chinese banks. For them, given their network of affiliates, this barrier is lower than for other EMDE banks, more like US or European banks. We show that across all bank nationalities, bilateral economic interactions, like trade, FDI and portfolio investment, all positively correlate with cross-border lending. What stands out is that Chinese banks' lending to EMDEs correlates more than any other nationality with trade, but there is no such correlation with FDI and, unlike all other banks, their lending correlates negatively with portfolio investment.& COPY; 2023 Published by Elsevier B.V.

Automated summary

Chinese banks have emerged as the dominant cross-border creditors for a significant number of emerging market and developing economies (EMDEs). Despite similarities in ownership and balance-sheet structure to other EMDE banks, their global cross-border lending patterns are more akin to those of banks from advanced economies, particularly when lending to EMDEs. Our research demonstrates that geographic distance poses a hindrance to cross-border lending, including for Chinese banks. However, this barrier is relatively lower for Chinese banks due to their extensive network of affiliated institutions, similar to US or European banks. Moreover, we find a positive correlation between cross-border lending and bilateral economic activities such as trade, foreign direct investment (FDI), and portfolio investment across all bank nationalities. What sets Chinese banks apart is that their lending to EMDEs shows a stronger correlation with trade compared to any other nationality, while there is no such correlation with FDI. Furthermore, unlike other banks, Chinese banks' lending exhibits a negative correlation with portfolio investment.