China is filling a lending vacuum in Asia as European banks limp home to preserve capital, and is making sure loans have spin-off benefits for Chinese manufacturers and exporters, even at the expense of the rates they offer.
Cash-strapped businesses looking to Chinese banks for loans would do well to have something to offer China in return - for big loans come with strings attached. Lending to foreign firms in need not only boosts Chinese banks' loan portfolios, but helps develop export markets for Chinese goods.
"If it helps China, the banks will lend," said Vidhan Goyal, a professor of finance at the Hong Kong University of Science and Technology.
"To be able to lend, you need a lot of information about the potential borrower. This allows Chinese banks to assess whether or not it's a worthy client that will meet China's needs." A case in point: Indian billionaire Anil Ambani's Reliance Communications this week agreed a $1.18 billion Chinese loan to repay convertible bonds due for redemption in March.
The syndicated loan - from Industrial and Commercial Bank of China, China Development Bank Corp, Export Import Bank of China and others - was approved on the understanding Reliance would buy Chinese telecoms equipment from Huawei Technologies and ZTE Corp, two banking sources with direct knowledge of the deal told Reuters.
The sources said no concrete procurement agreements had been drafted, and one said this was not a mandatory requirement for a loan. The source declined to say more, or be identified, as the issue is "highly sensitive". The other source, however, said Chinese banks would only lend to Indian companies if this was tied to future procurement orders. For the borrower, there is the prospect of getting a reasonably priced loan - in India, especially, the cost of borrowing has risen sharply - and China's banks appear resigned to sacrificing some return for the greater good of China Inc.
