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ExIm warns US of export risk from China

Published:Tuesday | October 21, 2014 | 11:39 AMBy Barney Jopson In Washington

US companies risk losing out in the global export battle as a proliferation of Beijing-based development banks boosts Chinese rivals, a senior Obama administration official has warned.

Fred Hochberg, chairman of the US government's Export-Import Bank, told the Financial Times he was worried that new China-funded lenders and their business allies would crowd out his agency and the US exporters it supports.

"I think that's a huge worry. I've been quite concerned about that," he said. "You can't compete when it's opaque financing and we have an American company competing against China Inc. Even a large business cannot compete against the second-largest economic power in the world."

ExIm has given US$590bn in loans, guarantees and insurance over its history. Chinese institutions have provided an estimated US$670bn in the past two years, Mr Hochberg said. "What took us 80 years, in two years they exceeded us," he said.

Mr Hochberg's comments play into his effort to fight off a threat to ExIm Bank's future at home. Conservatives in Congress are trying to shut down the agency, which they see as an unnecessary arm of big government. ExIm argues that it would be foolish to cut US export financing as other governments expand their own.

Asked which countries were moving most aggressively to grab a share of the global export market, he said: "I would say there's China, then there's China."

China is seeking to boost its financial soft power by pushing for the creation of an Asian Infrastructure Investment Bank and joining forces with Russia, India, China and South Africa to found a Brics bank.

Beijing's moves to expand its provision of low-cost financing are seen by many as a challenge to the postwar economic order built around the International Monetary Fund and the World Bank.

The new China-backed institutions will supplement the existing Export-Import Bank of China, China Export & Credit Insurance Corporation, and China Development Bank.

Global competition between state banks is intensifying as governments seek to give their countries' business an upper hand in bidding for large or high-risk overseas contracts, which commercial banks are reluctant to finance.

President Franklin Delano Roosevelt created ExIm Bank in 1934 and its clients today include Boeing, General Electric and Caterpillar, whose overseas customers can buy their products using ExIm financing.

Economists say that state-backed financing for Chinese exporters has contributed only marginally to the substantial expansion of China's share of global exports over the past two decades. The low costs of Chinese labour and other inputs have been more important.

Mr Hochberg said his biggest concern over Chinese institutions was the opacity of their governance and loans. "China has not demonstrated a great embracing of [a] transparent regime over what their financing terms are, or agreeing to allow more standards," he said.

But he said there were some encouraging signs of China being willing to negotiate "in real ways on real issues" such as the appropriate role of government.

State-backed export banks play a particularly important role in funding the purchase of power plants, oil rigs, solar equipment, aircraft, locomotives, farm machinery and construction equipment.

ExIm is under attack from conservative Republicans linked to the Tea Party movement who regard it as an instrument of "corporate welfare". They say it distorts the allocation of capital by giving exporters unfair assistance that other US businesses do not get.

The agency says it supported 1.2m US jobs from 2009-2013, even though it finances just 2 per cent of all US exports. The Export-Import Bank of China says its loans supported US$256bn in exports last year, equal to 14 per cent of China's export total.

The US ExIm Bank was saved from extinction in September when Congress reauthorised its charter for nine months more. But the debate over whether it should survive will restart as its next expiry date approaches in mid-2015.

Mr Hochberg said potential foreign clients were aware of the uncertainty over ExIm's future and that rival export credit agencies were likely to use it to lure them away from US companies.

"I would not be surprised if there is . . . somewhat of a whisper campaign. I hear anecdotally about that," he said.

Additional reporting by Gabriel Wildau in Shanghai

(c) 2014 The Financial Times Limited