Published On: Wed, Mar 21st, 2018

China stays on the sidelines as Venezuela spirals downward

Chinese President Xi Jinping Meets Venezuela's President Nicolas MaduroCARACAS, BEIJING - China is likely to extend an agreement providing crisis-stricken Venezuela with favorable loans repayment terms but will not lend fresh funds to President Nicolas Maduro’s government, according to sources in Caracas and Beijing familiar with the situation.

During a decade, China plowed more than $50 billion into the OPEC member’s coffers through oil-for-loan agreements that helped Beijing secure energy supplies for its fast-growing economy while bolstering an anti-Washington ally in Latin America.

But the flow of cash halted nearly three years ago when Venezuela asked for a change of payment terms when a fall in oil prices and declining crude output pushed its state-led economy into a hyperinflationary collapse.

Though unwilling to throw Venezuela a financial lifeline, the state-run China Development Bank (CDB) will likely extend next month a grace period begun in 2016 that allows Venezuela to make only interest payments on its loans, the sources said.

However, China has ignored several requests for new funding.

“Given Venezuela’s falling oil production, it’s natural for Chinese banks not to renew loans,” said one Chinese oil industry source who asked not to be identified.

A second oil industry source, asked if the conditions would be tightened, cited a Chinese proverb, saying China would not “drop stones on somebody who has fallen into a well.”

Venezuela still owes China $19.3 billion, according to one Venezuelan finance industry source who has tracked the information via contacts in both countries.

Some $10.4 billion of that is owed under the $20 billion Large Volume Long Term fund signed in 2010. A further $8.4 billion remains outstanding under the Joint China Venezuela Fund via three tranches of $4 billion to $5 billion each, according to the source.

China’s policy is not to lend new funds until old loans have been paid off - which cannot happen under the interest-only scheme created in April 2016 because the outstanding balance does not change.

CDB President Zheng Zhijie, when asked if the bank was having second thoughts about financing Venezuela given its situation, said: “We’ve done our assessment of its political and economic situation. We’re just monitoring now.”

However, one Beijing-based diplomatic source familiar with Chinese thinking on Venezuela said China increasingly sees Maduro as similar to former Zimbabwe President Robert Mugabe, who was pushed out after 40 years in power that dragged his once-prosperous country into hyperinflation and economic crisis.

China would have no concern about abandoning Maduro as it did Mugabe when he was ousted, the source said, but does not expect China to take an active role in pushing him out.

“China looks at Venezuela as another Zimbabwe: a poor return on its investment,” he said.

 

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