China Grabs More of the $9.5 Trillion Global Loan Market, Increasing Its Influence

China grabs more of the $9.5 trillion global loan market, increasing its influence.

Commentary

China is seeking to capture more of the $9.5 trillion global loan market by offering to lend

you on at lower interest rates than those typically charged for dollar loans.

This is starting to undercut global dollar lending, which will boost Chinese exports and

hurt US banks that lend internationally. The recently rising yuan gives the regime the

opportunity to buy dollars and flood the market with yuan loans to bring the yuan's value back

down to a level at which its exporters can compete even more effectively. In January, February

this year, China's exports increased by nearly 22 percent compared to last year.

China's private companies had the biggest trade improvements as did trade with Southeast Asian

countries. This will likely be a banner year for yuan-denominated debt, which will help pressure

the yuan downward. China plans to issue more than $188 billion worth of ultra-long-term

special treasuries denominated in yuan. On March 10, the Asian Infrastructure Investment

Bank announced almost $435 million worth of yuan-denominated bonds at a low 1.7 percent coupon rate.

The AIB in Beijing is an international development bank with 111 members, including all G7 countries

except the United States and Japan. By maintaining their membership in the AIB,

countries like the United Kingdom, France, Germany, and Italy are enabling the Chinese Communist

Party. Canada did the right thing in 2023 by freezing its relationship with the bank.

Ironically, the increased availability of low interest yuan-denominated capital stems from a

series of economic problems in China, including lower expected GDP growth of 4.5 to 5 percent compared

to upwards of 10 percent in the past. This is in part due to uncertainty over China's future

oil supply after the capture of Venezuela's president and the war in Iran. China has been a major

importer of Venezuelan and Iranian oil. Beijing's GDP growth targets are still on track to double

the country's GDP between 2020 and 2035, though they are official numbers, so likely overstate

actual future growth. China's property market continues to slump, and youth unemployment is

persistently high at more than 16 percent in January compared to 9 percent in the United States.

China's central bank has lowered interest rates to counteract the lower growth.

The low growth hurts wages and increases savings in case of hard times in the future.

This leads to lower consumer demand chasing the same or higher quantities of supply,

significantly decreasing prices. Last year will likely be counted as the third year in a row

of deflation or near zero inflation compared to China's 2 percent target.

Deflation can be good for consumers in the short run, but as prices fall, profits fall,

and more companies go out of business, which hurts growth and jobs in a deflationary cycle.

The economy will eventually write itself. As goods are gradually sold domestically and exported,

they will again become scarce, increasing prices, profits, and hiring.

In February, inflation in China rose to 1.3 percent.

Last year, a record amount of household savings, at 110 percent of China's GDP,

increased the capital available for lending, which decreased the interest rates offered by banks.

Yuan could be borrowed in early March at as low as 1.5 percent, while dollars carried a higher

interest rate of 3.68 percent. As a result of this approximately 2 percent spread,

China's overseas lending in Yuan has become more competitive against dollar lending.

Between 2017 and 2025, the percentage of Chinese loans in Yuan increased from 12 percent to

48 percent, a fourfold increase. Last year alone in the Gulf, Chinese lending increased almost

threefold from the year prior to US$15.7 billion. Compare that to all lending from the United

States, Europe, and the United Kingdom in the Gulf of just US$4.6 billion. Since 2022,

the total international currency transactions in Yuan have increased from 7 percent to about

8.5 percent. This has helped increase demand for the Yuan. Since January last year,

the Yuan has strengthened against the dollar by about 7 percent, giving China the leeway

to flood international markets with dollar purchases and low interest Yuan denominated loans.

Several developing countries are now converting their dollar loans to Yuan,

taking new loans in Yuan, or accepting taxes in Yuan. This can save them hundreds of millions

of dollars through the lower interest rates of Yuan denominated loans. After a dollar to Yuan

conversion by Kenya that reset its rates to as low as 3 percent in Yuan compared to 6 percent in

dollars, its semi-annual loan payment for a railway project reportedly dropped by approximately

36 percent to just under $291 million. There may also be loan origination fees or adverse currency

exchange rates that make up for the lower interest rates. Some reports suggest that the World Bank

and the International Monetary Fund pressured Kenya to convert some of its loans to Yuan so that

international dollar loans would not be paid to Beijing. While China was taking money out of Kenya

through debt repayments, Kenya was reportedly increasing its borrowing from other countries.

In 2022, Sri Lanka defaulted, and in 2025, it announced a $500 million Yuan denominated loan to

build a highway. Ethiopia defaulted on $1 billion in Eurobonds and is attempting to renegotiate

almost $5.4 billion in loans from Chinese banks. Zambia also defaulted and is trying to renegotiate

its Chinese debt into a Yuan denominated loan. That Zambia is accepting Yuan denominated taxes

from Chinese companies doing business in the country could sweeten the deal for Beijing.

In addition to increasing the international use of Yuan and improving the viability of Chinese

exports, there are other geopolitical benefits that could make new Yuan denominated loans worthwhile

for China. Converting Chinese loans from dollars to Yuan with better terms avoids the appearance

of Chinese companies driving a country into financial ruin. The United States and other major

international lenders have likewise renegotiated international development loans to provide debt relief,

for example, through the coordination of the Paris cloud. China's increasing global loans in

Yuan will increase the viability of the country's exports, including infrastructure and commodities,

and eventually lead back to China in the form of more export-oriented contracts and jobs.

More international loans denominated in Yuan increase its use in global transactions,

a major goal of the CCP. Beijing seeks to displace the US dollar for international trade

and the foreign currency reserves held by central banks. The regime in China is making progress

on this goal by increasing its Yuan denominated loans, thereby increasing its global authoritarian

influence.