EC China Becomes Global Lender Of Last Resort With Bailout Of World's Most Indebted Oil Company

Over the course of last month we variously described the Asian Infrastructure Investment Bank as an attempt by Beijing to deal a decisive blow to the post-World War II global economic order by undermining US-dominated multinational institutions, as an attempt to usher in a new era characterized by yuan hegemony, and as an effort to cement China’s regional influence via the implicit establishment of a sino-Monroe Doctrine.

With that in mind, we find it somewhat ironic that the China Development Bank (which isn’t the same as the AIIB but which we think might offer some clues as the how the new venture will be run under Beijing’s control), is set to provide $3.5 billion in financing to Brazil’s deeply indebted Petrobras (PBR). The new funding comes 6 years after a $10 billion oil export deal between the company and China and just days after Brazil signed up as a founding member of the AIIB. 

More, via WSJ:

Brazil’s state-run Petroleo Brasileiro SA said on Wednesday it signed a $3.5 billion financing deal with the China Development Bank, highlighting the oil giant’s deteriorating financial condition in the wake of a vast corruption scandal as well as China’s growing ties to Latin America.

Petrobras didn’t provide any details of the deal, which is part of a cooperation agreement to be implemented this year and in 2016. But the transaction deepens the Brazilian government’s relationship with its largest trading partner and fellow BRIC country.

The Asian giant has provided similar assistance to countries like Ecuador, Venezuela and Argentina, helping those countries deal with falling global oil prices and their own debt problems.

“China again is…lending to state-owned companies that cannot access the market,” said Adriano Pires, an energy expert with the Brazilian Center of Infrastructure in Rio de Janeiro.

China has extended more than $100 billion in credit to Latin America since 2005, according to figures from Boston University’s Global Economic Governance Initiative. In January, Chinese President Xi Jinping said China’s foreign investment in Latin America would hit $250 billion over the next decade.

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Moon Kil Woong 6 years ago Contributor's comment

China pretty much has highlighted that this bank will be not a Asian global investment bank but a way for it to secure resources and garner influence. A truly Asian bank would have multiple interests from multiple Asian countries and be focused on investment rather than securing assets and power. Even so, many welcome the cash flow from the hoard of dollars and reserves China has been amassing thanks to the US's inability to create anything close to a balanced budget and the US' dependence on Chinese goods to keep inflation down.

Ferdinand E. Banks 6 years ago Contributor's comment

"Europe's Rising anti-Semitism" you say, which doesn't happen to be true. Interviews with the former lawyer (Lagarde) turned (or appointed) super-duper economic analysis virtuoso. "Undermining U.S. dominated multi-national institutions." And so on and so forth as I occasionally say in my brilliant lectures when I run out of patience..

And why not. We had the tanks, artillery and complete mastery of the skies, and yet they stopped our advance in Korea. I knew then that the worm had turned, although I didn't know why. I know now though, and it's pretty sad.