Baker Institute expert: China’s loans to Venezuela are ‘geoeconomics gone wrong’

EXPERT ALERT

Jeff Falk
713-348-6775
jfalk@rice.edu

Baker Institute expert: China’s loans to Venezuela are ‘geoeconomics gone wrong’
‘An expensive lesson’ for Chinese lenders exposed to political chaos

HOUSTON – (Feb. 13, 2019) – As Venezuela is gripped in an acute political crisis, the turmoil raises serious questions for Chinese creditors who may now wonder how a new Venezuelan government might treat the large oil-backed debts owed to Chinese lenders, according to an expert in the Center for Energy Studies at Rice University’s Baker Institute for Public Policy.

Credit: 123RF.com/Rice University

Gabriel Collins, the Baker Botts Fellow in Energy and Environmental Regulatory Affairs at the Baker Institute, outlines his insights in a new article published in The National Interest, “China’s Oil-Backed Loans to Venezuela Appear Headed for a Haircut.” Collins is available to discuss his analysis and related issues with the news media.

“In theory, Venezuela’s massive oil resources offer ample support for at least $50 billion in loans that China has provided since 2007, perhaps $20 to $25 billion of which remain outstanding,” Collins wrote. “Yet for Chinese lenders exposed to Venezuela’s chaos, the country’s oil shows itself to be an increasingly illusory underpinning for the loans.

“The situation is becoming a classic example of ‘geoeconomics gone wrong’ and highlights the reality that even large money outlays often fail to purchase lasting strategic influence in chaotic places. To the contrary, such influence is, at best, temporarily ‘rented’ and can be rapidly degraded, if not outright destroyed, by events beyond the lender’s control. Venezuela’s current situation provides a dose of sober reality for Beijing’s Belt and Road Initiative, for which large-scale strategic financing from China’s parastatal lenders are a central element.”

Collins added, “The unfolding Venezuelan debt saga appears to be rapidly turning into an expensive lesson for China. Among the core takeaways: A veneer of commerciality cannot compensate for the fundamentally non-commercial objectives oil-backed loans actually aim to fulfill. Furthermore, political crises — particularly those that result in a change of government — credibly threaten to invalidate the hydrocarbon ‘soft collateral’ that likely helped soothe Chinese lenders’ risk fears.

“Much of the value of soft collateral depends on the ruling government’s willingness to mortgage current and future natural resource production in order to service loans. Because such resource flows financially underpin state functionality, they are often a vital national security interest in the producing country and are intensely politicized during periods of unplanned political transition.”

Collins conducts a range of globally focused commodity market, energy, water and environmental research. His current research focuses on oil field water issues, evolutions in the global gasoline market, shifts in China’s domestic oil consumption structure, water governance and groundwater valuation in Texas and the nexus between food, water and energy.

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For more information or to schedule an interview with Collins, contact Jeff Falk, associate director of national media relations at Rice, at jfalk@rice.edu or 713-348-6775.

Related materials:

Article: https://nationalinterest.org/blog/buzz/china%E2%80%99s-oil-backed-loans-venezuela-appear-headed-haircut-43992

Collins biography: www.bakerinstitute.org/experts/gabe-collins

Follow the Baker Institute Center for Energy Studies via Twitter @CES_Baker_Inst.

Follow the Baker Institute via Twitter @BakerInstitute.

Follow Rice News and Media Relations via Twitter @RiceUNews.

Founded in 1993, Rice University’s Baker Institute ranks among the top three university-affiliated think tanks in the world. As a premier nonpartisan think tank, the institute conducts research on domestic and foreign policy issues with the goal of bridging the gap between the theory and practice of public policy. The institute’s strong track record of achievement reflects the work of its endowed fellows, Rice University faculty scholars and staff, coupled with its outreach to the Rice student body through fellow-taught classes — including a public policy course — and student leadership and internship programs. Learn more about the institute at www.bakerinstitute.org or on the institute’s blog, http://blogs.chron.com/bakerblog.