The revived competition between US and China Exim Bank

See a long story by John Pomfret in the Washington Post
(www.washingtonpost.com/wp-dyn/content/article/2011/01/11/AR2011011107893.html)
and a commentary by Deborah Brautigam in her blog (below) about the
revived competition between China and US Exim Bank.

Deborah Brautigam
Has China's Export Financing Met Its Match?
in: China in Africa: The Real Story, Friday, January 14, 2011
www.chinaafricarealstory.com/2011/01/has-chinas-export-financing-met-its.html

A fascinating new development in the dry area of export financing: we
learn that for the first time, the US Eximbank has matched China
Eximbank's terms for export financing. John Pomfret reports for the
Washington Post on the case of GE's effort to win a tender for train
exports to Pakistan. GE was about to give up:

"After all, China was a powerful competitor that routinely offered
low-cost financing - below-market interest rates, easy repayment terms -
that cut tens of millions of dollars off the bottom line of its
international deals. But in a case that underscores a significant shift
in how the United States and the rest of the developed world are dealing
with the challenge of China's economic might, the U.S. Ex-Im Bank
decided to fight back. In February of last year, U.S. Ex-Im informed
Pakistan's Ministry of Railways that it would take the unprecedented
step of matching China's below-market-rate financing terms. GE won the
contract. 'There's a new willingness to take on China, to compete
toe-to-toe with China on financial terms,' said Fred Hochberg, the
chairman of the Ex-Im Bank. 'This is a policy change that we will
compete with anyone who's not compliant.'"

In an interview with the Wall Street Journal, Hochberg confirmed this
view: "They're winning deals in part because they're not playing by the
rules." Although the US administration positioned this action as a move
against China, which was not "playing by the rules" it's important to
point out that the rules China was not playing by are a voluntary
"Arrangement on Officially Supported Export Credits" set by the elite
membership of the OECD, an organization of wealthy states that does not
include China.

The rules apply only to other OECD members. Why should China abide by
these rules?

This is a positive development. The US has long pressed other wealthy
exporting powers to adhere to common rules in order to try and create a
level playing field. Yet the rise of the BRICs now makes the choice of
the OECD as the arena for rule-making seem quaintly obsolete. If we want
to get China and the other BRICs to play by the wealthy countries'
rules, we do need to create incentives. Now, in a tiny way, Chinese
companies can feel the pain of being outside. But more importantly (and
urgently), we need to have an arena in which these negotiations can take
place.

Pomfret gets one thing wrong, I think. He suggests that the Chinese are
using "foreign aid" in these deals, and that the US must use its foreign
aid "to serve diplomatic or strategic goals" but that China's Ministry
of Commerce dispenses foreign aid, with the purpose of "making money for
China." First, it isn't foreign aid funds, but export credits that we're
talking about, and they are not being disbursed by the Ministry of
Commerce but by the China Export-Import Bank. We have the same kind of
agency, the US Eximbank, and that's the relevant comparison: both were
set up to "make money" for their owners' companies. I doubt if the US
Eximbank got a tranche of finance from USAID for the train deal.

What were the actual terms for the contract? We learn from Pomfret that
"Instead of fees of up to 21 percent of the contract, the United States
said it would charge Pakistan 8 percent. Repayment was stretched from 10
years to 12." Charging fees of 21 percent, no wonder we're losing out to
China! From the Wall Street Journal, we learn that the interest rate
charged by the US Eximbank will be based on Treasury bond yields (now
about 3 %), but we don't learn what the margin over T-bonds will be. I
will try to find this out, but I doubt if the US Eximbank will be any
more transparent on this than China's Eximbank.
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