Overseas loans by Chinese banks peaked in late 2021 and have since been curtailed in response to increased debt problems among EM borrowers. While these strains are partly a consequence of global shocks, they have also underscored some flaws with China’s politicised lending approach. Outward lending is likely to pick up again as global financial conditions ease. But Chinese banks are likely to tread more carefully in future. And a greater portion of China’s large current account surplus will be recycled via alternative avenues such as outbound direct investment.
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