China Alarmed by U.S. Raid in Venezuela: "Emergency Review of Bank Exposure"

Bloomberg Cites Anonymous Sources
China's Top Financial Regulator Orders Bank Review
State-Owned and Private Oil Development Projects Also Expected to Face Disruptions

Shinhwa Yonhap News

After the United States raided and arrested Venezuelan President Nicolas Maduro and declared its intention to intervene in policy, China-which has lent massive amounts of money to Venezuela and other South American countries-has launched an emergency review of its exposure to risk.

On January 5 (local time), Bloomberg News, citing anonymous sources, reported that the National Financial Regulatory Administration (NFRA), China’s top financial regulatory authority, has requested policy banks and other major lenders to report the scale of their loan exposure related to Venezuela.

The NFRA has also reportedly urged banks to strengthen risk monitoring for all credit related to Venezuela. According to the sources, this move appears to be intended to assess the potential risks China may face.

Bloomberg News explained that these instructions reflect the concerns of Chinese regulators about the banking sector amid heightened geopolitical risks.

Over the past decade, China has considered Venezuela one of its most important partners for energy and infrastructure projects, providing tens of billions of dollars in loans through policy banks such as China Development Bank. By 2015, it was estimated that China had lent over 60 billion dollars to Venezuela in the form of oil-backed loans through its state-owned banks.

There are growing expectations that, with the United States having declared its intervention in Venezuela’s domestic affairs, if U.S. financial institutions and creditors become the senior creditors of Venezuela’s debt, Chinese banks and other creditors could be pushed into subordinate positions.

Victor Shih, a professor at the University of California, San Diego (UC San Diego), stated, “If the United States succeeds and U.S. financial institutions and creditors become the senior creditors of Venezuela’s debt, the Venezuelan government and state-owned companies will find it difficult to meet both U.S. demands and domestic spending at the same time. In such a scenario, Chinese creditors could be exposed to a greater risk of repayment delays.”

There are also risks from an industrial perspective. According to the South China Morning Post (SCMP), China National Petroleum Corporation (CNPC), a Chinese state-owned oil giant, established and has operated a joint venture called Petrosinovensa with Venezuela’s state oil company PDVSA since 2008. This company develops extra-heavy crude oil in the region. A significant portion of the crude oil produced is exported directly to China for the repayment of Venezuela’s sovereign debt.

Since the U.S. imposed sanctions on Venezuela, direct investment by private companies has decreased, but some investment continues. In August last year, China Concord Resources began developing two oil fields in Venezuela. The total investment is 1 billion dollars, with the goal of producing 60,000 barrels of crude oil per day by the end of 2026.

Meanwhile, China is increasing diplomatic pressure on the United States along with Russia and other countries. Fu Cong, China’s Ambassador to the United Nations, and Vasily Nebenzya, Russia’s Permanent Representative to the UN, strongly condemned the United States at an emergency meeting of the UN Security Council on January 5, which was convened to discuss the U.S. military operation in Venezuela, stating that the U.S. actions violated international law.