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Industry experts have raised concerns that a programme rolled out by the Export-Import Bank of the United States (US Exim) to rival China in sectors such as 5G and semiconductors is faltering due to strict rules and a lack of available deals.

US Exim launched the China and Transformational Exports Programme (CTEP) three years ago to counter Beijing’s export credit system, which Washington says provides extended repayment terms and low-interest rates to give Chinese exporters an unfair advantage over their competitors.

A senior US Exim official tells GTR that the initiative is making “significant progress” and when figures for full-year 2023 are finalised, the bank expects to triple the cumulative total authorised under the scheme to at least US$1.5bn.

But this figure is only a fraction of the US$27bn the agency was told to ringfence for the CTEP, and while US Exim says it does not interpret this amount as a programme “mandate”, export finance banks – and the wider industry – say changes are needed to ramp up activity.

“I do not think the China programme is progressing very well,” one US-based export finance banker tells GTR. “It’s a nice thing to have but it’s struggling to gain scale. They did a large billion-dollar deal for a solar energy project in Angola recently, but it is probably not hitting the way they were hoping.”

One reason is the limited availability of coverable transactions. Biotech and biomedical transactions are not common in the export finance space, while semiconductor or battery storage companies can receive Department of Energy loans with “less strings and no content” attached, the source says.

Domestic content rules are another issue, with US Exim requiring American content of 51% for CTEP transactions unless other criteria can be met, such as a boost to domestic jobs, they say. “They are so behind… this is not even above average in terms of other ECA policies.”

The Council on China, a subcommittee that guides the agency on matters related to Beijing, comprised of 17 members appointed by US Exim including bankers, corporate representatives, lawyers and analysts, also flags the need for “more latitude” in the export credit agency’s current 2% loss default ratio.

“The cap inherently and significantly reduces the bank’s ability to take on risk,” the group says in US Exim’s latest competitiveness report, published in June.

James O’Brien, a partner at law firm Baker McKenzie and member of the China subcommittee, says raising the rate could be particularly beneficial for critical mineral projects, which are often in jurisdictions where commercial lenders are hesitant to invest.

“In order to be out front on those projects, Exim needs to have the flexibility to take on riskier projects and not have the prospect of shutting down operations due to the default cap,” he tells GTR.

Both the White House and members of Congress are pushing for a rate change. A senior US Exim official tells GTR that President Joe Biden has proposed raising the default rate cap by 2% on a “temporary basis”.

Last month, senators Joe Manchin and Jim Risch, who represent the Democrat and Republican parties respectively, collaborated to propose the Civil Nuclear Export Act of 2023, which aims to help the US compete in “existing and emerging nuclear markets” and reduce dependence on technology from Russia and China.

One proposal within the Manchin and Risch plan would raise US Exim’s default rate to 4% and US Exim’s board would have the option of excluding CTEP transactions when calculating this elevated cap.

In late 2020, Republican congressman Andy Barr tabled legislation to widen the scope of the China programme, including a proposal to increase the default rate cap to 5%. To date, the bill has not made any further progress.

 

Tripling business

Despite concerns over its China Programme, the senior US Exim official says the programme is heading in the right direction and is putting “real wins on the board” for American exporters.

They tell GTR that US Exim authorised lending of US$250mn in full year 2022, bringing the cumulative total under the CTEP programme since it was launched to US$500mn. When the current year ends, this amount is poised to triple on the back of strong transactions in wireless communications and renewable energy.

In June, US Exim approved a US$900mn direct loan for the construction of two solar plants in Angola, a deal signed under the purview of the CTEP and which advances the Biden administration’s Partnership for Global Infrastructure and Investment (PGII), a G7 infrastructure plan for emerging markets.

The US Exim official also points to a preliminary US$300mn credit commitment to the Costa Rican government, an investment that will help the country procure 5G equipment, materials and services from “trusted vendors”.

Despite these commitments, as outlined in its competitiveness report, which lists the largest providers of new official medium and long-term (MLT) export credits, US Exim ranked 13th behind the likes of agencies from Finland, Denmark and the UK.

US Exim’s US$2.7bn MLT total for 2022 was dwarfed by the most active agency, Italy’s Sace, which approved US$14.8bn in credit. China was judged to have provided US$11bn.