The world’s investment community now spends a lot more time looking to see where China Inc is putting its money to work. Oil wells, mines and farmland have been high on the agenda. More dariingly, a little cash has been put aside recently for Portuguese bonds and Greek ports.
But the latest bankrolling widens the field further still. Last week ground was broken on the 1,000 acre Baha Mar resort in the Bahamas. State-owned Export-Import Bank of China is loaning $2.6 billion to finance the mega-project, to construct four hotels, a casino, water park, golf courses and convention centre over a four year period.
That’s good news for the islanders, given their GDP was just $8.9 billion last year. But other than sun, sand and shell companies, what’s in it for the Chinese?
True, there are construction contracts, with much of the building work to be done by the China State Construction Engineering Company. It could (temporarily at least) provide employment for 7,000 Chinese workers.
The deal might also give the Chinese a lot more clout in a country just 50 miles off the coast of Florida. One of the thousands of WikiLeaks cables reflects just such a fear in the US, that the Baha Mar project will have a major impact on the Bahamian economy and leave the [government] “indebted to Chinese interests for years to come.”
Owners of the project will have 20 years to repay the bank – longer than most commercial loans.
But is it a sound investment? Chinese Ambassador to the Bahamas Hu Dingxian seems to think so, calling it a “golden baby… born at the right time, in the right place and with the right people.”
The Exim Bank is presumably hoping to get a healthy return too, although the deal also has detractors, who are sceptical the project is going to pay off.
For one, it’s adding an estimated 2,250 rooms to a total market of 15,212 – a 15% jump. And in an industry that relies heavily on tourism from the US – a cyclical business that might dip in an event of a return to tougher economic times.
It doesn’t help that non-cruise ship visitors (the type needing a hotel room) peaked in 2005 – at 1.7 million. Visitor numbers were down to around 1.4 million people in 2009. (2010 figures look slightly better but are still down on their peak).
Perhaps the hope is that more Chinese tourists will make the trip to the resort – a sentiment shared by hoteliers at destinations worldwide. Having state-owned financial backers may increase Baha Mar’s profile at home too. But Exim will be more focused on getting its payments on the loan. The project, originally conceived in 2005, has already had problems with some of its creditors, and the Bank of Nova Scotia reportedly had to agree to convert the bulk of an initial $200 million loan into equity before the agreement could be signed with Exim.
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