24/7 Wall St.

For cash-starved  governments and businesses around the world, China is the lender of last resort.  The economic might of the world’s most populous country will only grow stronger in the years to come.

The China Development Bank and China Export-Import Bank agreed to lend at least $110 billion to governments and companies in developing countries in 2009 and 2010, according to an AFP story citing research from The Financial Times.  From 2008 to 2010, the World Bank handed out $100.3 billiion in response  to the global economic crisis.

Chinese investors are finding bargains galore in everything from distressed U.S. real estate,  African and Brazilian oil fields  to European debt.  The Chinese are willing to venture in areas where Western investors are afraid to venture such as Sudan and Greece.  The country’s currency reserves stand at $2.85 trillion.  China could invest much more but chooses not to, staying primarily in US Treasuries and other safe investments for the time being.

‘The management of large foreign exchange reserves is restricted not only by market sizes but also the attitude of invested countries,”  Reuters quotes Yi Gang, head of the State Administration of Foreign Exchange as saying.

Though much has been made about the potential of a confrontation between China and the West, that is not likely to happen, at least militarily.  China is laying the groundwork to grow its economic might for years, if not decades  with the soft power of its enormous check book.  Money talks especially loudly at a time of fiscal austerity around the world.  Its message will resonate with cash-strapped borrowers for the forseeable future.

“By 2020, some US$ 28 trillion of new bank lending will be required in Asia, excluding Japan,” according to the World Economic Forum. “The 27 EU countries will require US$ 13 trillion in new bank lending over this period, and the US close to US$ 10 trillion. Increased bank lending will grow banks’ balance sheets, and regulators are likely to impose additional capital requirements on both new and existing assets, creating an additional global capital requirement of around US$ 9 trillion.”

And where will a lot of this money come from? China.

–Jonathan Berr