Hikvision $6 Billion: Doubles Chinese Government FundingBy John Honovich, Published on Aug 18, 2016
Hikvision has announced a new $3+ billion line of credit, in addition to the previous $3+ billion one from December 2015.
This new one is from the Export-Import Bank of China (Exim). In this note, we examine Exim's central role within the Chinese government, how Exim funds various China government interests, including in Iran and Africa, and how Hikvision benefits from the government backing
China Exim Overview
Exim is, by their own admission, owned and run by the Chinese government as they declare on their about page:
The Export-Import Bank of China is a state bank solely owned by the Chinese government and under the direct leadership of the State Council.
Their goal is to help Chinese state owned manufacturers like Hikvision, as they note:
The Bank's main mandate is to facilitate the export and import of Chinese mechanical and electronic products
And as the official Chinese government website notes:
The China Exim Bank must play its role in stabilizing growth, restructuring, boosting exports and implementing the “going-out” strategy
The 'Going-out' strategy is important to understand Hikvision's fit here. The Chinese government had made it a priority to subsidize and underwrite the global expansion of their companies across the world.
Bank Focus is Policy, Not Making Money
China Exim is a 'policy' bank, not a 'regular' commercial bank. It pursues the policies of the Chinese government.
Here are some examples:
- China Exim just started financing infrastructure projects in Iran
- China Exim is paying 90% of the cost to build a rail link in Kenya and Nairobi
- China Exim has $80 billion in outstanding loans for the Belt and Road Initiative [link no longer available] across 3rd world countries
Unlike a regular bank, making profits on loans is not the key factor of success for Exim. China Exim is one of three China policy banks, including the CDB who had already authorized ~$3 Billion USD to Hikvision in December 2015.
Quasi Subsidy for Hikvision
As a China economic expert noted to us:
Because they are a "policy" bank, they are not viewed as a profit center like ICBC or other commercial lenders. This essentially allows them to transfer the profits to their customers. It is a quasi subsidy.
Hikvision / Exim Agreement Overview
The official Chinese announcement [link no longer available] declares it a 'strategic cooperation announcement' between the Chinese government bank and the Chinese government owned company, Hikvision. The key financial component is providing a comprehensive line of credit up to 20 billion RMB (~$3 billion USD) to Hikvision over the next 5 years.
While the announcement lacks details, China Exim commonly provides concessional loans at below market rates and more lenient terms to support the policies they are backing.
Hikvision USA wrongly claims [link no longer available] that this deal is a "testament to the fact that the financial markets recognize Hikvision" but, given that China Exim is a key part of the Chinese government, what it really is, even more powerfully, an endorsement of the Chinese government in Hikvision's future expansion.
Chinese Government Benefits
Beyond the 'soft power' benefits that China desires and gets when its subsidiaries expand globally, the China government also generates hard currency from underwriting Hikvision exports, as a China economic expert noted to us:
They maybe incurring local currency losses on the subsidies but they get hard currency inflows.
Currency outflows are a major political and economic problem for the Chinese government (see China's Exodus of Capital) so driving Hikvision exports helps counteract that.
Hikvision Benefits / Industry Danger
Not only is the Chinese government giving massive money to help Hikvision's expansion, they are clearly signaling that Hikvision's global expansion is an important political goal for the country.
How they will use the new money and how much of it remains to be seen, but given their track record of aggressive price cuts and significant spending this indicates another wave of global expansion that many video surveillance companies are unlikely to survive.
Vote - Fair?
Is it fair that the Chinese government is funding billions to Hikvision?