China’s central bank transferred $1 billion worth of funds to Turkey in June, Beijing’s biggest support package ever for President Recep Tayyip Erdogan delivered at a critical time in an election month.
The inflow marks the first time Turkey received such a substantial amount under the lira-yuan swap agreement with Beijing that dates back to 2012, according to a person with direct knowledge of the matter who asked not to be named because the information isn’t public.
The cash infusion boosted Turkey’s foreign reserves around the time of Istanbul local elections that had left international investors fretting about the country’s political and financial stability.
While it marks a success in Erdogan’s effort to realign Turkey’s international relations by forging new partnerships with the likes of Russia and China, those ties aren’t a match for traditional allies in the West it risks further alienating, said Ozgur Unluhisarcikli, Turkish head of the German Marshall Fund of the United States.
“Such short term sources of financing can’t be a remedy for Turkey’s longer term needs,” Unluhisarcikli said by phone. “They are by no means a replacement for Turkey’s long-standing relations with the US and the West.”
Still, the Chinese funds show Turkey is making headway in its efforts to diversify sources of foreign investment amid unprecedented tensions with the West. Treasury and Finance Minister Berat Albayrak has said the Asian economy is a promising partner from which Turkey needs to attract investment.
Turkey and China signed the currency-swap deal seven years ago and have renewed it every three years. However, until Friday’s balance of payments data release, there was hardly ever a transfer from China under the swap deal that made a significant contribution to Turkish holdings.
The cash transfer “represents a step up in the central bank’s efforts to bolster reserves via swaps,” said Inan Demir, an economist at Nomura International Plc in London. “Although the increase in reserves is ultimately positive, the market would have preferred more transparent methods of reserve build up.”
Turkey has been trying to sign similar agreements with other partners, and inked a deal with Qatar last year that dwarfed similar attempts. The agreement with Qatar at the height of a currency rout provided $3 billion in inflows from the Gulf state.
The Turkish central bank declined to comment. The People’s Bank of China wasn’t immediately available for comment outside normal business hours on Friday.