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Instead of lending for roads and bridges, China has begun offering emergency aid to former borrowers.
By Keith Bradsher
Information from Beijing and Guangzhou, China
After lending $1. 3 trillion to emerging countries, most commonly for large-scale infrastructure projects, China has gone on to bail out many of the same countries that had gone into debt.
The initial loans were essentially part of the Belt and Road Initiative, which Xi Jinping, China’s most sensible leader, introduced in 2013 for transportation, communications and political ties in more than 150 countries.
But today, China’s two largest state-owned banks that receive the most infrastructure loans have scaled back their new lending. Bailout loans soared to 58% of China’s lending to low- and middle-income countries in 2021, up from 5% in 2013. according to a new report by AidData, a think tank at the University of William and Mary in Williamsburg, Virginia, that compiles comprehensive data on China’s development finance.
“Beijing reveals itself in an unfamiliar and uncomfortable role: that of the world’s largest official debt collector,” the institute wrote.
While the Belt and Road Initiative has given Beijing geopolitical clout and helped fund economically useful projects, Chinese loans have also been used to build expensive projects that have failed to spur economic expansion and saddled countries with debt they are now unable to repay.
Much of Beijing’s recent loans are made up of loans from China’s central bank to the central banks of countries that have borrowed under the Belt and Road Initiative. Another giant and developing percentage comes from China’s state-controlled advertising banks, which operate in collaboration with Western banking. groups.
The large debts to China are among the billions that emerging countries owe to other countries, the International Monetary Fund and personal lenders. Unsustainable debt is a long-standing challenge for poorer countries, but recent economic crises caused by the Covid pandemic and the global rise in energy and food costs following Russia’s invasion of Ukraine have exacerbated the existing cycle.
China is redirecting its lending as the U. S. seeks to adapt China’s early successes in building ties with emerging countries.
The U. S. International Development Finance Corporation, created by the Trump administration and Congress as a reaction to the Belt and Road Initiative, plans to announce this week a $125 million loan for the modernization of shipyards in Greece and up to $553 million in loans for port expansion in Greece. Sri Lanka said U. S. officials with extensive knowledge of the plans that it was legal to speak publicly about the loans before they were announced.
China’s early and immediate expansion of the Belt and Road Initiative alarmed U. S. officials, who saw the program as an erosion of U. S. influence. The Trump administration and Congress merged and expanded two agencies in 2018 to create the Development Finance Corporation. The firm invested $9. 3 billion in allocation investment in the 12 months ended Sept. 30, up from $7. 4 billion a year earlier.
Between 2014 and 2017, AidData found, China provided nearly three times as much funding for progress as the U. S. , but in 2021, China’s spending outpaced the U. S. by 30%.
Sri Lanka has been the site of one of China’s most politically charged infrastructure allocations: the $1. 1 billion port structure in Hambantota, a town about 210 kilometers southeast of Colombo that was the political base of Mahinda Rajapaksa, then Sri Lanka’s president. It attracted little traffic. When the cession failed to pay its debts, the Chinese entities secured a 99-year lease for the port and 15,000 acres of land surrounding it. (The U. S. loan, up to $553 million, would be for the expansion of the busy port of Colombo, Sri Lanka’s capital and main city. )
Much of the work of the Belt and Road Initiative has been carried out through Chinese engineering and construction companies, which have sent thousands of engineers, heavy equipment operators and other specialists to Asia, Africa, Latin America, Eastern Europe and the Pacific.
AidData has calculated that China has lent $1. 3 trillion since 2000, entirely to Belt and Road Initiative countries.
China provided the cash almost entirely in the form of loans, grants, and loans that tended to have adjustable interest rates. As global interest rates have soared over the past two years, deficient countries have found themselves facing much higher than expected bills to Beijing.
Chinese lenders and contractors were required to build projects temporarily because the Chinese government rarely required thorough environmental studies, monetary viability reviews, or controls on the displacement of other local people forced off their land. The national governments of emerging countries had to guarantee reimbursement. loans to their local and provincial governments.
In the early years, 65% of loans were made through China’s state-owned political banks, combined with the China Development Bank and the Export-Import Bank of China, AidData found. But in the face of many problematic loans, they reduced their lending. And in 2021, those loans accounted for less than a quarter of loans.
China’s advertising banks, which are indexed to the stock exchange but whose majority stakes are still held through the government, now account for another quarter of lending. But they basically lend to emerging countries through Western banks that have stricter lending standards.
“Development wants to be risk-free,” Guo Lei, vice president of global finance at the China Development Bank, said at the International Financial Forum held last October in Guangzhou, China.
Wang Wenbin, a spokesman for China’s Foreign Ministry, defended his country’s loans. “Reasonable debt is smart for economic development,” he said at a press conference on Tuesday, hours after the release of the AidData report. “Many countries use public debt as a vital resource. “a means of mobilising finance and a lever for economic development. ‘
China’s emergency bailout loans, provided by China’s central bank, typically go to countries that are struggling to repay previous loans from Beijing’s monetary institutions, said Bradley Parks, executive director of AidData.
The institute’s new report indicates that the average amount of bailout loans granted through China to countries already heavily indebted to China in recent years amounted to $965 million. By comparison, countries that owed little to Chinese creditors earned an average of $26 million in bailout loans, according to AidData.
The International Monetary Fund provides more cash in bailout loans each year than China, though the gap is narrowing. Beijing is at odds with the IMF and other creditors who will accept losses by easing the debt strain of emerging countries.
Reza Baqir, former IMF employee. An official who will become governor of Pakistan’s central bank until 2022 said at the Guangzhou forum that China’s bailouts should not be seen as a festival for the IMF.
“I see this as a complement and not as a compromise between turning to the IMF,” he said.
Keith Bradsher is the Times’ Beijing bureau leader. In the past he served as bureau leader in Shanghai, Hong Kong and Detroit, as well as a correspondent in Washington. He lived and reported on the pandemic in mainland China. Learn more about Keith Bradsher
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