CHINA: THE WORLD’S NEW BANKER
How much money China sends overseas is such a sensitive issue for the country’s leaders that it is deemed “a state secret”. This has made it next to impossible to estimate accurately how much China lends abroad. Even in Pakistan, where the government claims Beijing is going forward with a $46 billion economic corridor, China hasn’t ever publicly confirmed how much it is spending in total.
Yet it is clear that China is today lending more than ever before, with Beijing opening its purse strings through President Xi Jinping’s pet ‘One Belt, One Road’ global infrastructure initiative. With Chinese lending increasingly in the spotlight, AidData, a research lab at the College of William & Mary, USA, on October 10 published what is possibly a first ever attempt to map the full extent of China’s loans and grants, painstakingly putting together figures from thousands of disparate Chinese overseas projects, from authoritative sources.
The findings are certainly striking. One, between 2000 and 2014, China, despite still being a developing country and a recipient of substantial aid from the World Bank, has almost equalled what the US has lent overseas. In this period, Beijing’s grants and loans totalled $354.4 billion, compared with $394.6 billion from the US. And with the Donald Trump White House slashing overseas assistance, China is almost certain to become the world’s single biggest donor and lender this year.
The second important finding is that the nature of Chinese assistance is very different from that of the US, with 93 per cent of American spending qualifying as aid, lent at concessional rates. In contrast, only 23 per cent of Chinese spending is actually aid, with the rest in the form of commercial loans at “market or closeto-market rate”. Western donors and lenders, however, generally provided highly concessional terms.
Sri Lanka, the study found, is the fifth biggest recipient of Chinese money, amounting to $12.6 billion. Russia was the biggest recipient, with $36.6 billion— mostly loans to energy companies—while Pakistan ranked second with $24.3 billion. India isn’t among the biggest recipients, although one Indian company did figure in the study as the recipient of the biggest ever Chinese loan for a communications project—a $1.3 billion financing agreement for Reliance Power to help fund its deal for equipment from Shanghai Electric.
So does Chinese lending help? The study presents a mixed picture. On the one hand, it found that the 23 per cent that qualifies as aid from China certainly helped boost economic growth, and that there was “no evidence that Chinese aid is inferior to aid from established donors on economic growth grounds”. On the other hand, it reached the conclusion that there was “no evidence that the same is true for less concessional and more commercially oriented forms of Chinese official finance”, which, importantly, account for the bulk of Beijing’s spending abroad.
This holds significance for countries that are reliant on Chinese financing, such as Sri Lanka, Pakistan and, increasingly, Nepal. Sri Lanka is grappling with an $8 billion Chinese debt burden on account of loans for projects such as the Hambantota airport, which were agreed to in 2007 at a market rate of 6.3 per cent shortly before the global financial crisis hit.
Today, the “ghost airport” is struggling to repay the loans. Such deals have left recipients in a Chinese debt trap. For China, it has undermined much of the goodwill that it had hoped to engender by stepping in to fund projects that no one else was willing to back. The recent protests at Hambantota shocked many in China. The study underlines that Chinese assistance can certainly be good for the world, if it’s not driven by only commercial considerations. But whether Beijing heeds the message or not as it prepares to step into the void soon to be left by Trump’s America, what is clear is that China is here to stay as the world’s new banker, for better or for worse.
While 93% of US aid is offered at concessional rates, China’s loan profile is mainly commercial