Eastern Eye (UK)
‘Poorer nations paying price for Chinese loans’
REPORT SLAMS BEIJING LENDING PRACTICES TO PAKISTAN AND SRI LANKA
CHINA spent $240 billion (£195bn) bailing out 22 developing countries between 2008 and 2021, with the amount soaring in recent years as more nations have struggled to repay loans spent building “Belt and Road” infrastructure, a study published on Tuesday (28) showed.
Almost 80 per cent of the funding was made between 2016 and 2021, mainly to middle-income countries including Argentina, Mongolia and Pakistan, according to the report. It was compiled by researchers from the World Bank, Harvard Kennedy School, AidData and the Kiel Institute for the World Economy.
China has lent hundreds of billions of dollars to build infrastructure in developing countries, but lending has tailed off since 2016 as many projects have failed to pay the expected financial dividends.
“Beijing is ultimately trying to rescue its own banks. That’s why it has gotten into the risky business of international bailout lending,” said Carmen Reinhart, a former World Bank chief economist and one of the study’s authors.
Around the world, Belt and Road Initiative (BRI) nations have come under strain as soaring inflation and interest rates, compounded by the lingering impact of the Covid-19 pandemic, have hurt their ability to repay debts. The bailouts allow the countries to extend their loans and remain solvent, the report said.
China says more than 150 countries have signed up to the BRI, a trillion-dollar global infrastructure push unveiled by president Xi Jinping a decade ago.
Beijing says the initiative aims to deepen friendly trade relations with other nations, particularly in the developing world.
But critics have long accused China of luring lower-income countries into debt traps by offering huge, unaffordable loans.
In comparison to the International Monetary Fund (IMF) and the vast liquidity support extended by the US Federal Reserve, China’s bailouts remain small but are growing quickly, according to the AidData report.
Argentina received the most, with $111.8bn (£90.8bn), followed by Pakistan with $48.5bn (£39.39bn) and Egypt with $15.6bn (£12.67bn). Nine countries received fewer than $1bn.
The People’s Bank of China’s (PBOC) swap lines accounted for $170bn (£138bn) of the funding, including in Suriname, Sri Lanka and Egypt.
“Beijing has targeted a limited set of potential recipients, as almost all Chinese rescue loans have gone to low- and middle-income BRI countries with significant debts outstanding to Chinese banks,” its authors wrote.
The report warned that Chinese loans tend to be more opaque compared with other international lenders of last resort. They often come at an average interest rate of five per cent, compared with a typical two per cent rate on an IMF loan. Many such agreements were socalled “rollovers”, in which the same shortterm loans are repeatedly extended to refinance debts about to come due.
It added that said bridge loans or balance of payments support by Chinese state-owned banks and companies was $70bn (£56.86bn), while rollovers of both kinds of loans were $140bn (£113.7bn).
China’s government hit back at the criticism, saying its overseas investments operated on “the principle of openness and transparency”.
“China acts in accordance with market laws and international rules, respects the will of relevant countries, has never forced any party to borrow money, has never forced any country to pay, will not attach any political conditions to loan agreements, and does not seek any political self-interest,” the foreign ministry spokesperson, Mao Ning, said on Tuesday.
China is negotiating debt restructuring plans with countries including Zambia, Ghana and Sri Lanka, and has been criticised for holding up the processes.