China’s Expanding Bailout Lending as Part of the Belt and Road Initiative
China has emerged as a major emergency rescuer for debt-ridden countries across Asia, Africa, and Europe. A new report by AidData research lab sheds light on China’s expanding bailout lending as part of its Belt and Road Initiative. According to the report, China granted $104 billion worth of rescue loans to developing countries between 2019 and 2021, almost as large as its bailout lending over the previous two decades combined.
China has been undertaking 128 bailout operations in 22 debtor countries worth a total of $240 billion between 2000 and 2021. Its emergence as a “lender of last resort” presents challenges for western-led institutions like the IMF in safeguarding global financial stability.
China’s Bilateral Emergency Loans to Countries in Financial Distress
The report also sheds light on Chinese bilateral emergency loans provided to 22 countries between 2000 and 2021 when they faced liquidity problems. The loans were extended to countries such as Pakistan, Mongolia, Argentina, and Sri Lanka.
Argentina and Mongolia have been in dire financial distress since the early 2010s and have been using China as a lender of last resort despite the country’s loan terms being less favorable than lower-interest bailouts offered by the IMF or the U.S. Fed. Developing countries experiencing major inflation events such as Pakistan, Turkey, and Egypt are also on the list of Chinese bailouts.
Repayment concerns have arisen due to rising global interest rates and appreciation in the dollar value. Several sovereigns have run into distress, with the lack of coordination among creditors blamed for prolonging some crises. Furthermore, China’s strictly bilateral approach has made it difficult to coordinate activities among all major emergency lenders.
China’s Role as a Major Emergency Rescue Lender
China has lent massive sums of money to governments across Asia, Africa, and Europe over the past decade, mostly through infrastructure megaprojects. Its rise as an emergency rescue lender reflects historical parallels to the era when the US started its rise as a global financial power.
A new study shows that China has become a key player in international crisis management by bailing out 22 countries in debt distress, including those in its Belt and Road infrastructure project such as Argentina, Pakistan, Kenya, and Turkey. China spent $240 billion on total bailout loans between 2008 and 2021, with $170 billion coming from the People’s Bank of China’s swap line network and $70 billion from Chinese state-owned banks and enterprises.
Most of the loans were extended to middle-income countries that are considered more important to China’s banking sector while low-income countries receive little to no new money, with debt restructuring offered instead. Critics see China’s bailouts as a way to rescue its own banks from potential losses.
Shortcomings of the Belt and Road Initiative Scheme
However, there are several shortcomings in the design of China’s Belt and Road Initiative scheme. These include a dearth of feasibility studies and general lack of transparency. Several Belt and Road projects have been plagued by corruption allegations, delays, and environmental issues.
China has pushed back against criticisms of its foreign lending practices stating that agreements with developing countries are based on the principles of openness and transparency, with political strings not attached to such agreements.
Lack of Transparency Compared to other Lenders
However, China’s loans are far more secretive compared to those offered by the United States or the IMF. Most of its operations and transactions remain concealed from public view. The central bank and state-owned banks and enterprises do not disclose detailed information about their lending practices.
The Growing Influence of China’s Bailout Lending
China’s growing influence through its bailout lending in debt-ridden countries has raised concerns about excess debt and China’s influence on these countries. Accusations that Belt and Road is a broad “debt trap” designed to take control of local infrastructure has sparked public concern in some countries.
In conclusion, China is expanding its bailout lending as part of its Belt and Road Initiative, becoming a major emergency rescuer for debt-ridden countries across Asia, Africa, and Europe. Despite challenges to global financial stability, China continues to lend massive sums of money with general lack of transparency.
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