ECONOMYNEXT – China has lent $240 billion worth of loans for 22 developing nations including Sri Lanka between 2008 to 2021 to rescue crisis hit nations as debts and balance of payment support, but the lending is expensive and less clear while it has targeted countries in Beijing’s Belt and Road Initiative (BRI), a report by four experts said.
Beijing has given over $170 billion for distressed nations and $70 billion as balance of payments support for the 22 countries mostly involved with Beijing’s ambitious Belt and Road Initiative (BRI) project, the report co-authored by Sebastian Horn from the World Bank, Bradley C. Parks from AidData of William & Mary, Carmen M. Reinhart from Harvard Kennedy School, and Christoph Trebesch from Kiel Institute for the World Economy.
The report comes amid increasing Western allegations that China is using its lending as a debt trap with an agenda to own assets in developing nations.
“However, China’s rescue loans differ from those of established international lenders of last resort in that they are opaque, carry relatively high interest rates, and are almost exclusively targeted to debtors of China’s Belt and Road Initiative,” the experts said.
“What is less well understood and of more recent vintage is the large and rising number of Chinese bailouts to countries in distress over the past 15 years. This paper shows that the Chinese government has created a new system of international rescue lending, which has not yet been documented or studied.”
The Belt and Road Initiative, known within China as the One Belt One Road or OBOR, was initiated in 2013 as a global infrastructure development strategy adopted by President Xi Jinping’s ambitious project to invest in more than 150 countries and international organizations.
“China’s role as an international crisis manager has grown exponentially in recent years following its long boom in overseas lending,” the experts said in the report.
“Our findings have major implications for the evolution of the international financial system, as cross-border rescue operations become less institutionalized, less transparent, and more piecemeal.”
“China has demonstrated that a major creditor country (notwithstanding its current status as an emerging market) can create a large system of cross-border rescue lending to nearly two dozen recipient countries, while at the same time keeping its bailout operations largely out of public sight.”
Findings from the study indicate that 80 percent of the bailout money was spent between the years 2016 to 2021, in middle-income countries like Pakistan, Argentina, and Mongolia.
The study also shows that China’s position is far from rivaling that of the United States or the IMF, which are at the center of today’s international financial and monetary system and the effectiveness of its rescue lending operations is not well understood.
While China has focused its sovereign debt restructuring efforts (with little or no new money) in low-income countries, its international bailout activities are concentrated in middle-income countries, the report said (Colombo/March30/2023)