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Hong Kong (CNN) Over the past decade, China has made huge loans to governments in Asia, Africa and Europe, expanded its global influence through mega-projects in infrastructure, and become one of the world’s largest creditors.
Now, according to new research, Beijing has also become a major emergency relief lender to many of those same countries struggling to pay off their debts.
Between 2008 and 2021, China will spend $240 billion to bail out 22 countries that are “almost exclusively” debtors to President Xi Jinping’s Belt and Road infrastructure projects, including Argentina, Pakistan, Kenya and Turkey. spent dollars, according to a study released Tuesday by researchers around the world. Banks, Harvard Kennedy School, Kiel Institute for the World Economy, and US-based research institute AidData.
China’s bailout is still smaller than those offered by the United States and the International Monetary Fund (IMF), but although it regularly provides emergency loans to countries in crisis, China has many developing countries. It plays an important role for the country.
Beijing’s rise as an international crisis manager seems familiar: The US spent nearly a century providing bailouts to highly indebted countries such as Latin America during the debt crisis of the 1980s. It has followed a similar strategy over the years, says the report.
“There are historical parallels, especially to the 1930s and the post-World War II era, when the United States began its rise as a global financial powerhouse,” he said.
But there are also differences.
For one thing, Chinese lending is far more secretive, with most of its operations and transactions hidden from the public eye. This reflects how the global financial system has become “deinstitutionalized, less transparent and fragmented,” the study said.
China’s central bank also did not disclose data on loans or currency swap agreements with other foreign central banks. China’s state-owned banks and companies do not release detailed information about loans to other countries.
The research team instead relied on annual and financial statements, news reports, press releases, and other documents from other countries that have agreements with Chinese banks to compile the dataset.
“More research is needed to measure the impact of Chinese bailout loans, especially the large PBOC-administered swap lines,” study co-author Brad Parkes said in a blog. said in Posted by AidData. “Beijing has created a new global system for cross-border rescue loans, but it has done so in an opaque and uncoordinated manner.”
Chinese debt
In 2010, less than 5% of China’s overseas lending portfolio supported countries in debt distress, according to the report.
By 2022, that number has skyrocketed to 60%. This reflects Beijing stepping up its rescue efforts and moving away from the infrastructure investments that characterized its Belt and Road campaign in the early 2010s, it said.
Most of the loans were made during the last five years of the study, 2016-2021.
Of the total $240 billion bailout loan, $170 billion came from the PBOC’s swap line network. That is, an agreement between central banks to exchange currencies. The remaining $70 billion was lent by China’s state-owned banks and companies, including oil and gas companies.
Most of the countries drawn from China’s swap lines were in deep financial crises, exacerbated by the Covid-19 pandemic.
Argentina, for example, defaulted in 2014 and 2020 after decades of struggling with its national debt. On the other hand, Pakistan’s currency plunged as its foreign exchange reserves dwindled.
Sri Lanka borrowed money from China in 2021 as well, but the following year saw economic and political turbulence as basic supplies such as fuel and medicine were distributed and crowds took to the streets in violent protests. It was before the crisis boiled over.
But China’s bailout doesn’t come cheap. The People’s Bank of China is demanding a 5% interest rate, while the IMF bailout loan is 2%, the study said.
And most of the loans go to middle-income countries, which are considered more important to China’s banking sector, while low-income countries get little to no new funding and are instead offered debt restructuring. .
“Beijing is ultimately trying to save its own banks, which is why it has embarked on the risky business of international bailout lending.”
Belt and Road Initiative
For a decade, Beijing’s Belt and Road Initiative has pumped billions of dollars into infrastructure projects each year. Paving a highway from Papua New Guinea to Kenya, building a port from Sri Lanka to West Africa, and providing power and communications infrastructure for people from Latin America to the Southeast. Asia.
First announced in 2013 under Chinese leader Xi Jinping, the initiative has been seen as an extension of China’s rapid rise to global power.
According to the Council on Foreign Relations, a US think tank, as of March 2021, 139 countries have signed up to the initiative, representing 40% of global GDP. According to China’s Ministry of Foreign Affairs, China’s investment in BRI is close to his $1 trillion.
But while some projects are stalled by lack of funding or political backlash, others are undermined by environmental problems, corruption scandals and labor violations.
In some countries, issues such as excessive debt and China’s influence have raised public concern. Criticism that the Belt and Road is a broad “debt trap” designed to dominate the region’s infrastructure has been largely dismissed by economists, but has tarnished the initiative’s reputation.
CNN reached out to PBOC for comment.
In January, China’s Foreign Minister Qin Gang denied accusations that China was setting up a “debt trap” in Africa, a major Belt and Road investment destination.
“China has always helped Africa reduce its debt burden,” the ministry said in a statement citing Qin, noting that the Chinese government has signed debt relief agreements with many African countries.
Earlier this month, Mr. Qin again defended the Belt and Road Initiative, calling it a “public interest.”
“China should be the last country to be blamed for the so-called debt trap,” he said, accusing the US rate hikes of exacerbating developing countries’ debt.
CNN’s Beijing bureau contributed to the report.
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