China spent $240 billion to bail out indebted countries, study finds

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Over the past decade, China has lent massive sums to governments in Asia, Africa and Europe, bolstering its global influence through infrastructure megaprojects and becoming one of the world’s largest creditors. .

Now, a new study indicates that Beijing has also become a major emergency lender to those same countries, many of which are struggling to repay their debts.

Between 2008 and 2021, China spent $240 billion bailing out 22 countries that are “almost exclusively” debtors of Xi Jinping’s Belt and Road infrastructure project, including Argentina, Pakistan, Kenya and Turkey, according to the study published Tuesday by researchers from Le Monde. Bank, Harvard Kennedy School, Kiel Institute for the World Economy and the American research laboratory AidData.

Although China’s bailouts are still smaller than those provided by the United States or the International Monetary Fund (IMF), which regularly provides emergency loans to countries in crisis, it has become a key player for many countries. in development.

Beijing’s rise as an international crisis manager sounds familiar: the United States has adopted a similar strategy for nearly a century, offering bailouts to highly indebted countries like those in Latin America during the debt crisis. of the 1980s, according to the report.

“We see historical parallels to when the United States began its rise as a global financial power, particularly in the 1930s and after World War II,” he said.

But there are also differences.

For one thing, China’s loans are much more secretive, with most of its operations and transactions hidden from public view. This reflects the fact that the global financial system is becoming “less institutionalized, less transparent and more fragmented”, according to the study.

The Chinese central bank also does not disclose data on loans or currency swap agreements with other foreign central banks; Chinese banks and state-owned enterprises do not publish detailed information about their loans to other countries.

The research team instead relied on the annual reports and financial statements of other countries that have agreements with Chinese banks, press releases, press releases and other documents to compile their set of data.

“Much more research is needed to measure the impacts of China’s bailout loans — in particular, the large swap lines administered by the PBOC (People’s Bank of China),” said Brad Parks, co-author of the paper. study, in a blog post. by AidData. “Beijing created a new global system for cross-border rescue loans, but it did so in an opaque and uncoordinated way.”

In 2010, less than 5% of China’s overseas loan portfolio supported countries in debt distress, according to the report.

By 2022, that figure had jumped to 60 percent, reflecting Beijing’s stepping up rescue operations and abandoning infrastructure investment that had characterized its Belt and Road campaign in the early 2010s, it said. he declared.

Most of the loans were made in the last five years of the study, from 2016 to 2021.

Of the $240 billion in total bailout loans, $170 billion came from the PBOC’s network of swap lines, that is, agreements between central banks to swap currencies. The remaining $70 billion was lent by Chinese banks and state-owned enterprises, including oil and gas companies.

Most countries using China’s swap lines were mired in a financial crisis, with problems exacerbated by the Covid-19 pandemic, the report said.

For example, Argentina defaulted in 2014 and 2020 after struggling for decades with its national debt. Meanwhile, Pakistan has seen its currency plummet as foreign exchange reserves dwindle.

Sri Lanka also borrowed money from China in 2021 – before its economic and political crisis erupted the following year, with basics like fuel and medicine rationed and crowds taking to the streets during violent demonstrations.

But China’s bailouts don’t come cheap. The PBOC is demanding an interest rate of 5%, compared to 2% for IMF bailout loans, according to the study.

And most loans go to middle-income countries deemed more important to China’s banking sector, while low-income countries receive little or no fresh money and are offered debt restructuring instead.

“Beijing is ultimately trying to save its own banks. That’s why it got into the risky business of international bailout loans,” study co-author Carmen Reinhart said in the post. AidData.

For a decade, Beijing’s Belt and Road Initiative has invested billions of dollars each year in infrastructure projects: paving highways from Papua New Guinea to Kenya, building ports in Sri Lanka to West Africa and providing electricity and telecommunications infrastructure to people in Latin America in the Southeast. Asia.

First announced in 2013 under Chinese leader Xi Jinping, the initiative was seen as an extension of the country’s steep rise to global power.

By March 2021, 139 countries had joined the initiative, representing 40% of global GDP, according to the Council on Foreign Relations, a US think tank. The BRI has reached nearly $1 trillion in Chinese investment, according to the Chinese Foreign Ministry.

But funding shortfalls and political pushbacks have stalled some projects, while others have been marred by environmental incidents, corruption scandals and labor rights violations.

The public in some countries is also worried about issues such as excessive debt and China’s influence. Accusations that the Belt and Road are a vast “debt trap” designed to take control of local infrastructure, though widely dismissed by economists, have tarnished the reputation of the initiative.

CNN has contacted the PBOC for comment.

In January, Chinese Foreign Minister Qin Gang dismissed accusations that China had created a “debt trap” in Africa, one of the main beneficiaries of Belt and Road investments.

In a statement quoting Qin, the ministry said “China has always been committed to helping Africa ease its debt burden,” and pointed to Beijing’s debt relief agreements with a number of of African nations.

Qin again defended the BRI earlier this month, calling it a “public good”.

“China should be the last to be blamed for the so-called debt trap,” he said, blaming U.S. interest hikes for making developing countries’ debt worse.


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