China provided huge loans to some countries for years. Now he’s spending billions to get them back

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

Now, a new study it says Beijing has also become a major emergency bailout lender to those same countries, many of which are struggling to pay off their debts.

Between 2008 and 2021, China spent $240 billion bailing out 22 countries that are “almost exclusively” debtors to Xi Jinping’s Belt and Road infrastructure project, including Argentina, PakistanKenya and Turkey, according to the study published Tuesday by researchers from the World Bank, the Harvard Kennedy School, the Kiel Institute for the World Economy and the US 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, the Asian giant has become a key player for many developing countries.

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

“We see historical parallels with the era in which the US began its rise as a global financial power, especially in the 1930s and after World War II,” he said.

But there are also differences.

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

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data on loans or currency swap agreements with other foreign central banks; China’s state-owned banks and enterprises do not publish detailed information about their loans to other countries.

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

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

Chinese loans

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

By 2022, that figure had ballooned to 60%, reflecting Beijing’s increased bailout operations and shifting away from infrastructure investments that had characterized his Belt and Road campaign in the early 2010s, he said.

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 other $70 billion was lent by Chinese banks and state-owned companies, including oil and gas companies.

Most of the countries that drew from China’s trading lines were in deep financial crisis, with problems exacerbated by the Covid-19 pandemic, according to the report.

For example, Argentina defaulted in 2014 and 2020 after struggling for decades with its national debt. Meanwhile, Pakistan saw its currency fall as foreign exchange reserves dwindled.

Sri Lanka also borrowed money from China in 2021, before its economic and political crisis erupted the following year, with basic goods such as fuel and medicine rationed and crowds taking to the streets in violent protests.

But China’s bailouts are not cheap. The PBOC requires an interest rate of 5%, compared with 2% on IMF bailout loans, according to the study.

And most of the loans go to middle-income countries considered more important to China’s banking sector, while low-income countries get little or no new money and are offered debt restructuring instead.

“Beijing is finally trying to bail out its own banks. That is why it has gotten into the risky business of international bailout loans,” study co-author Carmen Reinhart said in the AidData publication.

The ‘Belt and Road’ initiative

For a decade, the Initiative Belt and Road Beijing has invested billions of dollars in infrastructure projects every year: paving roads from Papua New Guinea to Kenya, building ports from Sri Lanka to West Africa, and providing power and telecommunications infrastructure for people from Latin America to the Southeast. Asian.

First announced in 2013 under the leadership of Xi Jinping, the initiative has been seen as an extension of the country’s strong rise to world power.

As of March 2021, 139 countries have signed on to the initiative, representing 40% of global GDP, according to the Council on Foreign Relations, a US think tank BRI has reached nearly $1 billion in investment China, according to the Chinese Ministry of Foreign Affairs.

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

There is also public concern in some countries over issues such as excessive debt and the influence of China. Allegations that the Belt and Road is a sweeping “debt trap” designed to seize control of local infrastructure, though largely dismissed by economists, have tarnished the initiative’s reputation.

has reached out to PBOC for comment.

In January, Chinese Foreign Minister Qin Gang rejected accusations that China creates a “debt trap” in Africa, a major recipient of Belt and Road investment.

In a statement citing Qin, the ministry said that “China has always been committed to helping Africa ease its debt burden,” noting Beijing’s debt relief deals with several African nations.

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

“China should be the last to be accused of the so-called debt trap,” he said, blaming US interest rate hikes for worsening debt in developing countries.

— ‘s Beijing bureau contributed to this report.