A recent study from the World Economy has disclosed that China has spent $240 billion bailing out 22 developing countries between the periods of 2008 and 2021, with the amount growing in recent years as more have struggled to repay loans spent building “Belt and Road” infrastructure.
Almost 80% of the lending was made between 2016 and 2021, mainly to middle-income countries including Argentina, Mongolia and Pakistan. , According to the report by researchers from the World Bank, Harvard Kennedy School, AidData and the Kiel Institute for the World Economy, China has lent hundreds of billions of dollars to finance the construction of infrastructure in developing nations. However, lending has decreased significantly since 2016 due to the failure of numerous projects to generate the anticipated financial returns.
“Beijing is ultimately trying to rescue its own banks. That’s why it has gotten into the risky business of international bailout lending,” said Carmen Reinhart, a former World Bank chief economist and one of the study’s authors.
The study indicated that Chinese loans to countries experiencing debt distress have surged from under 5% in 2010 to 60% in 2022. Argentina received the largest amount at $111.8 billion, while Pakistan and Egypt followed with $48.5 billion and $15.6 billion, respectively. Meanwhile, nine countries received less than $1 billion.
Of the total financing, the People’s Bank of China’s (PBOC) swap lines made up $170 billion, which was utilized in countries such as Suriname, Sri Lanka, and Egypt. The remaining $70 billion consisted of bridge loans or balance of payments support provided by Chinese state-owned banks and companies. Additionally, loan rollovers of both types totaled $140 billion.
However, the study criticized some central banks for potentially inflating their foreign exchange reserves by utilizing PBOC swap lines. Brad Parks, one of the report’s authors and director of AidData, a research lab at The College of William & Mary in the United States, labeled China’s rescue lending as “opaque and uncoordinated.”
The Chinese government responded to criticism by asserting that its foreign investments are guided by “principles of transparency and openness”.
“China acts in accordance with market laws and international rules, respects the will of relevant countries, has never forced any party to borrow money, has never forced any country to pay, will not attach any political conditions to loan agreements, and does not seek any political self-interest,” foreign ministry spokesperson Mao Ning said at a news conference on Tuesday.
The bailout loans are mainly concentrated in the middle-income countries that make up four-fifths of its lending, due to the risk they pose to Chinese banks’ balance sheets, whereas low-income countries are offered grace periods and maturity extensions, the report said.
China is negotiating debt restructurings with countries including Zambia, Ghana and Sri Lanka and has been criticised for holding up the processes. In response, it has called on the World Bank and International Monetary Fund to also offer debt relief.