China becomes major emergency rescue lender to countries struggling to repay their debts

    WORLD  29 March 2023 - 11:40

    For the past decade, China has lent massive sums to governments across Asia, Africa and Europe, growing its global influence through infrastructure megaprojects and becoming one of the world’s biggest creditors.

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

    Between 2008 and 2021, China spent $240 billion bailing out 22 countries that are “almost exclusively” debtors in Xi Jinping’s signature Belt and Road infrastructure project, including Argentina, Pakistan, Kenya and Turkey, according to the study published on March 28 by researchers from the World Bank, Harvard Kennedy School, Kiel Institute for the World Economy and the US-based research lab AidData.

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

    Beijing’s rise as an international crisis manager looks familiar: The US has taken a similar strategy for nearly a century, offering bailouts for high-debt countries such as those in Latin America during the 1980s debt crisis, the report said.

    “We see historical parallels to the era when the US started its rise as a global financial power, especially in the 1930s and after World War 2,” it said.

    For one, China’s loans are far more secretive, with most of its operations and transactions concealed from public view. It reflects the world’s financial system becoming “less institutionalized, less transparent, and more piecemeal,” the study said.

    China's Belt and Road is facing challenges. But can the US counter it?

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data on loans or currency swap agreements with other foreign central banks; China’s state-owned banks and enterprises do not publish detailed information about their lending to other countries.

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

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

    China’s loans

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

    By 2022, that figure had soared to 60% – reflecting Beijing’s ramping up of rescue operations and stepping away from the infrastructure investments that had characterized its Belt and Road campaign in the early 2010s, it 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 swap line network – meaning agreements between central banks to exchange currencies. The other $70 billion was lent by Chinese state-owned banks and enterprises, including oil and gas companies.

    Most of the countries drawing from China’s swap lines were deep in financial crisis, with problems exacerbated by the Covid-19 pandemic, the report found.

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

    But China’s bailouts don’t come cheap. The PBOC requires an interest rate of 5%, compared to 2% for IMF rescue loans, the study said.

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

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

    Belt and Road Initiative

    For a decade, Beijing’s Belt and Road Initiative has poured billions of dollars into infrastructure projects each year: paving highways from Papua New Guinea to Kenya, constructing ports from Sri Lanka to West Africa and providing power and telecoms infrastructure for people from Latin America to Southeast Asia.

    First announced in 2013 under Chinese leader Xi Jinping, the initiative has been seen as an extension of the country’s sharp ascent to global power.

    As of March 2021, 139 countries had signed up for the initiative, accounting for 40% of global GDP, according to the Council on Foreign Relations, a US think tank. BRI has reached nearly $1 trillion in Chinese investment, according to China’s foreign ministry.

    Are the wheels coming off China's Belt and Road megaproject?

    But funding shortfalls and political pushback have stalled certain projects, while others have been marred by environmental incidents, corruption scandals and labour violations.

    There is also a public concern in some countries over issues like excess debt and China’s influence. Accusations that Belt and Road is a broad “debt trap” designed to take control of local infrastructure, while largely dismissed by economists, have sullied the initiative’s reputation.

    In January, Chinese Foreign Minister Qin Gang rejected the accusations of China creating a “debt trap” in Africa, a major recipient of Belt and Road investments. In a statement citing Qin, the ministry claimed “China has always been committed to helping Africa ease its debt burden,” and pointed to Beijing’s debt relief agreements with a number of African nations.

    Qin defended BRI again earlier this month, calling it a “public good”. “China should be the last one to be accused of the so-called debt trap,” he said, blaming US interest hikes for worsening debt in developing countries.


    Subscribe to our Telegram channel

Read also

WP: US knew about Ukrainian plot to bomb Nord Stream pipeline

06 June 2023 - 20:47

French march in new pension protests, but are they final stand?

06 June 2023 - 20:40

US slaps sanctions on Iranian, Chinese targets in action over Tehran's missile, military programs

06 June 2023 - 20:16

Ukraine denounces Russia as "terrorist state" at World Court hearing

06 June 2023 - 20:32

Bulgarian parliament approves Nikolay Denkov as new prime minister

06 June 2023 - 19:36

ASEAN, Japan ink economic cooperation deals

06 June 2023 - 19:27
Latest news

    Cure for nuclear radiation may be available soon

    07 June 2023 - 02:03

    Poland not friend West thinks it is

    Opinion by The New York Times

    07 June 2023 - 01:02

    Netanyahu must focus on lowering Israel's cost of living

    Analysis by The Jerusalem Post

    07 June 2023 - 00:00

    Türkiye inches toward ratifying Sweden's NATO bid

    06 June 2023 - 23:01

    Politico: This is Ukraine’s D-Day

    06 June 2023 - 22:00

    Azerbaijani, Italian naval commanders discuss issues of mutual interest

    06 June 2023 - 21:10

    WB announces forecasts of economic growth in Azerbaijan until 2025

    06 June 2023 - 21:01

    Azerbaijani army continues to hold training sessions with reservists

    06 June 2023 - 20:54

    WP: US knew about Ukrainian plot to bomb Nord Stream pipeline

    06 June 2023 - 20:47

    French march in new pension protests, but are they final stand?

    06 June 2023 - 20:40

    Ukraine denounces Russia as "terrorist state" at World Court hearing

    06 June 2023 - 20:32

    ICAO European, North Atlantic Bureau Director visits Baku

    06 June 2023 - 20:25

    US slaps sanctions on Iranian, Chinese targets in action over Tehran's missile, military programs

    06 June 2023 - 20:16

    Armenia shells Azerbaijani positions

    06 June 2023 - 20:06

    Azerbaijani presidential aide holds meeting with Israeli Knesset Committee delegation

    06 June 2023 - 20:00

    Azerbaijan, Morocco mull development of relations


    06 June 2023 - 19:52

    Azerbaijani judoka tops world rating

    06 June 2023 - 19:43

    Bulgarian parliament approves Nikolay Denkov as new prime minister

    06 June 2023 - 19:36

    ASEAN, Japan ink economic cooperation deals

    06 June 2023 - 19:27

    Azerbaijan, ICMP discuss cooperation on missing persons

    06 June 2023 - 19:18

    Azerbaijani Separate Combined Arms Army holds command-staff exercises


    06 June 2023 - 19:09

    Azerbaijan, Poland eye bilateral ties, economic coop


    06 June 2023 - 18:57

    Azerbaijani FM addresses OSCE Permanent Council special meeting


    06 June 2023 - 18:48

    Türkiye joins Australia in race to host Cop31 climate talks

    06 June 2023 - 18:41

    Dissident Iranian-Azerbaijani TV chief speaks out after beating in US

    06 June 2023 - 18:34

    Forbes: Ukraine aims to cut off Russian troops in Crimea

    06 June 2023 - 18:27

    Uzbekistan, Qatar ink 15 accords

    06 June 2023 - 18:20

    Azerbaijan's gas production up by over 58% in 10 years

    06 June 2023 - 18:13

    Georgia's PM calls destruction of Kakhovka dam as result of Russian-unleased war

    06 June 2023 - 18:06

    Kazakhstan presses ahead with $16.5 billion claim against oil majors

    06 June 2023 - 17:59

    Yerevan still speculating about rights of ethnic Armenians in Karabakh

    Western Azerbaijan Community’s statement

    06 June 2023 - 17:52

    Japan earmarks $107 billion for developing hydrogen energy to cut emissions

    06 June 2023 - 17:45

    Armenian, EU officials discuss Yerevan-Baku dialogue

    06 June 2023 - 17:38

    Azerbaijan, OSCE discuss Baku-Yerevan post-conflict issues


    06 June 2023 - 17:31

    Bloomberg: BRICS raging against dollar is exercise in futility

    06 June 2023 - 17:24

    Karabakh Armenians freely use Azerbaijan's Lachin checkpoint

    Video by Caliber.Az

    06 June 2023 - 17:17

    Russian FM says dialogue with Taliban necessary

    06 June 2023 - 17:10

    Moscow propaganist's speech, Kakhovka HPP blast - links in same chain

    Russia trying to freeze Ukraine war

    06 June 2023 - 17:03

    China edging out Russia as sanctions redraw Kazakhstan trade

    06 June 2023 - 16:58

    Armenian parliament speaker off to London

    06 June 2023 - 16:52

    Azerbaijani health minister congratulates Turkish counterpart on reappointment

    06 June 2023 - 16:45

    Azerbaijan approves procedure for payment of financial aid to entrepreneurs in liberated lands

    06 June 2023 - 16:35

    EU says dam blast shows "barbaric" nature of Russian aggression

    06 June 2023 - 16:28

    Members of FETO terrorist organization try to infiltrate Türkiye from Greece

    06 June 2023 - 16:21

    General: Ukraine foresaw Kakhovka HPP blast

    06 June 2023 - 16:14

All news