Hong Kong (CNN) Over the past decade, China has lent enormous sums to governments across Asia, Africa and Europe, expanded its global influence through mega-projects in infrastructure and emerged as one of the world’s largest creditors.
Now a new study says Beijing has also become a major lender for emergency bailouts to the same countries, many of which are struggling to pay off their debts.
Between 2008 and 2021, China spent $240 billion to bail out 22 countries that are “almost exclusively” debtors in Xi Jinping’s signature “Belt and Road” infrastructure project, including Argentina, Pakistan, Kenya and Turkey, the authorities said Study published on Tuesday by researchers from all over the world, the Harvard Kennedy School, the Kiel Institute for the World Economy and the US research laboratory AidData.
Although China’s bailout packages are still smaller than those of the United States or the International Monetary Fund (IMF), which regularly provides emergency loans to troubled countries, it has become a major player for many developing countries.
Beijing’s rise to international crisis manager sounds familiar: The US has pursued a similar strategy for nearly a century, offering bailouts to heavily indebted countries like those in Latin America during the debt crisis of the 1980s, the report says.
“We see historical parallels to the era when the US began its rise as a global financial powerhouse, particularly in the 1930s and after World War II,” it said.
But there are also differences.
For one thing, China’s loans are much more secretive as most of its operations and transactions are hidden from the public. It reflects the global financial system, which is becoming “less institutionalized, less transparent and more fragmented,” the study says.
China’s central bank also does not release data on loans or currency swap agreements with other foreign central banks; China’s state-owned banks and corporations do not publish detailed information about their lending to other countries.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 impact of China’s bailout loans — particularly the large swap lines managed by the PBOC (People’s Bank of China),” said Brad Parks, a co-author of the study, in a blog post by AidData. “Beijing created a new global system for cross-border bailout loans, but it did so in an opaque and uncoordinated manner.”
China’s loans
According to the report, in 2010 less than 5% of China’s foreign loan portfolio supported countries with debt problems.
By 2022, that number had risen to 60 percent — reflecting Beijing’s ramping up of bailouts and retreating from the infrastructure investments that 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 total in bailout loans, $170 billion came from the PBOC’s swap-line network — agreements between central banks to exchange currencies. The other $70 billion was lent by state-owned Chinese banks and corporations, including oil and gas companies.
Most of the countries that drew from China’s swap lines were in a financial crisis, with problems exacerbated by the Covid-19 pandemic, the report said.
Argentina defaulted in 2014 and 2020 after decades of struggling with its national debt. Meanwhile, Pakistan experienced its currency crash as foreign exchange reserves dwindled.
Sri Lanka also borrowed money from China in 2021 – before its economic and political crisis simmered the following year, with basic commodities like fuel and medicines being rationed and crowds taking to the streets in violent protests.
But China’s bailouts don’t come cheap. The PBOC charges an interest rate of 5%, compared to 2% for IMF bailout loans, the study said.
And most of the credit goes to middle-income countries, which are seen as more important to China’s banking sector, while low-income countries get little to no new money, with debt restructuring being offered instead.
“Beijing is ultimately trying to bail out its own banks. That’s why it got into the risky business of international bailout lending,” study co-author Carmen Reinhart said in the AidData article.
Belt and Road Initiative
For a decade, Beijing’s Belt and Road Initiative has poured billions of dollars each year into infrastructure projects: paving highways from Papua New Guinea to Kenya, building ports from Sri Lanka to West Africa, and providing power and telecommunications infrastructure for the People from Latin America to Southeast Asia.
The initiative, first announced under Chinese head of state Xi Jinping in 2013, is seen as the continuation of the country’s rapid rise to global power.
As of March 2021, 139 countries had joined the initiative, which accounts 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 the Chinese Ministry of Foreign Affairs.
But funding constraints and political reluctance have stalled certain projects, while environmental incidents, corruption scandals and labor rights violations have hampered others.
There is also public concern in some countries over issues such as over-indebtedness and China’s influence. Accusations that the Belt and Road is a broad “debt trap” designed to seize control of local infrastructure, while widely dismissed by economists, have tarnished the initiative’s reputation.
CNN has reached out to PBOC for comment.
In January, Chinese Foreign Minister Qin Gang dismissed accusations that China had created 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 reduce its debt burden,” citing Beijing’s debt relief deals with a number of African nations.
Qin defended BRI again earlier this month, calling it a “public good”.
“China should be the last country accused of the so-called debt trap,” he said, blaming US interest rate hikes for worsening debt in developing countries.
CNN’s Beijing bureau contributed to the coverage.