The study published on Tuesday by AidData, a research lab at William & Mary, a public university in Virginia, notes the significant scale of China’s cross-border rescue lending: it says that China’s $240 billion bailout is more than 20 percent of total International Monetary Fund (IMF) lending over the past decade, with an accelerating trend—$185 billion, or nearly 80 percent, of the total $240 billion was extended during the recent five years between 2016 and 2021.
Yet, China’s lending is opaque, more expensive at an average 5 percent interest rate versus IMF’s 2 percent, and is offered almost exclusively to BRI countries.
BRI, the Chinese Communist Party’s (CCP) multibillion-dollar global infrastructure development strategy, has long been criticized for saddling host countries with debt, ignoring the local environmental impact, and exporting Chinese labor, therefore not creating local jobs. Moreover, when the host countries couldn’t repay BRI loans, the CCP seized assets that expanded its strategic and military reach.
Hence, BRI is also known as “debt-trap diplomacy.” An example is Sri Lanka, an island country in South Asia. In December 2017, the government gave the CCP a 99-year lease of its Hambantota Port—located near busy Indian Ocean shipping routes—and 15,000 acres of land around it after defaulting on a $1 billion BRI loan.
According to the authors of the study, the CCP does not bail out all distressed BRI borrowers. Instead, it tends to offer low-income debtors debt restructuring plans but no new money. Meantime, middle-income debtors, such as Argentina, Pakistan, Egypt, Ukraine, and Venezuela, received new money. For example, Argentina received the most at about $112 billion.
The report’s authors also raised an issue regarding China’s central bank using its global swap lines for debt servicing. They noted that the CCP’s swap line rescue loan operations “complicated the challenge of monitoring debt vulnerabilities in the developing world.”
About 70 percent of the $240 billion bailout was conducted through the global swap line of China’s central bank, the People’s Bank of China (PBOC). Such swap lines are set up to improve the liquidity conditions of central banks.
“A key question is whether PBOC swap line proceeds can be used for debt servicing or not,” the authors wrote, adding that PBOC frequently extended the short-term swap line drawings, which made the debt duration effectively several years. Yet, the short-term swap line drawings are not required for international debt disclosure.
“Our findings have implications for the global financial and monetary system, which we see becoming more multipolar, less institutionalized, and less transparent,” said Christoph Trebesch at the Kiel Institute for the World Economy in Germany, a co-author of the study.
Regarding these countries relying on Beijing for additional emergency funds, U.S. State Department spokesperson Vedant Patel said at Tuesday’s briefing that “often these infrastructure projects saddle countries with bad debt that the local workforce do not end up reaping the economic benefits of the Belt and Road Initiative” and “often these projects are undertaken without consideration of the environment or human rights.”
“Sometimes these countries are saddled with debt that it is difficult for them to pay off,” he added.
