China expended $240 billion bailing out 22 developing nations between 2008 and 2021, with the amount escalating in recent years as more have struggled to repay loans spent constructing “Belt and Road” infrastructure, according to a study published on Tuesday.
Almost 80% of the loans were issued between 2016 and 2021, mainly to middle-income nations including Argentina, Pakistan, and Mongolia, the report by researchers from the World Bank, Harvard Kennedy School, AidData and the Kiel Institute for the World Economy showed.
China has loaned out hundreds of billions of dollars to construct infrastructure in developing countries, but lending has diminished since 2016 as multiple projects have failed to repay the expected financial dividends.
“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.
Chinese loans to nations in debt distress increased from less than 5% of its overseas lending portfolio in 2010 to 60% last year, the study showed.
Argentina was the largest recipient, receiving $111.8 billion, followed by Pakistan with $48.5 billion and Egypt with $15.6 billion. Nine countries were given less than $1 billion.
The People’s Bank of China’s (PBOC) swap lines formed $170 billion of the financing, including in Egypt, Suriname, and Sri Lanka. Bridge loans or balance of payments support by Chinese state-owned lenders and companies was $70 billion. Rollovers of both types of loans were $140 billion.
The study criticized some central banks for potentially using the PBOC swap lines to artificially inflate their foreign exchange reserve figures. China’s bailout loans are “opaque and uncoordinated,” said 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.
China’s government responded to the criticism, saying its overseas investments are founded upon “the principle of openness and transparency”. Foreign ministry spokesperson Mao Ning said at a news conference on Tuesday:
“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.”
The rescue lending is mainly concentrated in middle-income countries that account for four-fifths of its lending, due to the risk they pose to Chinese banks’ balance sheets, whereas low-income countries are given grace periods and maturity extensions, the report said.
China is negotiating debt restructurings with countries including Ghana, Zambia, and Sri Lanka and has been criticized for delaying the processes. In response, it has urged the World Bank and International Monetary Fund to also provide debt relief.
