- Celia Hatton
- BBC reporter from London
Image source,Costfoto/Barcroft Media via Getty Images
AidData stated that China is still the preferred financier for many low-income and middle-income countries.
A recent study shows that China’s development assistance to many countries around the world is at least twice that of the United States and other major countries, most of which are provided in the form of high-risk high-interest loans from Chinese state-owned banks. .
The amount of Chinese loans is staggering. Not long ago, China still accepted foreign aid, but now the situation has changed.
According to data from the AidData Research Laboratory of the College of William and Mary in Virginia, USA, in 18 years, China has provided funds or loans to 13,427 infrastructure projects in 165 countries around the world, amounting to US$843.0 billion. .
Most of these funds are related to the “One Belt, One Road” strategy that China’s General Secretary Xi Jinping has ambitiously promoted. Starting in 2013, this plan uses China’s expertise in infrastructure projects and sufficient foreign exchange to establish new global trade routes.
However, critics are beginning to worry that the high-interest loans that fund many Chinese projects are putting unsuspecting many people around the world on astronomical debts.
And this is even new information for Chinese officials themselves. Researchers at AidData have spent four years tracking all Chinese loans and expenditures around the world. They said that Chinese government ministries and commissions often ask them for information on the use of Chinese funds overseas.
“We often hear Chinese government officials say:’You are the only choice!'” AidData executive director Brad Parks (Brad Parks) explained, “they said: we can’t get this data internally.”
A tortuous railway between China and neighboring Laos (Laos also translates to Laos) is often touted as a prime example of China’s off-book loans.
China Approves High-Interest Loans to Poor Countries US Research: “The Situation is Worrying”
For decades, politicians have wanted to build such a link, that is, to directly connect inland southwestern China with Southeast Asia.
However, many engineers warn that the cost will be high: the track needs to pass through steep mountains, and dozens of bridges and tunnels are needed. Laos is one of the poorest countries in the region and cannot even afford a small part of the cost.
Then China’s ambitious bankers appeared: with the support of a group of Chinese state-owned enterprises and a consortium of Chinese state-owned lenders, the US$5.9 billion railway will begin operation in December.
However, Laos had to borrow US$480 million from a Chinese bank to finance a small portion of its equity. One of the few sources of profit in Laos, that is, the proceeds from its potash minerals will be used to support this huge loan.
Image source,EPA
Chen Wanjing, Assistant Professor of Research at the Hong Kong University of Science and Technology, told the BBC: “The loan provided by the Export-Import Bank of China for some equity does indeed demonstrate the urgency of the Chinese government to promote this project.”
Most of this line is owned by a Chinese-led railway group, but according to the vague terms of the transaction, the Lao government is ultimately responsible for the debt of the railway. This unbalanced transaction has caused international creditors to downgrade Laos’ credit rating to a “junk” level.
In September 2020, on the verge of bankruptcy, Laos sold an important asset to China and handed over part of its energy network for US$600 million in order to seek debt relief from Chinese creditors. And all this happened before the railway started operating.
The Laotian Railway is far from the only risky project funded by China’s state-owned banks-however, AidData said that China is still the preferred financier for many low- and middle-income countries.
“On average, China’s international development financing commitments are about US$85 billion a year. In contrast, the United States spends about US$37 billion a year to support global development,” Parks said.
AidData said that China far surpasses all other countries in terms of development financing, but Beijing’s approach to this level is “extraordinary”.
In the past, Western countries were particularly guilty of dragging African countries into debt. But China’s loan method is different: instead of funding projects through grants or loans from one country to another, almost all of the money is given out in the form of national bank loans.
However, such loans are not shown in the official accounts of government debt. This is because in many transactions reached by Chinese state-owned banks, central government agencies are not mentioned. These transactions are not on the government’s balance sheet, but are covered by “confidentiality clauses.” Therefore, these “closed-door” clauses may prevent the government from accurately judging their consequences.
According to AidData’s statistics, underreported debt is as high as US$385 billion.
Many Chinese national development loans also require unusual forms of collateral. Increasing amounts of Chinese loans seem to require borrowers to commit to trading cash loans by selling natural resources.
For example, a transaction with Venezuela required Venezuelan borrowers to deposit foreign exchange derived from the sale of oil directly into a bank account controlled by China. If the debt is not repaid, the Chinese lender can immediately withdraw the cash in the account.
“This is really a way to make money. They send a signal to borrowers:’We are the big bosses here,'” Parks explained.
“Their message is:’You will repay us before repaying other people’s money, because we are the only ones who demand this precious property.’…These are the incomes of very poor countries, including U.S. dollars and Euros. , Locked in an offshore account controlled by foreign powers.”
“Is China very smart?” Anna Gelpern, a law professor at Georgetown University in the United States, wanted to know the answer to this question. Therefore, she participated in a study by AidData in early 2021 to study development loan contracts in China.
“I think our conclusion is that they are very strong and mature in these contracts. They have largely protected their interests.”
However, Professor Gelpen added that the country may be a difficult borrower to handle. If they cannot repay their debts, it is unrealistic to expect them to hand over physical assets like ports.
China may soon face some international borrowing competition. At the G7 meeting in June, the United States and its allies announced that the G7 had adopted a spending plan that would counter China’s influence and pledged to provide funding for global infrastructure projects that are financially and environmentally sustainable. of.
However, this plan may just appear too late.
David Dollar, a senior researcher at the Brookings Institution, a US think tank and former U.S. Treasury representative to China, told the BBC: “I doubt whether Western initiatives can have a significant impact on China’s plans. Influence”
“[这些新举措]There will not be enough real money to meet the large-scale infrastructure needs of the developing world. Moreover, cooperation with Western official financiers is bureaucratic, so there will be long-term delays. “
AidData’s research also found that the One Belt One Road project is facing its own problems. Compared with other development deals in China, its projects are more likely to be related to corruption, labor human rights scandals or environmental issues.
Researchers say that in order to make the One Belt One Road work, Beijing has no choice but to resolve the concerns of borrowers.