China’s lending has shifted from the Belt and Road Initiative to emergency bailouts, a new report by the AidData Research Institute at the University of William and Mary in the United States, indicated. After lending more than $1.3 trillion to developing countries to build infrastructure projects, it now concentrates on “rescuing” many of these countries because of the mountain of debt they have accumulated.
“This whole situation began more than a decade ago, when Chinese capital carried out financial operations in very large foreign investments,” Sergio Cesarin, coordinator of the Center for Asia-Pacific and India Studies at Argentina’s Tres de Febrero University , told Diálogo on November 28. “In addition, they used the strategy of ‘pushing’ the yuan in loans, to replace the dollar as a currency in international trade.”
In 2021, the financial bailouts granted by China increased, reaching 58 percent of its total loans to middle- and low-income countries. In contrast, they accounted for just 5 percent in 2013, according to the AidData report.
The main loans were part of the Belt and Road, which Chinese President Xi Jinping launched in 2013 to establish political ties and encourage the development of transportation and communications networks in more than 150 countries, the report indicated.
“This is the famous Chinese debt trap,” Cesarin said. “The Belt and Road poured millions of dollars into infrastructure in Africa, Asia, and Latin America and deepened with Chinese capital financial aspects.”
Chinese loans were for the most part used to build large scale projects, which did not drive growth but burdened these countries with astronomical debts that they cannot pay today, AidData said.
For Cesarin, Chinese companies invested in some countries, for example in the construction of roads, creating a dependency and guaranteeing loans with national assets. In the event that a country is unable to pay the loan debts, China asks for a strategic natural resource, such as a cobalt mine, gold, oil fields, or the unrestricted exploitation of a port area, among others.
According to AidData, between 2014 and 2017, China provided nearly three times as much development financing as the United States. Almost all of that money was provided in the form of loans, not grants, which is more the norm for the United States. In addition, China uses interest rates that are generally high and craftily adjustable. As these interest rates have skyrocketed globally in recent years, poor countries have been left owing Beijing far more than they anticipated.
Chinese commercial banks that are publicly traded, but where the government has an equity stake, account for another quarter of lending, but those entities provide loans to developing countries through Western banks, which have higher credit standards, AidData reported.
Bradley Parks, executive director of AidData, said that China’s emergency bailout loans, usually through the People’s Bank of China, basically go to countries that are having difficulty repaying past debts owed to Beijing’s financial institutions.
Although these lending and investment operations are acute and severe in African countries, in Latin America the country that has received the most Chinese investment is Venezuela.
“It must be taken into account that in Venezuelan territory there is oil and copper, iron and gold reserves,” Cesarin said. “China makes countries go into debt knowing the geopolitical criteria and resources to exploit, then as repayment it requires to be assigned fixed assets.”