China has disbursed $240 billion in bailout loans to 22 developing countries over the past 20 years at risk of default. Pushing some to cry “debt trap”.
Almost all of these funds have gone to countries that are part of the New Silk Roads – including Sri Lanka, Pakistan and Turkey. This ambitious Beijing project, launched at the instigation of Xi Jinping, aims to improve trade links between Asia, Europe, Africa and even beyond by building ports, railways, airports or industrial parks.
These infrastructures should enable the Asian giant to access more markets and open up new outlets for businesses. This project, to which more than 150 countries adhere according to Beijing, is criticized internationally for the dangerous debt it imposes on poor countries.
The Chinese government on Tuesday dismissed any criticism of the matter, accusing “some people” of “making a big fuss regarding so-called Chinese ‘debt traps’ and opaque loans, and smearing China, something we absolutely reject” .
“China (…) has never forced anyone to borrow money, has never forced any country to pay, places no political conditions on loan agreements and does not seek any political interest” in this system, said assured Tuesday Mao Ning, a spokeswoman for the Ministry of Foreign Affairs, questioned during a regular press briefing.
Opacity and high credit rates
Loans granted by China increased between 2016 and 2021, a period which concentrates 80% of the total amount granted over 20 years, according to a 40-page report by the American research laboratory AidData, the World Bank, the Harvard Kennedy School and from the Kiel Institute for the World Economy.
“China has developed a ‘Belt Roads bailout’ system that helps recipient countries avoid default and continue repaying their loans, at least in the short term,” the report said. Cases that have multiplied in recent years in a context of rising inflation and interest rates, as well as the economic impact of the Covid-19 pandemic.
Compared with the International Monetary Fund (IMF) and the liquidity support offered by the US Federal Reserve (Fed), the amount of bailout loans from China remains small but is growing fast, the document said. These loans are also more opaque and at an interest rate of 5% on average, once morest 2% for those of the IMF.
“Beijing has targeted a limited number of possible beneficiaries, and almost all of the Chinese bailout loans have been for low- and middle-income Belt and Road countries, but with significant debts to Chinese banks,” he said. The report. China agreed this month to restructure its loans to Sri Lanka, paving the way for the South Asian island to release a $2.9 billion IMF bailout.
