China has provided $240 billion in bailout loans to 22 developing countries over the past 20 years. Makes some people cry “debt trap”.
Almost all of these funds have gone to countries that are part of the New Silk Road, including Sri Lanka, Pakistan and Turkey. The ambitious Beijing plan, launched at the instigation of Xi Jinping, aims to boost trade links between Asia, Europe, Africa and beyond by building ports, railways, airports or industrial parks.
These infrastructures will enable the Asian company to access more markets and open up new outlets for businesses. The program, followed by more than 150 countries according to Beijing, has been criticized internationally for the dangerous debt it imposes on poor countries.
The Chinese government on Tuesday rejected any criticism of the matter, accusing “some” of making a big fuss about so-called Chinese ‘debt traps’ and opaque loans and smearing China, which we absolutely reject.
Mao Ning assured the organization that “China (…) does not force anyone to borrow, does not force any country to pay, does not put political conditions on loan agreements, and does not seek any political benefit.” The External Affairs Ministry raised the question during a regular press conference.
Opaque and high loan rates
Loans issued by China increased between 2016 and 2021, accounting for 80% of the total amount issued over 20 years, according to a 40-page report by US research lab AidData, the World Bank, Harvard Kennedy School and the Keel Institute for the World Economy.
“China has developed a ‘Belt Roads bailout’ system that enables recipients to avoid default and continue to repay their debts, at least in the short term,” the report said. Cases have surged in recent years against the backdrop of rising inflation and interest rates and the economic impact of the Covid-19 pandemic.
Compared to liquidity support from the International Monetary Fund (IMF) and the US Federal Reserve (Fed), the volume of bailout loans from China is small but growing rapidly, the document said. These loans are highly opaque and carry an average interest rate of 5%, compared to 2% for IMF loans.
“Beijing targets a small number of beneficiaries, and almost all Chinese bailout loans are to low- and middle-income Belt and Road countries, but there are significant loans to Chinese banks,” he said. China agreed this month to restructure its loans to Sri Lanka, paving the way for a $2.9 billion IMF bailout for the South Asian island.