Underperformance of the BRI countries puts China on a spot
Currently, China has become one of the biggest sovereign lenders in the world. Imitating the 20th century US’ economic influence. With a growing list of poor countries facing debt problems. China is drawing on its enormous central bank reserves to establish itself as a source of emergency funds to bail out some of the very nations it spent years lending to.
In a new study that offers a rare look at how the People’s Bank of China (PBOC) wields its $3.3 trillion arsenal, a group of leading economists document at least $240 billion in assistance that Beijing has funnelled into 22 countries between 2008 and 2021.
Almost 80 per cent of the rescue lending was made between 2016 and 2021, mainly to middle-income countries, including Argentina, Mongolia and Pakistan, according to the report by researchers from the World Bank, Harvard Kennedy School, AidData and the Kiel Institute for the World Economy.
China has lent hundreds of billions of dollars to build infrastructure in developing countries, but lending has tailed off since 2016 as many projects have failed to pay 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 countries in debt distress soared from less than 5 per cent of its overseas lending portfolio in 2010 to 60 per cent in 2022, the study found. Argentina received the most, with $111.8 billion, followed by Pakistan with $48.5 billion and Egypt with $15.6 billion. Nine countries received less than $1 billion.
Chinese banks are at risk due to the concentration of the bailout loans in middle-income countries, which make up four-fifths of its lending. Low-income countries are offered grace periods and maturity extensions, whereas middle-income countries pose a risk to Chinese banks’ balance sheets.
People’s Bank of China (PBOC) swap lines accounted for $170 billion of the rescue financing, including in Suriname, Sri Lanka and Egypt. Bridge loans or balance of payments supported by Chinese state-owned banks was $70 billion. Rollovers of both kinds of the loan were $140 billion.
The study was critical of some central banks potentially using the PBOC swap lines to artificially pump up their foreign exchange reserve figures. The study was critical of some central banks potentially using the PBOC swap lines to artificially pump up their foreign exchange reserve figures.
China’s rescue lending is “opaque and uncoordinated,” said Brad Parks, one of the report’s authors and director of AidData, a research lab at William & Mary College in the United States.
Therefore, China has negotiated debt restructurings with countries including Zambia, Ghana, and Sri Lanka. In response, it has called on the World Bank and International Monetary Fund to also offer debt relief.
Exploitative programme Chinese Belt and Road Initiative, since its inception, received a cold reception for being a hollow structure.
Several analysts had already anticipated that BRI countries sooner or later would face such catastrophic consequences. China, in haste to usurp the economic hegemony, is struggling with an incoherent vision. It has also exposed the inner faultlines of Chinese incompetence.