China provides more than $30 billion in emergency loans


China has lent tens of billions of dollars in secret “emergency loans” to countries threatened by financial crises in recent years, making Beijing a formidable competitor to the Western-led IMF.

The bailouts are a linchpin of the huge infrastructure loans China is making via its $838 billion “Belt and Road” initiative, a program that has eclipsed the World Bank as the world’s largest public works lender granted for almost a decade.

Three of the biggest recipients of China’s bailout loans have been Pakistan, Sri Lanka and Argentina, who have collectively received $32.83 billion since 2017, according to data from AidData, a research lab at the University of William & Mary in the US.

Other countries that received bailout loans from Chinese state institutions included Kenya, Venezuela, Ecuador, Angola, Laos, Suriname, Belarus, Egypt, Mongolia and Ukraine, according to AidData, which did not provide details for those countries.

Such loans aim to allow countries to maintain payments on external debt and continue buying imports to stave off balance of payments (BoP) problems that can develop into full-blown storms such as the 1997 Asian crisis and the US Latin America crisis in the 1980s. The IMF’s stringent post-Asian crisis regulations were deeply unpopular and fueled a backlash that continues to this day.

Unfinished tracks of the standard gauge railway lay on the ground near Duka Moja, Kenya © Luis Tato/Bloomberg

Unlike the IMF, which discloses the details of its credit lines, debt relief and restructuring programs to the debtor countries, China acts largely in secret. According to analysts, China’s financial institutions release scant details about the loans they make, and Beijing does not condition its lending on debt restructuring or economic reforms in recipient countries, analysts said. In most cases, the aim of China’s emergency loans is to prevent defaults on infrastructure loans granted under the Belt and Road Initiative, analysts said.

“Beijing has attempted to keep these countries afloat by forging emergency credit after emergency credit without asking its borrowers to restore economic policy discipline or seek debt relief through a coordinated restructuring process with all major creditors,” said Bradley Parks, executive director of AidData .

That AidData Research Laboratory maintains the world’s most comprehensive database of China’s global financing activities, primarily by compiling data from countries receiving Chinese loans. The dataset captures thousands of loans from more than 300 Chinese government institutions and state agencies in 165 low- and middle-income countries.

Parks added that China’s actions often “delay the day of reckoning.”

“When Beijing acts as an alternative lender of last resort, bailing out a distressed state without the need for economic policy discipline or seeking coordinated debt restructuring with major creditors, it is effectively kicking the can on the road and leaving others to solve the problem underlying solvency problem,” said Parks.

A study of the individual loans Chinese financial institutions have made to Pakistan, a key member of the Belt and Road Initiative, since 2017 shows a drip of support in the form of loans from state-owned banks and SAFE, the regulator of Beijing’s foreign exchange reserves amount of 3 trillion dollars.

The terms of such loans are far from cheap, often building a margin of about 3 percent over benchmark financing costs. In addition to these loans, the People’s Bank of China, the central bank, has a currency swap agreement with its Pakistani counterpart, allowing Islamabad to draw down funds when it needs them, AidData records show. The PBoC declined to comment.

Commentators said China’s bailout loans risk prolonging and deepening the debt crisis and the crises that often follow in debtor nations. “I see this as a major obstacle to crisis resolution,” said Gabriel Sterne, head of EM Macro at Oxford Economics and a former senior economist at the IMF.

As Sri Lanka’s current financial collapse shows, Beijing’s support is sometimes inadequate, analysts said. “The suspicion is that countries are seeking the credit to avoid going to the IMF, which is demanding painful reforms,” ​​Sterne added. “There may be circumstances where gambling on redemption works, but generally – as in the case of Sri Lanka – it only makes adjustment more painful when it actually happens.”

Sean Cairncross, former chief executive of Millennium Challenge Corporation, a US government foreign aid organization that provides grants on condition of democratic governance and economic transparency, said China’s loans were made to pursue long-term goals in competition with rival powers.

“This is not about a specific loan or a specific country. . . They want to have governments’ ears on where commodities are, or major markets, or strategic ports, or where there is access to shipping lanes,” he said. “It’s a way of limiting strategic options for the US and the West in terms of access and global influence.”


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