China ramping up bailout loans to ‘Belt and Road’ nations

China has handed out $240 billion worth of bailout loans to 22 developing countries at risk of default over the past two decades, with the trend accelerating in recent years, a report said yesterday.

Almost all the funds went to Belt and Road Initiative (BRI) countries such as Sri Lanka, Pakistan and Turkey -- mostly low- and middle-income nations that have received Chinese loans for infrastructure development, according to the study.

The 40-page report by the US-based research lab AidData, the World Bank, the Harvard Kennedy School and the Kiel Institute for the World Economy showed bailout loans had accelerated between 2016 and 2021, with Beijing doling out 80 percent of its rescue lending in that period.

Around the world, BRI nations have come under strain as soaring inflation and interest rates, compounded by the lingering impact of the Covid-19 pandemic, have hurt their ability to repay debts. The bailouts allow the countries to extend their loans and remain solvent, the report said.

China says more than 150 countries have signed up to the BRI, a trillion-dollar global infrastructure push unveiled by President Xi Jinping a decade ago.

Beijing says the initiative aims to deepen friendly trade relations with other nations, particularly in the developing world.

But critics have long accused China of luring lower-income countries into debt traps by offering huge, unaffordable loans.

"China has developed a system of 'Bailouts on the Belt and Road' that helps recipient countries to avoid default, and continue servicing their BRI debts, at least in the short run," the report said.

In comparison to the International Monetary Fund and the vast liquidity support extended by the US Federal Reserve, China's bailouts remain small but are growing quickly, according to the AidData report.

"Beijing has targeted a limited set of potential recipients, as almost all Chinese rescue loans have gone to low- and middle-income BRI countries with significant debts outstanding to Chinese banks," its authors wrote.

The report warned that Chinese loans tend to be more opaque compared with other international lenders of last resort -- and often come at an average interest rate of five percent, compared with a typical two percent rate on an IMF loan.

Many such agreements were so-called "rollovers", in which the same short-term loans are repeatedly extended to refinance debts about to come due.

China's foreign ministry yesterday hit back at the criticism, accusing "some people" of "hyping up so-called Chinese 'debt traps' and opaque loans, and slinging mud at China, something that we absolutely do not accept".

"China... has never forced any party to borrow money, has never forced any country to pay, will not attach any political conditions to loan agreements, and does not seek any political self-interest," spokeswoman Mao Ning said at a regular press briefing.

China this month agreed to restructure its loans to Sri Lanka, clearing the way for an IMF bailout of the island nation that lists Beijing as its biggest bilateral creditor.

BELT AN D ROAD INITIATIVE

For a decade, Beijing's Belt and Road Initiative has poured billions of dollars into infrastructure projects each year: paving highways from Papua New Guinea to Kenya, constructing ports from Sri Lanka to West Africa and providing power and telecoms infrastructure for people from Latin America to Southeast Asia.

First announced in 2013 under Chinese leader Xi Jinping, the initiative has been seen as an extension of the country's sharp ascent to global power, reports CNN.

"Beijing is ultimately trying to rescue its own banks. That's why it has gotten into the risky business of international bailout lending," said study co-author Carmen Reinhart in the AidData post.

China is negotiating debt restructurings with countries including Zambia, Ghana and has been criticised for holding up the processes.

In response, it has called on the World Bank and International Monetary Fund to also offer debt relief.