China owes $385 billion — including ‘hidden debt’ from poor countries, report says | China

Researchers have identified a debt of at least $385 billion (£286 billion) owed by 165 countries to China for “Belt and Road” projects (BRI), with loans not being systematically reported to international bodies such as the World Bank.

The four-year study, conducted by US-based research lab AidData, said debt burdens were taken off balance sheets through the use of special purpose and semi-private loans, and were “much larger than that of research institutions, credit rating agencies or intergovernmental organizations.” with previously understood oversight responsibilities.”

It found that 42 low to middle income countries (LMICs) are prone to debt China It exceeds 10% of its GDP, including Laos, Papua New Guinea, Maldives, Brunei, Cambodia and Myanmar.

The report revealed that Laos has large proportions of its debt that AidData has classified as “hidden”. The $5.9 billion China-Laos railway project is entirely financed by unofficial debt equivalent to about a third of GDP.

BRI was launched in 2013 as Xi Jinping’s Featured International Investment Program. Hundreds of mostly low to middle income countries have signed up for Chinese loans for massive infrastructure projects, but they are now facing competition from the G7.”Rebuilding a better world Infrastructure initiative.

In the report, AidData examined more than 13,000 BRI projects worth over $843 billion in 165 countries between 2000 and 2017. It found that China’s external lending had shifted significantly from government-to-government loans during the pre-BRI era, to nearly Of the 70% now goes to state-owned companies and banks, joint ventures, private enterprises, and special purpose vehicles (SPVs).

This has resulted in a significant under-reporting of repayment obligations – to an estimated $385 billion – because primary borrowers are no longer central government institutions with stricter reporting requirements.

“For the most part, these debts do not appear on government balance sheets in low- and middle-income countries,” the report said. “However, most of them make use of explicit or implicit forms of host government liability protection, blurring the distinction between public and private debt, and introducing major public financial management challenges to low- and middle-income countries.”

AidData said global organizations such as the World Bank and the International Monetary Fund were generally aware of the problem, but the report outlined a worrying scale.

The new administrative capital of Egypt, partially funded by the Belt and Road Initiative, east of Cairo
The new administrative capital of Egypt, partially funded by the Belt and Road Initiative, east of Cairo. Photo: Khaled Elfeki / Environmental Protection Agency

Amid the growing controversy over the initiative, and opposition from some governments that have sought to cancel or renegotiate projects, BRI lending has slowed in recent years, but previous debts remain. In 2019, Xi pledged to increase transparency and financial stability in the program, and have zero tolerance for corruption.

While hundreds of countries have signed on to the Belt and Road Initiative, there have been longstanding concerns about transparency, and suggestions that massive loans to high-risk countries were possible. “Debt Book Diplomacy” In some – but not all — the regions, forcing them to cede ownership or control of major assets to Beijing rather than repay.

However, the report noted that asset capture rather than repayment was only permitted in direct government loans, while increasingly frequent arrangements made via SPVs and other semi-private mechanisms saw payments taken from revenue generated from funded projects.

The shift toward the latter raised risks for Chinese lenders, but the report said it was a “necessary solution” if lenders wanted to meet Xi’s goals for the Belt and Road Initiative, as many countries were already heavily indebted and officially unsustainable. Much more.

“Many poor governments have not been able to get more credit,” AidData CEO Brad Parks told AFP. “And therefore [China] I became creative. “

Peter Kay, a researcher at the Australia-based Lowy Institute, said it would be difficult to enforce debt repayment, particularly in the event of civil unrest or mismanagement. “There is always an issue with feasibility,” he said.

The report also found that China has expanded its lending to resource-rich countries with high levels of corruption, and 35% of Belt and Road Initiative projects have faced issues of corruption, labor violations, environmental pollution and public protests.

The report stated that “Beijing is more willing to finance projects in risky countries than other official creditors, but it is also more aggressive than its peers in positioning itself at the front of the repayment line (via guarantees)”, noting that 40 of the 50 largest loans were secured, in many often against future commodity exports.

Russia has secured $125 billion in loans and export credits, mostly contracted to Russian state-owned oil and gas companies, guaranteed by proceeds from oil and gas sales to China. Venezuela has secured $86 billion in non-concessional and semi-concessional debt from state-owned policy and commercial banks in China, mostly through loans secured against future oil exports.

A separate but related finding showed that Beijing was disproportionately lending to countries that performed poorly on traditional creditworthiness measures, unlike other international lenders, but demanded significantly higher interest rates with shorter repayment periods, AidData said.

Tsai cited the case of Pakistan, which Asia Nikkei reported has taken out Chinese loans at average interest rates of 3.76%, compared to a typical OECD-linked loan rate of 1.1%.

“A lot of banks will not even lend to Pakistan. If you are able to get a loan, you have to pay a higher risk premium.”

“Not all debts are unsustainable,” China’s Foreign Ministry said in a statement, adding that since the Belt and Road Initiative was launched, it has “consistently upheld the principles of joint consultation, joint contributions and shared benefits.”

Additional report by AFP

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