China owed $ 385 billion in loans to 165 countries, including “hidden debt” of poor countries: report

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The study found that 42 low- and middle-income countries, such as Laos, Papua New Guinea and the Maldives, owe China more than 10% of their GDP.

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One hundred and sixty-five countries owe a total of $ 385 billion in “hidden debt” to China, participating in “Belt and Road” (BRI) initiatives, study finds 42 poorer countries with more debt. to 10% of their individual GDP.

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AidData, a US-based research company, found that several of the loans were also underreported to the World Bank, excluded from public balance sheets through special and semi-private loans.

The loans are “considerably larger” than research institutes, credit rating agencies or intergovernmental organizations with “previously understood” supervisory responsibilities, reads the study published Wednesday.

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Global organizations such as the World Bank and the International Monetary Fund were aware of the problem, AidData said, but the report quantified the extent of the under-reporting.

Over 13,000 BRI projects worth over US $ 843 billion were analyzed in 165 countries between 2000 and 2017. AidData found that China’s overseas lending had changed dramatically from lending to government to government, with almost 70% of funding going to the state. owned companies, banks, joint ventures, private institutions and special purpose vehicles (SPVs)

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“Many poor governments could no longer take loans,” AidData executive director Brad Parks told France24. “So (China) got creative.”

Rather, loans have been made to “a constellation of actors other than central governments,” but often backed by a government guarantee, he explained.

“The contracts are obscure and the governments themselves do not know the exact monetary values ​​they owe China,” he said.

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As a result, an estimated debt of US $ 385 billion was underreported as major borrowers were no longer central government agencies, bound by strict transparency requirements.

“These debts, for the most part, do not appear on government balance sheets in the LMICs,” the report said. “However, most of them benefit from explicit or implicit forms of host government accountability protection, which has blurred the distinction between private and public debt and introduced major public financial management challenges for them. PRFI. “

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The Chinese government developed the Belt and Road Initiative (BRI) in 2013 to invest in the global infrastructure of several countries and international organizations. Hundreds of countries, including several low- and middle-income countries in Central Asia and Africa, have signed on to Chinese President Xi Jinping’s signature investment program, but the build-up of debt has prompted some to rethink the OK.

Countries like Laos, Papua New Guinea, Maldives, Brunei, Cambodia and Myanmar are included in the list of countries with more than 10% of their GDP debt to China, according to the report.

AidData classified a significant portion of the debt accumulated by Laos as “hidden debt”, according to the report. The $ 5.9 billion China-Laos railway project is fully funded by unofficial debt equivalent to about a third of the country’s GDP.

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The report also found that China has increased lending to resource-rich countries with high levels of corruption and noted that 35% of BRI projects had corruption issues, faced labor law violations. , environmental pollution and public events.

In another finding, AidData found that Beijing lends more to countries with poor performance on conventional solvency measures compared to other international lenders, but demands much higher interest rates with a shorter repayment period. .

“Beijing is more willing to finance projects in countries at risk than other official creditors, but it is also more aggressive than its peers to position itself at the top of the repayment line (via the guarantee),” the report said. Forty of the top 50 loans were also secured, usually against future commodity exports.

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Pakistan, for example, had Chinese loans with average interest rates of 3.76 percent, compared to a typical OECD (Organization for Economic Co-operation and Development) lending rate of 1.1 percent.

“A lot of banks wouldn’t even lend to Pakistan. If you are able to get a loan, you have to pay the highest risk premium, ”Peter Cai, researcher at the Lowy Institute, based in Australia, told The Guardian.

In 2018, the Center for Global Development found that Djibouti, Kyrgyzstan, Laos, Maldives, Mongolia, Montenegro, Pakistan and Tajikistan – some of the poorest countries in their respective regions – will owe more than half of all their foreign debt to China.

Several experts have suggested that the massive lending to high-risk countries has resulted in “debt portfolio diplomacy,” in which the indebtedness cedes ownership or control of major assets to Beijing.

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The government of Sri Lanka, for example, leased a port from a Chinese company for 99 years after struggling to make payments, the Guardian reported.

The report noted that asset foreclosure instead of repayment was only allowed in direct government loans, but the increase in agreements with SPVs and other semi-private lenders led to repayments withdrawn from loans. income created by funded projects.

Criticisms of transparency and reports of corruption within BRI projects have triggered a backlash from some governments with buyers’ remorse, slowing BRI lending in recent years.

“What we are seeing right now with the Belt and Road initiative is buyer’s remorse,” Parks told France24.

“Many foreign leaders who were initially keen to jump on the BIS bandwagon are now suspending or canceling Chinese infrastructure projects due to debt sustainability issues.”

In 2019, Xi vowed to increase financial stability transparency in the program, promising “zero tolerance for corruption.”

The Group of Seven, which includes France, Canada, Germany, Italy, Japan, the United States and the United Kingdom, in June announced a green initiative to counter Xi’s growing claim to the continuation of the global infrastructure program.

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