In recent years, China has handed out tens of billions of dollars in secret “emergency loans” to countries threatened by financial crises, making Beijing a formidable competitor to the Western-led IMF.
The bailouts represent a pivot from the huge infrastructure loans China has provided over nearly a decade under its $838 billion Belt and Road Initiative, a program that has made it the largest lender of public works fund in the world, eclipsing the World Bank.
Three of the biggest recipients of China’s bailout loans are Pakistan, Sri Lanka and Argentina, which have together received $32.83 billion since 2017, according to data compiled by AidData, a research lab of William & Mary, an American university.
Other countries have received bailout loans from Chinese state institutions, including Kenya, Venezuela, Ecuador, Angola, Laos, Suriname, Belarus, Egypt, Mongolia and Ukraine, according to AidData, which did not provide details for those countries.
“Beijing has tried to keep these countries afloat by providing emergency loan after emergency loan without asking its borrowers to restore economic policy discipline or pursue debt relief through a process coordinated restructuring with all major creditors,” said Bradley Parks, chief executive of AidData.
The research lab maintains the world’s most comprehensive database of China’s global financing activities, largely compiled from information from recipient countries. The dataset includes thousands of loans from more than 300 Chinese government institutions and public entities to 165 low- and middle-income countries.
Unlike the IMF, which announces details of its credit lines, debt relief and restructuring programs to debtor countries, China operates largely in secret.
Analysts said that in most cases, the goal of its emergency loans is to prevent defaults on infrastructure loans issued under the Belt and Road Initiative. More generally, the loans aim to avoid balance of payments problems that can turn into large-scale crises such as those experienced by Asian countries in 1997 and Latin America in the 1980s.
The IMF’s austere prescriptions in the aftermath of the Asian crisis were deeply unpopular, reinforcing a backlash that persists to this day.
“It’s not about one loan or one country in particular. . . They want to have the ear of governments where the raw materials are, or the big markets, or the strategic ports, or where there is access to shipping lanes,” said Sean Cairncross, former CEO of Millennium Challenge Corporation, a US government foreign aid agency. agency. “It’s a way to narrow the strategic options for the United States and for the West, in terms of global access and influence.”
Commentators said bailout loans from China risked exacerbating the problems of indebted countries. “I see them as a major obstacle to resolving the crisis,” said Gabriel Sterne, a former IMF senior economist now at Oxford Economics, who argued that Sri Lanka’s current financial meltdown demonstrates that Beijing’s support is sometimes insufficient.
“The suspicion is that countries are seeking the loan to avoid going to the IMF, which requires painful reform,” Sterne added. “There may be circumstances in which the redemption wager works, but usually – as in the case of Sri Lanka – it makes the adjustment more painful when it actually happens.”
Parks also said China’s approach “often delays the day of reckoning.”
“When Beijing acts as an alternative lender of last resort and bails out a troubled sovereign without demanding economic policy discipline or pursuing coordinated debt rescheduling with major creditors, it is kicking the box and leaving it to d ‘others to fix the underlying solvency problem,’ he said.
A study of individual loans extended by Chinese financial institutions since 2017 to Pakistan, a key participant in the Belt and Road Initiative, shows drip support in the form of loans from public banks and SAFE , the agency that controls Beijing’s $3 billion in foreign exchange reserves.
The terms of these loans are far from concessional, often relying on a margin of around 3% above benchmark funding costs. In addition to these loans, the People’s Bank of China, the central bank, has a currency swap agreement with its Pakistani counterpart that allows Islamabad to draw funds when it needs them, according to AidData records. The PBoC declined to comment.