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New Delhi: The era of IMF and World Bank as prime lenders to the world might soon end as China has significantly expanded its bailout lending policy as its Belt and Road Initiative (BRI) blows up following a series of debt write-offs, scandal-ridden projects and allegations of corruption.
Beijing has extended $240 billion worth of bailout loans to 22 countries that included BRI countries such as Sri Lanka, Pakistan, Turkey, Argentina, Belarus, Ecuador, Egypt, Laos, Mongolia, Suriname, Ukraine and Venezuela for infrastructure development, a study by researchers at AidData, World Bank, Harvard Kennedy School and Kiel Institute for the World Economy pointed out.
China granted $104bn worth of rescue loans to developing countries between 2019 and the end of 2021, a study published on Tuesday shows, adding that the figure for these years between 2000 and the end of 2021 is almost as large as the country’s bailout lending over the previous two decades.
According to the study, China undertook 128 bailout operations in 22 debtor countries between 2000 and the end of 2021, worth a total of $240bn.
As per the reports, China is aggressively providing more emergency loans to countries, including Turkey, Argentina and Sri Lanka for reasons either geopolitical significance, like a strategic location, or lots of natural resources.
Though, there are very big differences between loans being provided by China compared to that of the International Monetary Fund. One is that Chinese money is not cheap. A typical rescue loan from the IMF carries a 2 per cent interest rate, said the study, adding that the average interest rate attached to a Chinese rescue loan is 5 per cent.
China’s emergence as a highly influential “lender of last resort” presents critical challenges for western-led institutions such as the IMF, which have sought to safeguard global financial stability since the end of the second world war.
“The global financial architecture is becoming less coherent, less institutionalised and less transparent,” Brad Parks, executive director of AidData at William & Mary in the US quoted by Financial Times as saying. “Beijing has created a new global system for cross-border rescue lending, but it has done so in an opaque and uncoordinated way.”
Rising global interest rates and the strong appreciation of the dollar have raised concerns about the ability to develop countries to repay their creditors. Several sovereigns have run into distress, with a lack of coordination among creditors blamed for prolonging some crises.
“Beijing is ultimately trying to rescue its own banks. That’s why it has gotten into the risky business of international bailout lending,” Carmen Reinhart, a Harvard Kennedy School professor and former chief economist at the World Bank Group quoted by Financial Times as saying.
However, China’s government hit back at the finding of the study, saying its overseas investments operated on “the principle of openness and transparency”.
China’s Foreign Ministry spokesperson Mao Ning said on Tuesday “China acts in accordance with market laws and international rules, respects the will of relevant countries, 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,”
The American Enterprise Institute, a Washington-based think-tank, has put the value of China-led infrastructure projects and other transactions classified as “Belt and Road” at $838bn between 2013 and the end of 2021.
China’s BRI was launched by leader Xi Jinping in 2013. It is the world’s largest-ever transnational infrastructure programme.
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