JOHANNESBURG: China spent $240 billion in bailing out 22 developing countries between 2008 and 2021, with the amount soaring in recent years as more have struggled to repay loans spent on building “Belt and Road” infrastructure, a study published on Tuesday showed.

According to the report conducted by World Bank researchers, Harvard Kennedy School, AidData and the Kiel Institute for the World Economy, almost 80 per cent of the lending was made between 2016 and 2021, mainly to middle-income countries including Argentina, Mongolia and Pakistan.

China has lent hundreds of billions of dollars to build infrastructure in developing countries, but lending has tailed off since 2016 as many projects have failed to pay the expected financial dividends.

The study highlighted the lending of $170bn to only 13 countries from 2012-2021, with Pakistan, Egypt and Turkey being those “which made large draw-downs” during financial distress in this period.

Furthermore, it also analyzed the continuous rescue bailouts to “some debtors, like Argentina, Mongolia or Pakistan, who have received the continuous balance of payments support from Chinese banks” while not repaying it on their principal schedules.

This analysis exemplified three subsequent loans, taken by Pakistan from 1998-1999 amid an acute shortage of foreign exchange reserves, as an early record of serial rescue lending, adding that “none of the Bank of China loans were repaid on their scheduled maturity dates”, however, it took Pakistan 14 years to repay the set of loans.

“Beijing is ultimately trying to rescue its banks. That’s why it has gotten into the risky business of international bailout lending,” said Carmen Reinhart, a former World Bank chief economist and one of the study’s authors.

Chinese loans to countries in debt distress soared from less than 5pc of its overseas lending portfolio in 2010 to 60pc in 2022, the study found.

Argentina received the most, with $111.8bn, followed by Pakistan with $48.5bn and Egypt with $15.6bn. However, nine countries received less than $1bn.

The People’s Bank of China’s (PBOC) swap lines accounted for $170bn of the financing, including in Suriname, Sri Lanka and Egypt. Bridge loans or balance of payments support by Chinese state-owned banks and companies was $70bn. Rollovers of both kinds of loans were $140bn.

The study was critical of some central banks potentially using the PBOC swap lines to artificially pump up their foreign exchange reserve figures.

China’s rescue lending is “opaque and uncoordinated,” said Brad Parks, one of the report’s authors, and director of AidData, a research lab at The College of William & Mary in the United States. China’s government hit back at the criticism, saying its overseas investments operated on “the principle of openness and transparency”.

“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,” foreign ministry spokesperson Mao Ning said at a news conference.

The bailout loans are mainly concentrated in the middle-income countries that make up four-fifths of its lending, due to the risk they pose to Chinese banks’ balance sheets, whereas low-income countries are offered grace periods and maturity extensions, the report said.

Published in Dawn, March 29th, 2023