The ambitious Chinese initiative was launched in 2013 to boost infrastructure development and stimulate the flow of global trade and investment.
In its role as lender of last resort to developing nations, China took over by the end of 2021 from 128 operations offer of rescue loans in the amount of 240,000 million dollars in 22 countries who ran into debt participating in his Belt and Road initiative, according to a new study.
These countries include Argentina, Ecuador, Venezuela, Turkey, Egypt, Laos, Sri Lanka, Pakistan, Suriname, Belarus, Mongolia and Ukraine; nations with low levels of foreign exchange reserves and weak sovereign credit ratings.
Chinese operations included many of the so-called “refinancing“, in which the same short-term loans are made over and over again to refinance past-due debts, the researchers from AidData, the World Bank, the Harvard Kennedy School and the Kiel Institute for the World Economy concluded.
Between 2016 and 2021, China granted about 80% of its emergency bailout loansalthough he did not offer to rescue all the participants in his economic megaproject equally.
Thus, low-income countries were offered restructure the debtbut not money as such, while middle-income countries went directly money to “avoid or delay default,” the study found.
As middle-income countries, which account for 80% of the total destinations to which China grants loans abroad, present significant risks to the balance sheet, banks in the Asian country “they have incentives to keep them afloat through bailouts” while low-income countries become “less important for the health of the banking sector Chinese and rarely end up being rescued.
The opaque role of the People’s Bank of China
As Carmen Reinhart, one of the study’s authors, explains, “Ultimately, Beijing is trying to bail out their own banks“, which is why “it has gotten into the risky business of international bailout loans.”
Another important finding of the researchers is that, by 2022, the People’s Bank of China used its swap lineas the currency exchange between central banks is known, to allocate 170,000 million dollars as emergency liquidity support to central banks around the world.
Almost all loans made under that line must be repaid within 3 to 12 months, but many central banks that borrow from the People’s Bank of China have their payment deadlines repeatedly extended.
Regarding this question, the authors of the study warn of another controversial issue: that of “whether central banks may be using the withdrawals of the swap lines of the People’s Bank of China (without declaring) to artificially inflate its main figures of foreign exchange reserves” and, for example, paying its debts denominated in dollars or euros.
Launched in 2013, the Belt and Road initiative seeks to promote infrastructure development and stimulate the flow of trade and investment globally, through the creation of two trade routesone by sea and the other by land that will link the Asian giant with Europe, Africa and Latin America.