China is increasingly bailing out states on the verge of bankruptcy. A mission that until then was mainly the responsibility of the International Monetary Fund.
China is not yet supplanting the universal lessor, but its weight in debt management is now considerable. It became the second lender of last resort after the fund. A very recent and extremely discreet rise in power. We discover the extent of this thanks to a study published Tuesday, March 28 by AidData – a study conducted by a consortium of Western researchers from Harvard University, the World Bank and the Kiel Institute for the World Economy.
It is necessary to search the public accounts of the countries concerned to have an idea of the phenomenon, because Beijing does not publish any data on its international loans. The researchers estimate that Beijing lent $104 billion to distressed states between 2019 and 2021, or 40% of the amounts lent by the fund during the same period. It was during these three pivotal years that China became a key player in debt crises. The loans provided during this period represent almost half of its commitment since 2000.
Beijing is bailing out its Silk Road partners?
Beijing began by contributing to the indebtedness of developing countries by lending them enough to build bridges, roads, railways, ports, all the infrastructure they lacked. Loans granted very quickly, on impressive amounts. But in the space of ten years, the nature of these international loans has completely changed. 60% of Chinese loans are now used to bail out states in financial distress ; twelve years ago, it was only 5% of outstandings. China has therefore swapped its hat as a builder and main creditor for that of a firefighter. A partly arsonist firefighter. These projects stamped Silk Road are often pharaonic and poorly calibrated, from a technical and economic point of view. Result : many countries magnetized by this unexpected godsend have found themselves strangled by these costly and sometimes completely failed projects. This is what happened in Sri Lanka and Pakistan, among others.
It is therefore partly to rectify these errors that Beijing intervenes more and more often.
China wants to help countries that have become its allies, and above all to support its own banks which are very exposed in these countries. Help therefore very interested, very targeted. China preferably helps middle-income countries, which will retain repayment capacity. And finally a profitable aid : the IMF grants loans at 2% while Chinese loans are rather at 5%, with commercial and political clauses which of course remain secret. That said, the Chinese attitude is not very original : lhe United States practiced such high rates when it bailed out Latin American states in the 1980s. A role that the world’s leading power has almost ceased to play.
How does the IMF’s aid relate to that of China?
Rather bad. According to this study, 22 countries benefit from both Chinese loans and IMF loans. This goes from Egypt to Argentina via Suriname, Belarus, Venezuela, Ukraine… This does not mean, however, that there is any consultation between the institutions of Washington and the middle empire. Beijing favors bilateral negotiation, sheltered from external observers. This opacity partly explains the slowness and complexity of recent financial rescue operations.