Check out figure 7 below.
‘Hidden debts’ reveal risks of China’s lending spree
Dangers of BRI project and other foreign funding programs are highlighted in a comprehensive report
China’s foreign funding program appears to be highly inflammable. Image: iStock
For many poor nations, it is a long and winding road to ‘debt’ and ‘corruption.’ A journey littered with economic potholes in the shape of China’s signature foreign policy project which was unveiled by President Xi Jinping six years ago.
In short, the US$1 trillion Belt and Road Initiative, along with other foreign funding, has become a magical mystery tour, baffling the World Bank and the International Monetary Fund. Or, according to critics, a diplomatic car crash waiting to happen.
“Compared with China’s dominance in world trade, its expanding role in global finance is poorly documented and understood,” a report released last week by the Kiel Institute for the World Economy stated.
“Over the past decades, China has exported record amounts of capital to the rest of the world. Many of these financial flows are not reported to the IMF, the BIS [the Bank for International Settlements] or the World Bank,” authors Sebastian Horn, of Munich’s Ludwig Maximilian University, Carmen M Reinhart, of the Harvard Kennedy School in the United States, and Christoph Trebesch, of the Kiel Institute for the World Economy in Germany, wrote.
“‘Hidden debts’ to China are especially significant for about three dozen developing countries, and distort the risk assessment in both policy surveillance and the market pricing of sovereign debt,” the working paper added.
The study then went on to highlight that China is now the world’s largest creditor.
A breakdown of the numbers showed that lending soared to around US$5 trillion by 2018 from roughly $500 billion in 2000, which dwarfs World Bank and IMF credit lines.
“This dramatic increase in Chinese official lending and investment is almost unprecedented in peacetime history,” the report revealed. “Lower-income developing economies mostly receive direct loans from China’s state-owned banks, often at market rates and backed by collateral such as oil,” the report revealed.
“Our new dataset covers a total of 1,974 Chinese loans and 2,947 Chinese grants to 152 countries from 1949 to 2017. We find that about one-half of China’s overseas loans to the developing world are ‘hidden,’” it continued.
“A main challenge to explore China’s large-scale official lending boom is its opacity. Unlike the United States, the Chinese government does not release data on its lending activities abroad or those of its government entities. No data is therefore available from the creditor side,” the working paper added.
Indeed, the lack of transparency has become an issue with the Belt and Road Initiative. Launched in a fanfare of state-media hype in 2013, the BRI is epic in scale and has become an extension of China’s global ambitions.
Crucial to the program are strands of the ‘New Silk Road’ superhighways connecting the world’s second-largest economy with 70 nations and 4.4 billion people across Asia, Africa, the Middle East and Europe in a maze of multi-billion-dollar infrastructure projects, including a web of digital links.
Yet in the past 18 months, the venture has been mired in controversy after being branded a “debt trap” by the US and its key Western allies.
“Similarly, China does not provide details on its Belt and Road Initiative and its direct lending activities,” the study by the Kiel Institute pointed out.
“Apart from the aforementioned omissions in reporting to the Paris Club, China does not divulge data on its official flows with the OECD’s Creditor Reporting System, and it is not part of the OECD [Organisation for Economic Co-operation and Development] Export Credit Group, which provides data on long- and short-term trade credit flows,” it continued.
“With regard to cross-border banking, China recently joined the list of countries reporting to the BIS, but the data [has] not [been] made available on a bilateral basis and the coverage is incomplete. Taken together, these data limitations make it very challenging to do rigorous empirical work on China’s official capital exports,” the report added.