China Bails Out Belt and Road Debtors

China is increasing emergency lending to countries struggling to repay infrastructure loans made through China’s Belt and Road Initiative (bri). A study published on March 28 by AidData, World Bank, Harvard Kennedy School and Kiel Institute for the World Economy revealed that China had to bail out its own Belt and Road debtors in order to protect Chinese banks.

• From 2000 to 2021, China gave 128 bailouts worth $240 billion to 22 debtor countries.
• In 2010, only 5 percent of China’s overseas lending was to countries struggling with debt, but by 2022 that figure rose to 60 percent.

Debt on debt: The loans were given to a “limited set of potential recipients,” the report stated. These recipients were low- and middle-income countries that already owed large amounts of money to Chinese banks due to loans they took out in recent years to build various infrastructure projects designed to better connect them to the Chinese economy. As the global economy struggles with increased interest rates and higher inflation, China’s Belt and Road partners are finding it difficult to repay their debts. In an effort to protect its own investments, China has had to pour more money into them.

The report explained:

In sum, China has developed a system of “Bailouts on the Belt and Road” that helps recipient countries to avoid default, and continue servicing their bri debts, at least in the short run.

These bailouts are making the bri countries even more indebted to China.

Shady business: The report also stated that the People’s Bank of China used currency-swap agreements and rollovers to finance $170 billion worth of the loans. The details of these transactions were not made known to the public nor to other central banks, so it is difficult to know exactly what the money is being used for.

Beijing has created a new global system for cross-border rescue lending, but it has done so in an opaque and uncoordinated way.
—Brad Parks, AidData executive director

‘Debt traps’: For China, this is not just about money. The more in debt these nations become, the more financially bound and liable they will be to China. This gives China leverage in global trade. The more nations China can ensnare in its debt trap initiative, the better chance it has of pushing Western powers, such as America, out of the picture.

To understand China’s main goal for the Belt and Road and other initiatives, read “Brave New World (Made in China).”