Sunday, November 28

42 Countries Have “Hidden Debts” From China That Exceeds 10% Of GDP, According To Report | porcelain

Researchers have identified debts of at least $ 385 billion owed by 165 countries to China from Belt and Road Initiative (BRI) projects, with loans systematically underreported to international bodies like the World Bank.

The four-year study by US-based research lab AidData said debt burdens were kept off public balance sheets through the use of special-purpose and semi-private loans, and were “substantially larger than research institutions, credit rating agencies or intergovernmental agencies. ” organizations with previously understood oversight responsibilities ”.

42 low- to middle-income countries (LMICs) were found to have debt exposure to China in excess of 10% of their GDP, including Laos, Papua New Guinea, Maldives, Brunei, Cambodia, and Myanmar.

Laos had a significant proportion of its debt classified by AidData as “hidden”, the report revealed. The $ 5.9 billion China-Laos rail project is financed entirely with unofficial debt equivalent to about a third of its GDP.

The Belt and Road Initiative (BRI) was launched in 2013 as Xi Jinping’s signature international investment program. Hundreds of predominantly low- to middle-income countries have applied for Chinese loans for massive infrastructure projects, but are now facing competition from the G7’s Build Back Better World infrastructure initiative.

In the report, AidData examined more than 13,000 BRI projects worth more than $ 843 billion in 165 countries between 2000 and 2017. It found that China’s loans abroad had drastically changed from government-to-government loans during the previous era. to the BRI, to almost 70%. they now go to state-owned companies and banks, joint ventures, private institutions, and special purpose vehicles (SPVs).

This had led to a large number of underreporting of payment obligations, to an estimated $ 385 billion, because the main borrowers are no longer central government institutions with more stringent reporting requirements.

“These debts, for the most part, do not appear on government balance sheets in low- and middle-income countries,” the report says. “However, most of them benefit from explicit or implicit forms of host government liability protection, which has blurred the distinction between public and private debt and introduced significant public financial management challenges for low-income and low-income countries. medium “.

AidData said global organizations like the World Bank and the International Monetary Fund were aware of the problem in general, but the report quantified the alarming scale.

New administrative capital of Egypt, partly funded by BRI, east of Cairo
New administrative capital of Egypt, partly funded by BRI, east of Cairo Photograph: Khaled Elfiqi / EPA

Amid growing controversy over the initiative and rejection by some governments that have tried to scrap or renegotiate projects, BRI’s loans have slowed in recent years, but past debts persist. In 2019, Xi pledged to increase transparency and financial stability in the program and to have “zero tolerance for corruption.”

While hundreds of countries have joined the BRI, there have been long-standing concerns about transparency and suggestions that massive lending to high-risk countries was enabling “debt book diplomacy” in some regions, but not in all, forcing them to cede ownership or control of major assets to Beijing in lieu of repayment.

However, the report noted that asset seizure in lieu of repayment was only allowed on direct government loans, while increasingly frequent arrangements made through SPV and other semi-private mechanisms saw repayments taken from project-generated income. funded.

The shift to the latter increased the risk for Chinese lenders, but the report said it was a “necessary workaround” if lenders wanted to meet Xi’s BRI targets, because many countries were already burdened with debt and could not officially take on much. plus.

“Many poor governments could not accept more loans,” AidData CEO Brad Parks told AFP. “Then [China] got creative. “

Peter Cai, a researcher at the Australia-based Lowy Institute, said it would be difficult to enforce debt payments, particularly where there was civil unrest or poor governance. “There is always an enforceability problem,” he said.

The report also found that China had rapidly increased its provision of loans to resource-rich countries that also have high levels of corruption, and 35% of BRI’s projects had faced problems of corruption, labor violations, environmental pollution and public protests.

“Beijing is more willing to finance projects in risky countries than other official creditors, but it is also more aggressive than its peers in positioning itself at the forefront of the payment line (through guarantees),” the report said, noting 40 of the 50 the largest loans were secured, often against future commodity exports.

Russia secured $ 125 billion worth of export loans and credits, mostly from Russian state-owned oil and gas companies, secured by proceeds from oil and gas sales to China. Venezuela obtained $ 86 billion in non-concessional and semi-concessional debt from China’s commercial and state policy banks, mainly through loans guaranteed against future oil exports.

AidData said a separate but related finding showed that Beijing was disproportionately lending to countries that were underperforming on conventional measures of creditworthiness, in contrast to other international lenders, but were demanding much higher interest rates with repayment periods. shorter.

Cai pointed to the case of Pakistan, which Asia Nikkei reported had Chinese loans with average interest rates of 3.76%, compared to a typical OECD-linked loan rate of 1.1%.

“Many banks would not even make loans to Pakistan. If you can get a loan, you have to pay the highest risk premium, ”he said.

China’s Foreign Ministry said in a statement that “not all debts are unsustainable,” adding that since its launch, the BRI has “consistently upheld the principles of shared consultation, shared contributions and shared benefits.”

Additional AFP reports

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