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China granted 104bn rescue loans.

 

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China has sig­ni­fic­antly expan­ded its bail­out lend­ing as its Belt and Road Ini­ti­at­ive blows up fol­low­ing debt write-offs, scan­dal-rid­den projects and alleg­a­tions of cor­rup­tion.

A study pub­lished yes­ter­day shows China gran­ted $104bn worth of res­cue loans to devel­op­ing coun­tries between 2019 and the end of 2021. The fig­ure for these years is almost as large as the coun­try’s bail­out lend­ing over the pre­vi­ous two dec­ades.

The study by research­ers at Aid­Data, World Bank, Har­vard Kennedy School and Kiel Insti­tute for the World Eco­nomy is the first known attempt to cap­ture total Chinese res­cue lend­ing on a global basis.

Between 2000 and the end of 2021, China under­took 128 bail­out oper­a­tions in 22 debtor coun­tries worth a total of $240bn.

China’s emer­gence as a highly influ­en­tial «lender of last resort» presents crit­ical chal­lenges for west­ern-led insti­tu­tions such as the IMF, which have sought to safe­guard global fin­an­cial sta­bil­ity since the end of the second world war.

Sri Lanka pres­id­ent Ranil Wick­remes­inghe called on China and other cred­it­ors last week to quickly reach a com­prom­ise on debt restruc­tur­ing after the IMF approved a $3bn four-year lend­ing pro­gramme for his nation.

China has declined to par­ti­cip­ate in mul­ti­lat­eral debt res­ol­u­tion pro­grammes even though it is a mem­ber of the IMF. Ghana, Pakistan and other troubled debt­ors that owe large amounts to China are closely watch­ing Sri Lanka’s example.

« strictly bilat­eral approach has made it more dif­fi­cult to co-ordin­ate the activ­it­ies of all major emer­gency lenders,» said Parks.

Sev­eral of the 22 coun­tries that China has made res­cue loans to — includ­ing Argen­tina, Belarus, Ecuador, Egypt, Laos, Mon­go­lia, Pakistan, Sur­i­n­ame, Sri Lanka, Tur­key, Ukraine and Venezuela — are also recip­i­ents of IMF sup­port.

Big recip­i­ents of BRI fin­an­cing, which rep­res­ent a sig­ni­fic­ant bal­ance sheet risk for Chinese banks, are more likely to receive emer­gency aid.

«Beijing is ulti­mately try­ing to res­cue its banks. That’s why it has got­ten into the risky busi­ness of inter­na­tional bail­out lend­ing,» said Car­men Rein­hart, a Har­vard Kennedy School pro­fessor and former chief eco­nom­ist at the World Bank Group.

China’s lend­ing comes in two forms. The first is through a «swap line» facil­ity, where ren­minbi is dis­bursed by the People’s Bank of China, the cent­ral bank, in return for domestic cur­rency. About $170bn was dis­bursed in this way. The second is via dir­ect bal­ance of pay­ments sup­port, with $70bn pledged, mostly from state-owned Chinese banks.

The BRI is the world’s largest-ever transna­tional infra­struc­ture pro­gramme. The Amer­ican Enter­prise Insti­tute, a US think-tank, has put the value of China-led infra­struc­ture projects and other trans­ac­tions clas­si­fied as «Belt and Road» at $838bn between 2013 and the end of 2021.

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