China ramping up bailout loans to BRI countries: Report

Source: The post is based on the article “China ramping up bailout loans to BRI countries: Report” published in TOI on 29th March 2023

What is the News?

For the past decade, China has lent massive amounts of loans to countries across Asia, Africa and Europe, growing its global influence through infrastructure mega projects and becoming one of the world’s biggest creditors.

Why is China providing bailout loans to these countries?

​​China has provided over $240 billion worth of bailout loans to 22 developing countries at risk of default over the past two decades, with the trend accelerating in recent years.

Almost all the funds went to Belt and Road Initiative(BRI) countries such as Sri Lanka, Pakistan and Turkey. These are mostly low and middle-income nations that have received Chinese loans for infrastructure development.

China is aggressively providing more emergency loans to these countries for reasons of either geopolitical significance like a strategic location or lots of natural resources.

Why are Chinese loans being criticized?

It has been claimed that China lends money to other countries, which end up having to cede control of key assets if they can’t meet their debt repayments.

One example often cited by critics of China is Sri Lanka, which years ago embarked on a massive port project in Hambantota with Chinese investment. But the project struggled to prove viable leaving Sri Lanka with growing debts.

In 2017, Sri Lanka agreed to give state-owned China Merchants a controlling 70% stake in the port on a 99-year lease in return for further Chinese investment.

How does China’s lending compare with others?

China does not publish records of its foreign loans, and the majority of its contracts contain non-disclosure clauses which prevent borrowers from revealing their contents.

Are Chinese loans harder to repay?

China tends to lend at higher rates of interest than western governments.

At around 4-5 %, China’s loans are close to commercial market rates and about four times that of a typical loan from the World Bank or an individual country such as France or Germany.

The required repayment period for a Chinese loan is also generally shorter – less than 10 years, compared to around 28 years for other lenders’ concessional loans to developing countries.