Berlin The numbers are huge: since 2010, China has granted rescue loans totaling 240 billion US dollars to more than 20 countries that were no longer able to service their debts to the People’s Republic on time, including Turkey and Argentina. According to a study published by the Kiel Institute for the World Economy (IfW) on Tuesday and previously available to the Handelsblatt, this corresponds to more than 20 percent of the total loans that the International Monetary Fund has distributed over the past ten years.
And the amounts are growing fast, according to the authors. The reason: As the analysis shows, 60 percent of all Chinese foreign loans are now at risk of default – including those granted by Beijing as part of its Silk Road Initiative. In 2010, this proportion was still five percent. In addition to the IfW Kiel, researchers from Aiddata, an analysis organization based at the University of William and Mary, the Harvard Kennedy School and the World Bank were also involved in the study.
The Silk Road, also known as the Belt and Road Initiative, is a huge, global prestige project that China’s head of state and party leader Xi Jinping personally launched in 2013. With the plan, Beijing wants to gain more influence outside of China. In recent years, the initiative has increasingly fallen into disrepute, including within the People’s Republic.
According to the IfW study, China’s Belt and Road Initiative has come under pressure after more than ten years of boom in loans and investments abroad. Many states have overstretched themselves by borrowing from China and can no longer meet their payment obligations. As the Silk Road Tracker of the American think tank Council on Foreign Relations shows, countries such as Cambodia, Ethiopia and Laos now owe more than 15 percent of their gross domestic product to China.
With the bailout loans, China is trying to protect its own financial institutions from creditor defaults. The study shows that the People’s Republic is changing the international financial architecture with the massive granting of emergency loans.
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“The dominance of international financial institutions such as the International Monetary Fund is continuing to decline, as China has become another important provider of bailout loans,” explains Christoph Trebesch, head of the Research Center for International Financial Markets and Macroeconomics at the IfW Kiel and one of the authors of the study.
Interest rates are significantly higher than at international institutions
The problem: “The granting and the conditions for these loans are very opaque.” Because a large part (170 billion US dollars) is granted via central bank loans, which are particularly difficult for international organizations and rating agencies to understand.
Brad Parks of Aiddata, one of the study’s co-authors, criticized: “Beijing has created a new global system for cross-border bailout loans, but in an opaque and uncoordinated way.”
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According to the IfW analysis, the interest rates for the Chinese bailout loans are also significantly higher than for international institutions. A typical bailout loan from Chinese banks would charge interest rates of five percent, the authors write. These interest rates would be well above the International Monetary Fund’s average rate of about 2 percent for non-concessionary loans over the past decade. Other multilateral organizations, including the World Bank, offer even lower interest rates for budget support.
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