Developing Countries Have $385 Billion In Hidden Debts Due To Chinese Loans, Says A Study

According to a recent research, China’s Belt and Road Initiative has prompted dozens of low- and middle-income nations to accrue $385 billion in “hidden debts” to Beijing.

AidData, an international development research lab headquartered at Virginia’s College of William and Mary, examined 13,427 Chinese infrastructure projects totaling $843 billion in 165 countries over an 18-year period ending in 2017.

Over the last two decades, China has contributed historic sums of finance to developing nations, backing both governmental and private sector initiatives.

Launched in 12013 , the Belt and Road Project is President Xi Jinping’s main foreign policy initiative with the goal of investing in over 70 nations and international organisations, and it has catapulted China to worldwide supremacy in international development financing.

The United States is preparing a similar scheme for South America, and the European Union said in September that it is creating a global “Global Gateway” initiative, as both areas seek to confront China’s huge financial and geopolitical influence in the developing world.

According to the AidData study, China presently spends at least twice as much on international development funding as the United States and other major economic countries.

However, this is frequently in the form of debt rather than help, and the imbalance has worsened in recent years. According to the research, China has given 31 loans for every one grant since the Belt and Road Initiative’s inception.

The financing mechanisms for the agreements remain relatively opaque, with a lack of specific information prompting investor reluctance in several lower- and middle-income nations, such as Zambia, in recent years.

China has long denied putting developing countries in debt traps, which may allow Beijing to take assets as collateral for unfulfilled loan commitments.

However, questions have been raised since the Belt and Road Initiative (BRIbeginning )’s concerning the likelihood that financing in several low- and middle-income nations may be larger than officially stated. According to AidData, the total value of unreported debts is about $385 billion.

 “During the pre-BRI era, the majority of China’s overseas lending was directed to sovereign borrowers (i.e., central government institutions),” the researchers said.

“However, a major transition has since taken place: nearly 70% of China’s overseas lending is now directed to state-owned companies, state-owned banks, special purpose vehicles, joint ventures, and private sector institutions.”

These loans frequently do not appear on governments’ balance sheets, but many are guaranteed by governments, blurring the borders between private and public debt and posing budgetary problems for countries. These assurances might be explicit or implicit, in the sense that public or political pressure can push the government to bail out a financially troubled firm.

Researchers discovered that these countries’ debt commitments to China are substantially more than those estimated by international research institutions, credit rating companies, or intergovernmental organisations. According to the study, 42 nations currently have public debt exposure to China that surpasses 10% of their GDP.

“These debts are systematically underreported to the World Bank’s Debtor Reporting System (DRS) because, in many cases, central government institutions in LMICs [lower- and middle-income countries] are not the primary borrowers responsible for repayment,” the report said.

“We estimate that the average government is underreporting its actual and potential repayment obligations to China by an amount that is equivalent to 5.8% of its GDP.”

This would amount to about $385 billion in total, according to AidData, and handling these concealed loans has become a “major challenge” for many impacted nations.

“The ‘hidden debt’ problem is less about governments knowing that they will need to service undisclosed debts (with known monetary values) to China than it is about governments not knowing the monetary value of debts to China that they may or may not have to service in the future,” researchers added.

(Adapted from CNBC.com)



Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability

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