China’s Belt and Road “Hidden Debt” Exceeds $ 385 billion, New Study Finds

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China’s Belt and Road Initiative has left dozens of low- and middle-income countries struggling with “hidden debts” totaling $ 385 billion.

New research suggests that many countries’ financial liabilities linked to President Xi Jinping’s signature foreign policy have been consistently underreported for years. This has resulted in an increase in “hidden debts”, or undisclosed debts that governments could be forced to pay.

The findings are part of a new report released by AidData, an international development research lab based at William & Mary College in Virginia, which analyzed more than 13,000 aid-funded projects and debt worth of more than 843 billion dollars in 165 countries, over 18 years at the end of 2017.

AidData researchers estimated that the existing debts arising from Chinese loans are “considerably larger” than previously understood by credit rating agencies and other intergovernmental organizations with supervisory responsibilities.

“It really took my breath away when we first found out that [$385bn figure]”Brad Parks, executive director of the AidData team, told the Financial Times.

The pace of Belt and Road loans has slowed over the past two years. And this year, the United States led a G7 effort to counter Beijing’s dominance in international development finance.

But the report highlights the lasting effects of a brutal transition since Xi launched the Belt and Road plan in 2013.

While Chinese loans were previously primarily intended for sovereign borrowers such as central banks, today almost 70% of China’s foreign debt is issued by state-owned companies, state-owned banks, corporate structures. host, joint ventures and private sector institutions.

More than 40 low- and middle-income countries (LMICs) now have debt levels to China above 10% of their national gross domestic product, AidData estimated.

And the average PRFI government under-declares its repayment obligations to China by the equivalent of nearly 6% of GDP.

“These debts for the most part do not appear on the balance sheets of governments in developing countries. The bottom line is that most of them enjoy some explicit or implicit form of host government liability protection. This fundamentally blurs the line between private debt and public debt, ”Parks said.

The report was released as international debate rages on fears that China has pushed developing countries into what is known as the debt trap, which could ultimately lead Beijing to seize assets when debts are not repaid.

Some critics argue that concerns have been greatly exaggerated amid wider fears about the expansion of Chinese interests abroad under Xi.

A Study 2020 by the China Africa Research Initiative at Johns Hopkins University found that between 2000 and 2019, China canceled $ 3.4 billion in debt in Africa and an additional $ 15 billion was restructured or refinanced. No property was seized.

Parks said, however, that while the “media myth that has developed over time is that the Chinese like to guarantee physical and illiquid assets,” the latest research suggests that liquid asset collateral is common.

“It is true that Chinese public lenders have a strong preference for collateral: we find that 44% of the overall loan portfolio was secured, and when the stakes are really high, that’s when they turn look to the guarantee, ”he said.

“What is happening is that China’s state-owned bank is determined to require the borrower to maintain a minimum cash balance in an offshore bank account, or escrow account, that the lender itself controls. “

Such contingent liabilities from hidden debts loomed “almost like a phantom threat” to many countries, Parks said.

“If you are in a finance ministry in a developing country, the challenge of dealing with hidden Chinese debt is less knowing that you will have to pay off undisclosed debts with known monetary values ​​to China. It’s more about not knowing the dollar value of debts to China that you may or may not have to pay off in the future, ”Parks said.

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