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China’s $240 Billion Bailout Loans to Developing Nations: A Leverage for Influence?

Gabriel Bello Obando by Gabriel Bello Obando
March 28, 2023
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A study conducted by researchers from the World Bank, Harvard Kennedy School, AidData, and Kiel Institute for the World Economy reveals that China has provided $240 billion in bailout loans to 22 developing countries between 2008 and 2021. These countries include Pakistan, Argentina, and Mongolia, among others. The bulk of the loans were disbursed in the last five years, as countries struggled to repay money borrowed under Beijing’s Belt and Road Initiative (BRI).

The BRI is China’s ambitious infrastructure project aimed at enhancing connectivity and promoting economic development across Asia, Africa, and Europe. However, it has drawn criticism from some quarters, with critics alleging that it is a means for China to exert its influence and expand its geopolitical interests beyond its borders. The study’s findings are likely to fuel these concerns, especially given the surge in China’s loans to countries in debt distress.

In 2010, only 5% of China’s overseas lending portfolio consisted of loans to countries in debt distress. By 2022, this had surged to 60%, indicating that China’s lending practices have become increasingly tilted towards countries that are struggling to service their debts. Some experts argue that this is a deliberate strategy by China to gain leverage over these countries, thereby enhancing its influence and soft power.

Critics of China’s lending practices have pointed to several examples where countries have fallen into a debt trap due to unsustainable borrowing. For instance, in Sri Lanka, China’s loans for infrastructure development projects have contributed significantly to the country’s external debt, leading to concerns that the country may eventually lose control of strategic assets to China. Similarly, in Africa, some countries have found it challenging to repay Chinese loans, leading to the takeover of strategic assets, such as ports and other infrastructure.

China has defended its lending practices, arguing that they are aimed at promoting development and improving the living standards of people in the recipient countries. However, the study’s findings are likely to raise further questions about the sustainability and implications of China’s lending practices.

In conclusion, China’s $240 billion in bailout loans to developing nations is a significant financial commitment that has the potential to enhance development and promote economic growth. However, the surge in loans to countries in debt distress has raised concerns that China may be using its financial dealings to gain leverage over these countries, projecting its power and influence beyond its borders. The implications of China’s lending practices are likely to remain a subject of debate and scrutiny in the coming years, with policymakers and experts watching closely to assess their long-term effects.

It is worth noting that China’s lending practices have been a subject of controversy in recent years, with some arguing that the country is engaging in debt-trap diplomacy. This refers to a situation where a lender deliberately lends money to a borrower knowing that they will be unable to repay, thereby trapping them in a cycle of debt and using the debt as leverage to gain concessions or strategic assets.

China has been accused of engaging in this practice, with critics pointing to examples where countries have found it challenging to repay Chinese loans, leading to the takeover of strategic assets. In some cases, these assets have been used to advance China’s strategic interests, raising concerns that the country is using its financial power to gain influence over other nations.

China has defended its lending practices, arguing that they are aimed at promoting development and improving the lives of people in the recipient countries. The country has also emphasized that its lending practices are not driven by geopolitical considerations or a desire to project power beyond its borders.

However, the study’s findings are likely to renew concerns about China’s lending practices and their long-term implications. As China continues to expand its influence and economic reach, questions about the sustainability and impact of its lending practices are likely to remain a topic of discussion and scrutiny.

Moreover, China’s lending practices are not unique, and many other countries and international organizations have engaged in similar practices in the past. However, China’s scale and scope of lending are unprecedented, and the country’s rising economic power and global ambitions have put its lending practices under greater scrutiny.

In conclusion, China’s $240 billion in bailout loans to developing nations is a significant financial commitment that has the potential to promote development and enhance economic growth. However, concerns about China’s lending practices and their long-term implications are likely to remain a subject of debate and scrutiny in the coming years. As the world continues to grapple with the challenges posed by COVID-19 and global economic uncertainty, the sustainability and impact of China’s lending practices are likely to be closely watched and assessed by policymakers and experts alike.

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