China has been lending a whopping $1.34 trillion to developing countries from 2000 to 2021, according to a report by U.S. researchers at AidData. This marks a shift in focus for the world’s largest bilateral lender, as it moves away from infrastructure projects and towards rescue lending. While lending commitments reached their peak in 2016 at nearly $136 billion, China still committed to around $80 billion in loans and grants in 2021. The data, which covers almost 21,000 projects in 165 low and middle income countries, provides a comprehensive overview of China’s lending activities. However, China’s overseas financing has faced criticism from the West and some recipient countries, such as Sri Lanka and Zambia, who claim that the infrastructure projects funded by China have burdened them with unmanageable debt.
The report reveals that both the sources and focus of China’s overseas financing have changed over time. In 2013, China’s policy banks accounted for over half of the lending when President Xi Jinping launched the Belt and Road Initiative. However, their share started to decline from 2015 and was only 22% by 2021. Instead, the People’s Bank of China and the State Administration of Foreign Exchange (SAFE) became the major lenders in 2021, primarily providing bailout loans.
The report by AidData highlights that China is now playing the role of the world’s largest official debt collector, which is unfamiliar and uncomfortable for Beijing. The majority of China’s rescue lending is denominated in renminbi, with loans in the Chinese currency surpassing those in U.S. dollars in 2020. Furthermore, overdue payments to Chinese lenders have been on the rise.
To manage repayment risk, China has implemented foreign currency cash escrow accounts, which it controls. However, this arrangement has sparked controversy as it gives China debt seniority, potentially disadvantaging other lenders, including multilateral development banks, during coordinated debt relief efforts. AidData has identified 15 countries, mainly in Africa, with escrow accounts totaling $2.5 billion at their peak in June 2023. It is worth noting that this may not be the complete picture, as many of these accounts are kept private. The report also reveals that Chinese lenders often require cash as collateral, with collateralized loans amounting to $614 billion. This suggests that the actual amount in escrow accounts could be much higher than the reported $2.5 billion.
China has also been collaborating more with multilateral lenders and Western commercial banks. In 2021, half of its non-emergency lending consisted of syndicated loans, with 80% of these loans being facilitated by Western banks and international financial institutions.
In terms of geographical distribution, China’s lending destinations have undergone changes as well. Loan commitments to African countries decreased from 31% of the total in 2018 to 12% in 2021, while lending to European countries nearly quadrupled to 23%.
Another dataset indicates that loan commitments to African countries reached a 20-year low in 2022.
China’s lending activities have undoubtedly had a significant impact on the global financial landscape. While the shift from infrastructure projects to rescue lending reflects changing priorities, it also raises concerns about debt sustainability and the potential implications for borrower countries. As China continues to navigate its role as a major lender, it will be crucial to strike a balance between supporting economic development and ensuring responsible lending practices.
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