Chinese loans to other nations are 'predatory and opaque' in nature: Report

China’s has become the ‘largest global overseas creditor’ as Beijing’s loans have surpassed the combined lending by the World Bank and the International Monetary Fund. As per the Times of Israel blog, Chinese loans account for close to 65% of the world’s official bilateral debt with the outstanding foreign debt estimated to be around US$ 5.6 trillion in 2020. In a White Paper published in January this year, China dubbed its lending as “international development cooperation within the framework of south-south cooperation" which it is undertaking as a "responsible member of the global community". 

However, the empirical evidence could be further from the truth according to Fabien Baussart who is the founder and president of the think tank Center of Political and Foreign Affairs (CPFA). In a blog post for Times of Israel, he said that contrary to China terming its loans as a “global public good” and establishing a foundation of a robust “development cooperation” framework, it has been witnessed that Chinese loans are ‘predatory and opaque’ in nature. Certain terms in China’s lending money are ‘heavily skewed’ against the borrowing country, the blog states.

Further, China is cornering developing nations into economic dependencies and political leverages through the ‘highly unsustainable’ levels of debt created for these countries. Reportedly, it has serious implications for the degree of their sovereignty vis-a-vis Beijing. Giving a more detailed picture of Chinese loans, contrary to common perception, the bulk of the nearly 60% of its lending is offered at commercial rather than concessional rates. Baussart notes that it is unusual for overseas “development assistance.”

But China says ‘no strings attached’

The explosive blog post comes even as China has always maintained that its overseas lending fellows the principle of “no strings attached.” China has additionally also claimed that it respects the other nations’ right to select “their own development path" with a focus on "developing countries' control.” In the blog for Times of Israel revealing the stark differences between the rhetoric of China and the reality of its overseas lending, Baussart cited a report titled, “How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments.”

The joint study by Germany's Kiel Institute and the Washington-based Centre for Global Development, Aid Data, and Peterson Institute for International Economics analysed at least a hundred Chinese loan contracts with 24 developing countries between 2000 and 2020. It also compares the loans with 142 non-Chinese foreign debt contracts across 28 commercial, bilateral and multilateral creditors. After the comparison, the study concluded that Chinese loans are characterised by extremely stringent terms of lending including strict confidentiality clauses restricting the borrower from disclosing the loan terms and often the ‘very existence of a loan.’

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