“Belt and Road bailout lending reaches record levels, raising questions about the future of China’s flagship global infrastructure program

A new study finds Beijing has dramatically expanded emergency rescue lending to countries in financial distress”, March 27, 2023

[...]According to a new study by researchers at AidData, the World Bank, the Harvard Kennedy School, and the Kiel Institute for the World Economy, Beijing has dramatically expanded emergency rescue lending to sovereign borrowers in financial distress—or outright default.

According to the authors, Beijing does not offer bailouts to all BRI borrowers in distress: low-income countries are typically offered a debt restructuring that involves a grace period or final repayment date extension but no new money, while middle-income countries tend to receive new money—via balance of payments (BOP) support—to avoid or delay default. [...]To date, [China] has undertaken rescue lending operations in 22 countries, including Argentina, Belarus, Ecuador, Egypt, Laos, Mongolia, Pakistan, Suriname, Sri Lanka, Turkey, Ukraine, and Venezuela. [...]

‍The authors also find that borrowing from Beijing in emergency situations is not cheap: whereas a typical rescue loan from the International Monetary Fund (IMF) carries a 2% interest rate, the average interest rate attached to a Chinese rescue loan is 5%.

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“Our findings have implications for the global financial and monetary system, which we see becoming more multipolar, less institutionalized, and less transparent,” said Christoph Trebesch, a co-author of the study. “

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The PBOC is not the only official sector institution in China that is engaged in international rescue lending operations. China’s state-owned policy banks (e.g. China Development Bank, China Eximbank), state-owned commercial banks (e.g., Bank of China, Industrial and Commercial Bank of China), state-owned oil and gas companies (e.g. CNPC, UNIPEC), and the State Administration of Foreign Exchange (SAFE) offer a wider array of rescue lending instruments—including liquidity support facilities, foreign currency term financing facility agreements, deposit loans, commodity prepayment facilities, and so-called “sovereign loans” (主权贷).