China has provided $240 billion in bailout loans to 22 developing nations between 2008 and 2021, soaring in recent years as more have struggled to repay loans spent building "Belt and Road" (BRI) infrastructure, a study published Tuesday showed.
Almost 80% of the lending was made between 2016 and 2021, mainly to middle-income countries, Argentina, Mongolia, Pakistan and Türkiye, according to the report by researchers from the World Bank, Harvard Kennedy School, AidData and the Kiel Institute for the World Economy.
Around the world, BRI nations have come under strain as soaring inflation and interest rates, compounded by the lingering impact of the COVID-19 pandemic, have hurt their ability to repay debts.
The report said the bailouts allow the countries to extend their loans and remain solvent.
China says over 150 countries have signed up to the BRI, a trillion-dollar global infrastructure push unveiled by President Xi Jinping a decade ago.
Beijing says the initiative aims to deepen friendly trade relations with other nations, particularly in the developing world.
But critics have long accused China of luring lower-income countries into debt traps by offering huge, unaffordable loans.
"China has developed a system of 'Bailouts on the Belt and Road' that help recipient countries to avoid default, and continue servicing their BRI debts, at least in the short run," the report said.
China has lent hundreds of billions of dollars to build infrastructure in developing countries. Still, lending has tailed off since 2016 as many projects have failed to pay the expected financial dividends.
"Beijing is ultimately trying to rescue its own banks. That's why it has gotten into the risky business of international bailout lending," said Carmen Reinhart, a former World Bank chief economist and one of the study's authors.
The study found that Chinese loans to countries in debt distress soared from less than 5% of its overseas lending portfolio in 2010 to 60% in 2022.
Argentina received the most, with $111.8 billion, followed by Pakistan with $48.5 billion and Egypt with $15.6 billion. Nine countries received less than $1 billion.
The People's Bank of China's (PBOC) swap lines accounted for $170 billion of the financing, including in Suriname, Sri Lanka and Egypt. Bridge loans or balance of payments support by Chinese state-owned banks and companies was $70 billion. Rollovers of both kinds of loans were $140 billion.
The study was critical of some central banks potentially using the PBOC swap lines to pump up their foreign exchange reserve figures artificially.
Opaque
The report warned that Chinese loans tend to be more opaque compared with other international lenders of last resort – and often come at an average interest rate of 5%, compared with a typical 2% rate on an International Monetary Fund (IMF) loan.
Many such agreements were so-called "rollovers," in which the same short-term loans are repeatedly extended to refinance debts about to come due.
China's rescue lending is "opaque and uncoordinated," said Brad Parks, one of the report's authors and director of AidData, a research lab at The College of William & Mary in the United States.
China's government hit back at the criticism on Tuesday, accusing "some people" of "hyping up so-called Chinese 'debt traps' and opaque loans, and slinging mud at China, something we do not accept."
"China ... has never forced any party to borrow money, has never forced any country to pay, will not attach any political conditions to loan agreements, and does not seek any political self-interest," foreign ministry spokesperson Mao Ning said at a regular press briefing.
This month, China agreed to restructure its loans to Sri Lanka, clearing the way for an IMF bailout of the island nation that lists Beijing as its biggest bilateral creditor.
The bailout loans are mainly concentrated in middle-income countries that make up four-fifths of their lending because of the risk they pose to Chinese banks' balance sheets. In contrast, the report said that low-income countries are offered grace periods and maturity extensions.
China is negotiating debt restructurings with countries including Zambia, Ghana and Sri Lanka and has been criticized for holding up the processes. It has also called on the World Bank and International Monetary Fund (IMF) to offer debt relief.