Think bailing out banks seems tricky? China’s been bailing out entire countries, according to a new study.
China has provided US$240 billion in emergency loans to 22 developing nations involved in its “Belt and Road” initiative, an infrastructure investment program that saw China plough about US$1 trillion over the past decade into projects from Papua New Guinea to Argentina.
Why it’s happening: Many projects funded through Belt and Road have turned into money-losers for China, suffering from setbacks related to corruption scandals, political pushback, and environmental concerns.
That’s a problem for China, whose banks could be threatened if the countries they lent heavily to began to default. The ramp-up of emergency lending aims to avoid that outcome.
- “Beijing is ultimately trying to rescue its own banks,” said one of the study’s authors.
Why it matters: For a long time, the Western-backed International Monetary Fund (IMF) was the only game in town when a country needed rescuing from debt trouble. That’s no longer true: China’s lending doesn’t quite match the IMF yet, but it’s getting close.
- Prior to 2010, China offered almost no rescue lending. Now, it provides around half of what the IMF delivers.
Zoom out: It’s much the same economic playbook that helped America secure superpower status in the 20th century, and the more recent bailout loans could give China even more leverage over its debtors.—AP