LOAN TALKS with Belarus; funding for bridges in Liberia; a possible gas project in Timor-Leste; accusations of exploitation in Tanzania; a corporate dispute in India; pledges to support the Rwandan private sector. And that was just the past few weeks. Such is China’s frenetic pace in its overseas lending that its outstanding loans, mainly to poorer countries, have gone from almost nothing in 2000 to more than $700bn today, making it the world’s largest official creditor, more than twice as big as the World Bank and IMF combined. Yet tracking the money is difficult because of limited transparency in its disclosures.
A new study by Sebastian Horn and Christoph Trebesch, both of the Kiel Institute for the World Economy, and Carmen Reinhart of Harvard University, creates the most comprehensive picture yet. They find that nearly half of China’s lending to developing countries is “hidden”, in that neither the World Bank nor the IMF have data on it. The problem appears most severe for the most vulnerable borrowers. The authors conclude that in its reporting to the Bank for International Settlements, an organisation of central banks, China has not disclosed any loans to Iran, Venezuela or Zimbabwe, despite giving them plenty of money over the past 15 years.
According to the authors, the 50 biggest recipients of Chinese credit owe debts to China worth about 17% of their GDP on average (see map), up from 1% in 2005. Strikingly, many of these countries were granted debt relief by wealthy creditors in the early 2000s after a wave of defaults. But thanks to China’s largesse they are now on track to reach the same level of debt that they had before the crisis. The structure of the debt is worrying, too. About 60% of Chinese loans are extended at higher interest rates and shorter maturities. They often have commodity revenues as collateral.
Still, there are two slivers of hope. First, China is often depicted as an unforgiving lender. But the study finds that it has engaged in at least 140 restructurings and write-offs of external debt since 2000. Second, the boom could tail off before it gets out of control. Chinese economic growth and capital outflows are closely correlated. As China slows, its lending floodwaters might recede.