China's loans leave developing nations with $385 billion in 'hidden debts', reveals study

A new study claimed that China’s Belt and Road Initiative has caused dozens of countries to accumulate $385 billion in “hidden debts” to Beijing. AidData, an international development research lab based at Virginia’s College of William & Mary, revealed that the debt had slipped through the scrutiny of international lenders such as the World Bank and the International Monetary Fund (IMF). The study said that the “hidden debt” is due to an increasing number of deals struck not directly between governments through central banks but through often opaque arrangements with a range of financing institutions. 

Hence “the debt burdens were kept off the public balance sheets,” the study said. 

It added, “Chinese debt burdens are substantially larger than research intuitions, credit rating agencies, or intergovernmental organisations with surveillance responsibilities previously understood.” 

AirData analysed around 13,427 Chinese development projects worth a combined $843 billion across 165 countries over an 18-year-period to the end of 2017. It revealed that China has provided record amounts of financing to developing countries, supporting both public and private sector projects over the past two decades. The study also said that nearly 70 per cent of Beijing’s overseas lending is now directed to state-owned companies, state-owned banks, special purpose vehicles, joint ventures and private sector institutions in recipient countries rather than sovereign borrowers, which are central government institutions. 

China uses confidentiality clauses to debt-trap nations 

Meanwhile, the latest study comes after it was previously revealed that China uses a “well thought out strategy” to debt-trap countries with confidentiality clauses. International Forum for Right and Security (IFFRAS) reported that China is shockingly using confidentiality clauses barring borrowers from revealing terms and conditions of the engagement or even the existence of the debt itself. As per the report, the researchers looked at 100 contracts signed during 2000 - 2020 to systemically analyse the legal terms of lending followed by Chinese state-owned entities and government borrowers across 24 developing countries in Africa, Asia, Eastern Europe, Latin America, and Oceania with a commitment amounting to the tune of $36.6 billion. 

It found that Chinese credit terms remain highly skewed in favour of Chinese lenders over other creditors. IFFRAS reported that the credit offered contains collateral arrangements, no Paris Club clauses, clauses allowing lenders to influence debtors' domestic and foreign policies, etc. Additionally, it also said that the Chinese stress keeping the credit terms secret from the citizens in both the borrowing and the lending country, who otherwise have a legitimate right to know. The lender is also provided with the discretion to cancel loans or demand full repayment ahead of schedule at will. 

(With inputs from ANI)

Image: AP