https://www.spiegel.de/international/bu ... 75643.htmlThe World's Bank
Vast Chinese Loans Pose Risks to Developing World
China is the largest creditor in the world, funding infrastructure projects in the developing world in exchange for access to raw materials. A new study shows that the risk of a new debt crisis is significant.
By Bartholomäus Grill, Michael Sauga and Bernhard Zand July 04, 2019
The future rail link cuts its way through the jungles of Laos for over 400 kilometers. Soon, trains will be rolling through -- over bridges, through tunnels and across dams built just for the line, which runs from the Chinese border in the north to the Laotian capital of Vientiane on the Mekong River. After five years of construction, the line is set to go into service in 2021. And the Chinese head of one of the sections has no doubt that it will be finished on time. "Our office alone employs 4,000 workers," he says. There is also no lack of money: The Chinese government in Beijing has earmarked around 6 billion dollars for the project and has recently become both Laos's largest creditor and most significant provider of development aid.
China, after all, isn't just directly financing 70 percent of the new train lain, it is also building dams, schools, military hospitals and has even launched a communications satellite into space for the country. In April, Beijing loaned Laos another 40 million dollars for road construction -- a credit that was provided through the multilateral Asian Infrastructure Investment Bank based in Beijing, a financial institution that China established as an alternative to Western development banks. If Hong Kong is included, China isn't just the largest creditor in Laos, but in the entire world. Beijing's foreign loans dominate global markets almost to the same degree as its toys, smartphones and electric scooters do. From Kenya to Montenegro, from Ecuador to Djibouti, roads, dams and power plants are being built with billions in loans from Beijing. And all of those countries will have to pay back those loans in the years to come. With interest.
The flood of capital from China helped prevent the global economy from plunging into depression following the bankruptcy of Lehman Brothers and the ensuing financial crisis. But it isn't without controversy.For some, the billions of dollars from China are a welcome contribution to helping many underdeveloped regions in Asia and Africa expand infrastructure. For others, the loans from Beijing have forced half the world into economic and political dependency on Beijing. Some have described the situation as "debt bondage," while a group of U.S. senators wrote a letter to Secretary of State Mike Pompeo last summer warning of China's "attempt to weaponize capital."A Lack of Transparency
Furthermore, little is actually known about the loans. China's foreign assets are now worth $6 trillion, but outside of the government in Beijing, nobody knows much about where that money has been invested and what conditions and risks are attached. Because China doesn't completely open its books to international organizations like the World Bank and the International Monetary Fund (IMF), there is a lack of needed transparency, says IMF head Christine Lagarde.
Now, though, with the release of a new study by a German-American team of academics under the leadership of Harvard professor Carmen Reinhart, Largarde will have a clearer picture. For months, the economists dug through both known and unknown source material, compiling the most comprehensive analysis yet of Chinese foreign loans. And the image that has resulted does nothing to assuage concerns about the financial power being exerted by Beijing.