How heavy can China's debt be for developing countries? How much did China lend to Pakistan and on what terms?china's loan to Pakistan. China first step in getting a loan?Is China's strategy a ploy?

 

China's loan to Pakistan.How heavy can China's debt be for developing countries?

Over the years, China has emerged as the largest lender to the world in terms of development projects.

The latest evidence shows that over the past few years, China has spent twice as much money on development projects as the United States and other economic powers in the form of high-risk loans from Chinese state banks.

It is surprising that China has lent so much money, because some time ago China itself used to take foreign aid, but now the situation has changed drastically.

Over the past 18 years, China has lent 5 843 billion to 165 countries for 13,427 infrastructure projects, according to the Ad Data Research Lab at William & Mary University in Virginia.

Most of these loans are related to Chinese President Xi Jinping's major Belt and Road projects. Since 2013, China has been taking advantage of the expertise in infrastructure and the construction of new international trade routes with the help of foreign capital.

However, critics fear that high-interest loans for many Chinese projects and vague agreements between Chinese state-owned companies are troubling these countries.

The Chinese government's ministry itself has been repeatedly asking these countries how their money is being spent overseas and on what projects.

China has given huge loans to several developing and backward countries for development projects and failure to repay these loans on time has resulted in their assets going to Chinese ownership or mortgage.

The train service between China and neighboring Laos is a case in point.

For decades, politicians have been thinking of a plan to link southwestern China with Southeast Asia, but engineers have warned that it will cost too much because the track will have to pass through high mountains and deep valleys. It will require the construction of hundreds of tunnels and bridges.

Leading Chinese bankers jumped on the bandwagon and a 5.9 billion project, backed by a consortium of major Chinese state-owned companies and state-owned lenders, is set to begin train service in December this year.

Laos is the poorest country in the region and could not afford even a fraction of the cost of the project, so it borrowed 408 million from a Chinese bank to pay its share. One of the main sources of income was potash mining.

"The development given to Laos by the Exim Bank of China clearly shows that The Chinese government is eager to wrap up these jobs.

Most of the railway tracks are owned by a Chinese railway company, but the government of Laos is ultimately responsible for the railway debt. As a result of this unbalanced agreement, global creditors have downgraded Laos to a "junk" rating.

In September 2020, when Laos was on the verge of bankruptcy, it handed over a large asset of the country to China. It was part of its energy system, in return for which it received 60 600 million from China to get some time to repay a loan taken from Chinese companies, and all this before the start of service under the sub-train project. has been done.

    

How much did China lend to Pakistan and on what terms?

Pakistan is also one of the countries in the world that is getting billions of dollars in loans from China for development projects. Pakistan is one of the countries that China has funded the most development projects under its Belt and Road project.

According to the Ad Data report, if we look at Pakistan's debt to China, from 2000 to 2017, China has given Pakistan a loan of  34.4 billion, most of which is for development work in the country. Is allocated

80.4% of this funding is in the form of loans obtained by Pakistan on the basis of trade rate or approximately the same rate while only 12.1% of the amount received by Pakistan is in the form of financial assistance which Pakistan will not repay.

Pakistan is working on 71 projects worth 27 27.3 billion with Chinese funding.

83% of the loan to Pakistan under the C-Pac project is being spent on energy and transport. Projects in these sectors include the construction of coal-fired power plants, dams, roads and the establishment of industrial and economic zones.

90% of China's remittances to Pakistan are loans, 95.2% of investments in the energy sector and 73% of investments in the transport sector.

China has given loans to Pakistan at an average interest rate of 3.76 per cent, including full repayment in 13 years and two months, and the repayment process starts four years and three months after the loan is received.

Interestingly, half of the development assistance from China has come in the form of export buyer credit to Pakistan, which means that Chinese companies have given Pakistan equipment and goods to buy from companies approved by the Chinese authorities. Has given

Prior to C-Pack, between 2002 and 2012, 84% of loans from China were given to central government agencies in Pakistan. But China changed its strategy after the announcement of the C-Pac project, lending money to government agencies other than the federal government.

Aid data says 40 percent of China's debt is now being paid to state-owned companies, state-owned banks, special-purpose vehicles, joint ventures and private sector entities. And most of them are not reflected in the government's balance sheet. 

However, China has given these loans to most of the institutions on government guarantee in case of non-payment, ie if those institutions cannot repay the loans, the government of Pakistan will take full responsibility.

In some cases, instead of formally guaranteeing the repayment of the loan, the government guarantees the lenders a certain percentage of repayment under the agreement. This type of guarantee is a form of 'secret loan'.

According to ad data, China has also given such secret loans to Pakistan under C-Pack.

Two-thirds of China's loans to Pakistan came from China's Exim Bank, while 8.4 percent came from the China Development Bank and 6.5 percent from the Industrial and Commercial Bank of China.

According to Ad Data, the terms of the agreements with Pakistan under C-Pack have not been made public like the agreements with other countries of China.

The question is whether Pakistan can also face a situation similar to Laos on the issue of debt repayment to China.

Dr Ammar Malik, a senior research scientist at Ad Data, told the BBC that it was important to understand that, contrary to popular belief, China's investment in Pakistan was not in the form of "aid" but on commercial terms. In the form of 'loans'.

"90% of the cash gave under the China-Pakistan Economic Corridor (CPEC) is as advances and the Pakistani government has a commitment to reimburse these advances at a normal loan fee of 3.76 percent per annum."

Dr Ammar Malik says this means that the ratio of Pakistan's GDP to debt, which is officially shown at 92 per cent, could be even higher.

Elaborating further on these loans, Dr. Ammar said that the government had promised Chinese investors that they would return a return on their capital, which means that if the project returns as expected. If not, then the government of Pakistan will have to repay these loans so that it can fulfill the promises made to the investors.

“But since this load of arrangements is done in dollar cash, and the rupee is deteriorating, the obligation trouble in the neighborhood money will become heavier and the absolute obligation volume will increment."

China first step in getting a loan?

Ad Data says China is the first country to borrow for many low- and middle-income countries like Pakistan.

"China contributes about ً 85 billion a year to international development projects, compared to 37 billion a year for any international development project," said Brad Parks. Fills the supporter.

Ad Data says China has clearly overtaken all other countries in funding development projects, but the pace at which Beijing has achieved it is "extraordinary".

In the past, the West has been blamed for pushing African countries into a debt trap, but China is lending in various ways instead of lending from one country to another for a project. Is giving in the form of state banking loans.

Such loans are not disclosed in government accounts. This is because many of the agreements made by Chinese state-owned banks do not mention Chinese federal government entities, such agreements are not even disclosed in government balance sheets, and the confidentiality clauses of these agreements Is hidden which can prevent governments from knowing what the conditions are behind closed doors.

According to ad data, the total amount of such unreported loans from China amounts to 38 385 billion.

Many Chinese state development loans also demand extraordinary terms as collateral. Chinese companies are demanding that borrowers pay cash by selling natural resources to repay their loans.

In an agreement with Venezuela, for example, Venezuela pledged foreign exchange earned from the sale of natural oil to pay off debts directly to a bank operating under China.

If the loan installment cannot be paid on time, the Chinese lending company can immediately deduct its installment from the amount in the account.

"It really seems to be the livelihood strategy of the countries that lenders use to show that we are big here," explains Brad Parks. Their message is that you have to pay us back first because we are the ones who deserve it.

"For these helpless nations, this pay, which comes as unfamiliar money, i.e. dollars and Euros, is kept in a record run by another unfamiliar influence."

    

Is China's strategy a ploy?

"I think they're aggressive in their dealings to protect their interests as much as possible," said Anna Gulpern, a law professor at Georgetown who was involved in the research.

Gulpern says some loan-seeking countries are also crooked. If they are unable to repay their debts, expect them to hand over assets such as their ports to pay off the debt. Is not correct

China may soon face international lending competition.

At the June G7 summit, the United States and its allies announced that the G7 had devised a strategy to counter the influence of rival China. This includes financing development projects globally that are environmentally stable. 

However, the plan may have come too late. "I'm skeptical of Western moves to have an impact on Chinese plans," said David Dollar, a senior Brookings Institution official and former US Secretary of State for China. 

"Under these new measures, there won't be sufficient cash to meet the foundation needs of non-industrial nations," he said. Furthermore, banks in Western nations are officials and invest a ton of energy on it.

Ad data researchers say the Belt and Road project is facing its own problems. These projects are being linked to ambiguous Chinese development agreements, including corruption, labor scandals and environmental issues.

In order to get the Belt and Road project on track, China has no choice but to listen to the concerns of the borrowing countries.