China Is Using Loans to Spread Its Control

Although China had been largely isolationist in past decades, it is now secretly spreading its influence through loans to developing nations. The loans are being made to some of these nations in amounts that cannot be easily repaid by those governments – and then the collateral is taken in terms of resources or land when they cannot be repaid.

The loans are seen as being burdensome to small nations especially when they are being hit by the coronavirus. This virus has impacted the stock markets of the world and greatly reduced trade and the ability of any nation to repay these loans.

Recent investigations into the lending practices of China in this century have discovered that China has been making many hidden loans. These loans are not being revealed to the International Monetary Fund (IMF) or the World Bank. Only deep research has discovered them.

Oftentimes, these loans have been for very large sums – amounts that are much larger than the country could ever repay. More than 50 countries have borrowed from China. Initially, the amounts were for about one percent of the countries’ GDP on average as recently as 2015, but they now are for about 15 percent in 2017.

Countries that are becoming more developed are also developing a higher percentage of debt to China. China has been slowly growing its income from its lending practices. In the year 2000, it was estimated that China was owed $500 billion from other nations. In 2017, however, the amount owed had skyrocketed to above $5 trillion.

When offering these loans, China does not give the countries discount rates. They often present them at market rates and collateral is required. In some cases, when the country could not pay, land or resources were grabbed for payment. Sri Lanka, for instance, had to give China control of the Hambantota Port that was strategically located. Pakistan had to get another loan from the IMF in 2018 to pay its debt to China.

While China has restructured some of its loans, it certainly has not always been the case. Sometimes, they offer expensive projects to a country that cannot afford it, and then they claim the project as collateral. Loans from Western countries have often been made to help make loan payments to China. When building these large projects, China often brings in its own companies and workers – so the money is not going to help the country much.

These loans have been hidden from open sources. Deep research has revealed them. When the loans are made, the countries are often forced to agree to non-disclosure. This means that when those nations ask for loans from other sources, that they cannot reveal that they have already borrowed money from China and cannot reveal how much.

It is estimated that as much as a quarter of all lending to developing nations comes from China. Most of the money is believed to come from just two banks: the Export-Import Bank of China and the China Development Bank.

China’s expansion into these markets appears to be partly because of its Belt and Road Initiative created in 2013. Its goal is to recreate a new Silk Road, which involved an open trade route between the West and the East. They want unimpeded trade through both land and sea routes.

The plan includes the development of an infrastructure utilizing ports, airports, railways, and roads, and having power plants and communications networks through it. Altogether, this ambitious plan involves about 70 countries – about 65 percent of the population of the world, and about a third of the world’s GDP.