Chinese Loans Research Articles

China's Investment in Bangladesh: Backdrop of Debt Trap Diplomacy

This research investigates the implications of Chinese investment in Bangladesh, particularly in the context of concerns surrounding debt trap diplomacy. As China extends its Belt and Road Initiative (BRI), Bangladesh has emerged as a significant recipient of Chinese loans and investments, encompassing infrastructure projects such as ports, power plants, and highways. While these investments are poised to bolster Bangladesh's economic development, they also raise concerns about the potential for unsustainable debt levels and the erosion of sovereignty. This study delves into the economic, political, and social ramifications of Chinese investments in Bangladesh. Through a mixed-methods approach combining quantitative analysis of debt sustainability indicators and qualitative assessments from stakeholder interviews, the research examines whether Chinese funding is leading to a debt trap scenario. Preliminary findings suggest that while Chinese investments have accelerated infrastructure development, they have also increased Bangladesh's debt burden and dependency on China. Furthermore, the strategic placement of investments suggests potential geopolitical motivations behind Chinese funding. This research aims to contribute to the broader discourse on the impact of Chinese foreign direct investment in developing countries, offering policy recommendations for Bangladesh to navigate the complexities of foreign financing without compromising its economic sovereignty. The study underscores the necessity for rigorous debt management and transparent investment policies to mitigate the risks associated with large-scale foreign loans.

Globalization or Empire? Revolution, the State, and the Geopolitics of Chinese Debt, 1895–1914

Via an investigation of the collaboration between banks and foreign offices, this article demonstrates that the restructuring of China’s state debt before and after the revolution of 1911 was not simply a part of Chinese globalisation undertaken under the benign stewardship of foreign banks. Rather, the contest for Chinese loans reflected a power struggle for regional hegemony between expansionist states that hinged on both competition and cooperation, as well as Chinese attempts to preserve their economic and territorial sovereignty. It further shows that the notion that financial institutions operated independently of the state does not reflect the clear record of close coordination between states and financial institutions during loan negotiations.

China Lending and the Political Economy of Leader Survival

What are the political implications of Chinese loans to borrowing countries? Our argument is that similar to other forms of international finance, loans from China provide leaders with additional resources to maintain their power. The nature of China’s lending practices—characterized by an absence of good governance conditions—offers a unique advantage to political leaders, allowing corrupt leaders who receive loans from China to stay in power for longer periods. To support this argument, we conducted an analysis of a dataset of 115 developing countries from 2000 to 2015, focusing on the relationship between Chinese loans and leaders' political survival. Our findings indicate that Chinese loans positively impact leader survival, with the strongest effects observed in more corrupt regimes. To address endogeneity concerns, we employ a shift-share instrumentation strategy and several additional tests. Our analysis underscores the importance of Chinese lending to both international and domestic politics.

China in the Global South: Exploring Venezuelan’s Perceptions of Chinese Loans

China in the Global South: Exploring Venezuelan’s Perceptions of Chinese Loans

A Critique of Chinese Loans in Sub-Saharan Africa: A fruitful Prospect or Neo-Colonisation

Abstract Economic development has been on Sub Sahara Africa’s (SSA) agenda for the past two decades. However, the stark reality is that it has been sporadic, slack and slow. One can argue that these nations had a late start due to their economies being controlled by conquerors until the late 20th century. Others might reinforce the idea that the late blooming of SSA was due to their economic development being stifled by the punitive interests levied by the IMF under the guise of reconstruction loans following decolonisation. Thus, in a bid to egress of that vicious circle of debt, another beacon has lit for SSA in the form of Chinese loans. Albeit, an acceptable macro reality that growth can be achieved through loans, this stance has raised moot questions: Is this financial help a strategy that will make SSA beholden to the Chinese government akin to a re-colonisation, or will it propel SSA nations into developed nations by alleviating poverty, creating jobs and promoting growth? The critical lesson of this paper is that confiscation of resources, in the event of non-payment of loans, should be solved with other measures of debt repayment to ensure the continent is not exposed to neo-colonisation.

More Problems More Money? Does China Lend More to African Countries with Higher Credit Risk Levels?

Abstract China has provided hundreds of billions of dollars in loans to developing countries. Researchers and pundits have focused on China’s motivations for allocating development finance, particularly in Africa, due to debt sustainability concerns. This paper aims to contribute to the understanding of the ways in which creditworthiness impacts the Chinese government’s development finance allocation decisions. In doing so, it examines the impact of African countries’ creditworthiness levels on Chinese development finance commitments. It also explores the impact of African country creditworthiness on Chinese loan cancellations and forgiveness. This paper finds that a disproportionate share of Chinese government loan commitments to African countries are made to governments with high credit risk levels. It also finds that, as African countries’ creditworthiness decreases, their likelihood of having Chinese loan commitments canceled increases. This underscores the importance of greater transparency from—and coordination with—China in its approach to debt sustainability and its attitude toward risk on the African continent, as well as the importance of building African debt management and capacity to ensure responsible borrowing. Finally, the paper finds negative, though weak, relationship between creditworthiness and Chinese loan forgiveness. In other words, as opposed to what the debt trap diplomacy hypothesis would suggest, Chinese loans to risky countries are more likely to be forgiven.

Examining shifts in the Angola–China relations in the post-dos santos era

Abstract The Angola–China connection has famously been branded a ‘marriage of convenience’—an ‘uneasy alliance’ forged for pragmatic reasons at an opportune time of mutual need. In this article, we document how the relationship has more recently undergone a marital burnout of sorts. Chinese loans to Angola have dried up and most Chinese state-owned enterprises have left, as have 90 percent of Chinese migrants. The legacy of this marriage is somewhat mixed. Much of the infrastructure left behind is of dubious quality, while servicing the Chinese debt incurred to finance these projects may consume up to 10 percent of Angola’s GDP. Drawing on three rounds of fieldwork in Angola and over 60 interviews, we trace the souring of Angola–China ties to three concomitant factors: (i) Angolan internal politics; (ii) Chinese reconfiguration; and (iii) exogenous shifts in the global economy. In doing so, we argue that China and Angola are entering new territory, and that this shift in both parties’ calculations can be usefully illuminated by the concept of ‘strategies of extraversion’. Angola’s elites have once again proven that they are adept at transforming external constraints—this time related to China’s increasing financial caution and domestic recalibration—into new opportunities.

Deeply divided along aid lines? Chinese loans, Cameroon and Anglophone marginalisation

Chinese development financial assistance goes into Africa mainly as loans but little is known about recipient sub-national distributive patterns, despite the potential of uneven allocations for inequitable development and conflict outcomes. Focusing on Cameroon, which is among the largest recipients of Chinese loans and is challenged by secessionist unrest, we explore if sub-state allocations favour the president’s birth region. We geo-locate Chinese loan-funded projects in Cameroon from open sources, fieldwork observations, and reviews of Sino-Cameroon agreements, and conduct interviews to gauge the influence of selected projects on voting in Cameroon’s 2018 presidential elections. We find evidence of more Chinese loan-funded projects reaching the president’s birth region and motivating pro-incumbent votes. Conversely, we find less Chinese loan-sponsored projects in the secessionist Anglophone regions, providing an empirical basis for proposing adjustments to the geopolitical configuration of Chinese development assistance to Cameroon for more equitable and auspicious outcomes.

POTENTIAL CHINESE DEBT TRAP IN INFRASTRUCTURE DEVELOPMENT (CASE STUDY OF THE JAKARTA-BANDUNG HIGH-SPEED RAILWAY PROJECT)

This study aims to determine the potential that will occur from Chinese loans in the Jakarta-Bandung High-Speed Train infrastructure project. This research uses qualitative methods with a case study approach. This paper discusses the Jakarta-Bandung High-Speed Train project with an analysis of debt trap theory through the analysis of four main aspects that are categorized, namely: first, financial transactions occur in the form of Chinese loans with Indonesia. Second, Indonesia does not have the potential to repay its debt burden to China based on the country's foreign exchange reserves, Indonesia's GDP level against projected debt returns to China, and China's debt rating in Indonesia. Third, the construction of KCJB took place in the period 2013-2023. Based on research and analysis that has been done, it is obtained that the Jakarta-Bandung High-Speed Train project has the potential for a debt trap from China because it meets all four aspects of the debt trap theory

Betting the farm: Rural illiberal State-building in Angola via Chinese loans

Abstract Angola’s government has historically championed the revival of the agricultural sector as a national priority, though it has remained unclear what role the nation’s peasantry is intended to play. Looking to the future while fixated on the past, the first failed recipe for growth was initially based on nationalizing the colonial export model by incorporating the social and economic forces of the rural economy. The government’s early embrace of authoritarian modernization has since pursued an illiberal rural development model seeking to entrench the state’s control over rural areas and extend elite reproduction capacities, exercised principally through a series of state-owned enterprises. Upon the end of the civil war in Angola in 2002, the timely arrival of Chinese loans and technical assistance allowed the administration of President José Eduardo dos Santos to revitalize this strategy with a return to the establishment of a series of state agro-industrial farms a quarter century later. A historical presidential transition in 2017 upended these strategies of rural governance, leading to a vast privatization scheme of state assets built up over decades. This article reveals how the Angolan state has historically sought to engineer elite minority control over the agricultural sector while marginalizing the vast majority of the main rural economic actor, the peasantry. Likewise, the case study provides insight into the hidden costs of Chinese loans on Angola’s rural economy.

Africa’s roads to digital development: paving the way for Chinese structural power in the ICT sector?

Over the past few decades, China emerged as Africa’s main partner in digital development. Sino-African cooperation in the Information and Communications Technology (ICT) sector meets African demand for advanced technologies and know-how while helping China to position itself in the global ICT sector. Albeit crucial for Africa’s digital development in the short term, this paper argues that the breadth of Sino-African cooperation carries important long-term consequences that could afford China latent control over Africa’s digital development. Drawing on Susan Strange’s pillars of structural power, this paper considers how the rollout of fiber-optic network cables underpins Chinese control over production, how the construction of data centers might impinge on security, and how research partnerships enhance norms and standards in future innovation—the knowledge pillar. The paper argues that the enabling force of Sino-African cooperation in these three realms is Chinese finance. To test this claim, I conduct a Qualitative Comparative Analysis (QCA) of 42 states in Sub-Saharan Africa, showing that Chinese aid and, to a lesser extent, Chinese loans are the main drivers of Sino-African ties in the ICT sector. The paper concludes that Chinese financial support not only promotes Africa’s digital development but also paves the way to Chinese structural power in the ICT sector.

Forecasting China-Africa economic integration using Wavelet-ARIMA hybrid approach

China-Africa economic integration generally looks lucid, as evidenced by rising bilateral trade, as well as Chinese FDI, aid, and debt financing for infrastructure development in Africa. The engagement, however, appears to be strategically channeled to benefit China’s resource endowment strategy. First, Chinese FDI in Africa is primarily resource-seeking, with minimum manufacturing value addition. Second, China has successfully replicated the Angola model in other resource-rich African countries, and most infrastructure loans-for-natural resources barter deals are said to be undervalued. There is also a resource-backed loan arrangement in place, in which default Chinese loans are repaid in natural resources. Third, while China claims that its financial aid is critical to Africa’s growth and development processes, a significant portion of the aid is spent on non-development projects such as building parliaments and government buildings. This lend credence to the notion that China uses aid to gain diplomatic recognition from African leaders, with resource-rich and/or institutionally unstable countries being the most targeted. The preceding arguments support why Africa’s exports to China dominate other China’s financial flows to Africa, and consist mainly of natural resources. Accordingly, this study aims to forecast China-Africa economic integration through the lens of China’s demand for natural resources and Africa’s demand for capital, both of which are reflected in Africa’s exports to China. The study used a MODWT-ARIMA hybrid forecasting technique to account for the short period of available China-Africa bilateral trade dataset (1992–2021), and found that Africa’s exports to China are likely to decline from US$ 119.20 billion in 2022 to US$ 13.68 billion in 2026 on average. This finding coincides with a period in which Chinese demand for Africa’s natural resources is expected to decline.

Why hide? Africa’s unreported debt to China

AbstractHidden debt is endemic throughout the sovereign credit market and poses a serious threat to global financial stability. Yet, little is known about why governments conceal their liabilities from creditors. I argue that governments intentionally hide debts from international financial institutions (IFIs) to maximize their ability to borrow while avoiding punishment for rising debt burdens. IFIs frequently penalize governments in low-income countries for borrowing beyond their means. By hiding some debt, governments are able to continue borrowing without being disciplined. I test this using recently released data that reveals half of the Chinese loans in Sub-Saharan Africa are missing from sovereign debt records. I find that borrower governments hide loans to avoid violating World Bank debt sustainability thresholds. However, governments hide less debt while under IMF scrutiny so as to reduce the risk that they will be discovered and punished. These findings offer evidence that borrower governments use hidden debt as a strategic tool to pursue fiscal goals. Further, this work reveals the unintended consequences of IFI intervention in less-developed countries, as efforts to ensure fiscal stability increase governments’ incentives to hide debt.

Between highways and fintech platforms: Global China and Africa’s infrastructure state

In this paper, we juxtapose two different sectors of China’s economic presence in Africa: transport and digital infrastructure. Using the case of Kenya, a country that hosts several flagship corridors funded by Chinese loans and where Chinese “digital champions” have been active for two decades, we highlight some of the differences and similarities between these two forms of China’s going-out capitalism in the continent.Our argument is that these ‘varieties of capital’ are conterminous, and they operate through both strategic and contingent overlaps within the same ‘state-market nexus’ and at the interface with programmes and goals of the African ‘infrastructure state’. To illustrate this point, we draw on a comparative research effort inspired by a growing body of scholarship that has been labelled under the tag of ‘Global China’ and by a political economy reading of ‘the market-in-state’ system. This paper thus contributes empirically and conceptually to de-essentializing the Chinese presence in the African continent by recognizing the contextual agencies that shape it—the ambitious developmental agendas of the African state, in particular—as well as the interplay between its different corporate forms.

Public debt, Chinese loans and optimal exploration–extraction in Africa

Based on an optimal oil exploration–extraction model with public debts and Chinese loans, we examine analytically and empirically two theoretical propositions pertaining to the impacts of public debt and Chinese loan on economic and physical scarcity/abundance in African economies. First, despite a baseline independent relationship between public debt and optimal operations, the level of public debts can have an adverse effect on the abundance measures if it breached the debt-sustainability threshold. Second, with alternative Chinese loans, the effect on optimal exploration–extraction is analytically ambiguous. To examine both propositions, we estimate endogenous binary-treatment regression models based on a panel data of 18 African economies over 2000–17. We find empirical support with regards to the adverse effect of public debt sustainability. Further, we find positive effect from Chinese loans to both abundance measures, indicating that the combined marginal benefits outweigh the marginal costs associated with the resource-collateralized funding nature of these loans.

China’s Official Finance in the Global South: Whatʼs the Literature Telling Us?

Abstract In the last two decades, there have been exponential increases in Chinese loans and grants, particularly flowing to the Global South. The subsequent growth effects in the South have led to speculation about China’s development models that govern its official finance and the overall macroeconomic effects. Consequently, a considerable body of research has investigated how different Chinese development policies affect the allocation patterns and outcomes in the Global South. This paper critically reviews related scholarly works, emphasising empirical literature. It identifies that the One China Policy is unanimously the most important strategy in explaining Chinese funding, although this policy tool may not be linked to trade with China and its humanitarian assistance. Chinese finance undermines efforts to promote good governance and contributes to political extortion and environmental degradation in recipient countries by not imposing governance reform conditionality on official financing. However, this argument must be carefully weighed against the positive impact of Chinese finance on health and economic growth, among other benefits. Despite intense research efforts, further research is still needed to understand vulnerabilities associated with China’s development models. The information conveyed by the review will be of interest to foreign aid spectators seeking to learn from China’s experience.

The Political Economy of Chinese Debt and International Monetary Fund Conditionality

Abstract Developing and emerging market economies have increased their debt exposure to China in recent years. Despite its initial promise, many borrowers of Chinese loans face difficulties in meeting these loan obligations. Under what circumstances do Chinese borrowers in debt distress turn to the International Monetary Fund (IMF)? Our starting point is that Chinese loans are tied into projects that promise to generate sufficient revenue to repay these loans. We expect that governments turn to the IMF for bailout funding when a severe shock erodes the value of the underlying loan collateral, requiring mobilizing revenues and implementing austerity measures. Without alternative financing options, the IMF becomes the most viable option to weather financial distress. We expect governments to accept a ‘whatever-it-takes’ number of loan conditions. Using cross-country time-series analysis for up to 162 countries between 2000 and 2018, we show that defaults on Chinese debt trigger IMF programs only when a country experiences a severe adverse shock. Countries tapping the IMF also accept a greater number of loan conditions. From a policy perspective, current financial distress in borrowing countries underscores the urgency to design and deploy targeted governance reform measures beyond program safeguards and loan conditions to mitigate the built-up of macro-financial vulnerabilities, independent of where the money is coming from.

China and Zambia: creating a sovereign debt crisis

Abstract Does Zambia's exceptionally high level of Chinese loan commitments provide insights into China's financial statecraft? Some have argued that Chinese lending to Zambia reflects China's purposeful use of loans to build leverage and perhaps acquire strategic assets. This article uses new data on Chinese loans, lenders and contractors and process-tracing to argue instead that Zambia is an extreme case of coordination problems in Chinese lending. Among all African countries with Chinese loans, Zambia has had the largest number of distinct Chinese lenders since 2000 (18) and the second largest number of different Chinese contractors winning Chinese loan-financed projects (29). This multiplication of stakeholders has created fierce and unregulated competition for infrastructure contracts in Zambia. In Beijing, ‘fragmented authoritarianism’ has meant an absence of top-down coordination of firms' and lenders' activities and thus few restraints. At the same time, Zambia's political leaders disregarded their own restraints on over-borrowing. Distinctive Chinese ideas about debt sustainability likely created additional disincentives for close Chinese monitoring. Finally, Zambia's history of frequent debt cancellations from China and other lenders likely exacerbated moral hazard risks.

China’s Global Statecraft: An Interview with Ching Kwan Lee

China’s Global Statecraft: An Interview with Ching Kwan Lee Eli Friedman (bio) and Ching Kwan Lee (bio) Ching Kwan Lee’s The Specter of Global China: Politics, Labor, and Foreign Investment in Africa (2017) had a major impact on discussions about Chinese global economic policy, transcending a tired debate about whether China is engaged in neocolonialism. Lee’s fieldwork drew our attention to both the continuities and ruptures between Euro-American empire and an ascendant China in patterns of investment, natural resource extraction, and labor politics. But much has changed in the half-decade since the book was published. China’s overseas investments have been dramatically curtailed; political and economic disarray in the United States has bolstered China’s relative geopolitical standing; the Chinese government has become increasingly repressive internally, especially in the peripheries of Tibet, Xinjiang, and Hong Kong, while seemingly more aggressive in the South China Sea and Taiwan; and of course, a global pandemic has occurred. I spoke with Lee to get her thoughts on these developments and to hear how her understanding of “global China” is evolving. Eli Friedman: The Financial Times recently reported on new challenges for Chinese lending in sub-Saharan Africa. Without getting too bogged down in the interminable debate on “debt trap diplomacy”—the idea that Beijing is strategically extending loans with unfavorable conditions with the aim of exerting political control over impoverished nations—what do you make of the potentially real issue of growing debt distress in the region? Do you anticipate the imposition of IMF-style austerity, slashing of social spending, or reductions in infrastructural development? After decades of rapid expansion, what might be the social effects of tightening up Chinese lending? Ching Kwan Lee: The FT report did a great job debunking current mythologies about Chinese loans for infrastructure. Citing experts on international aid and loans, it shows that many clauses of Chinese loans (such [End Page 25] Click for larger view View full resolution Workers stand on the Hong Kong–Zhuhai–Macau Bridge in 2017. (Anthony Wallace/AFP via Getty Images) [End Page 26] as requiring Debt Service Reserve Accounts) are standard components of comparable loans by Western countries and agencies. And the recent spate of debt distress stories has a lot to do with the natural life course of these loans. These fifteen-to-twenty-year loans are approaching maturation, and the Chinese government and debtor countries have to renegotiate or restructure their agreements. None of the feared Chinese takeovers of airports or ports have happened yet. And tightening regulations over these loan disbursements can lead to more accountability. Along these lines, I want to applaud colleagues at the China Africa Research Initiative (CARI) who have consistently called out misinformation, lack of understanding of common legal terms, and erroneous reports published by Western media about Chinese loan practices. Their latest paper tears apart two reports by the state media in France about a Chinese-financed highway in Montenegro, which claimed that Montenegro’s Port of Bar could be annexed by China “completely legally,” thanks to an “extraordinary contract” that had “already [been] implemented by the Chinese in Sri Lanka or in Djibouti.” None of this is factually true! False alarms and misinformation circulating in the world media do not mean Chinese lending practices are beyond reproach. Both the FT article and the CARI report only scratch the surface. We have to ask what interests and which players have been driving China’s lending spree. In most debates, people write about “China” as if there is a willful mastermind located in Beijing, pulling levers and making sinister decisions. In reality, there are many bureaucratic, ministerial, corporate, and private interests behind the “Going Out” policy, or the Belt and Road Initiative (BRI). These interests compete as much as they collude, and often they end up defying, derailing, or defeating Beijing’s grand strategy. In The Specter of Global China, I explain the ways in which Chinese loans are predatory and pernicious. In Zambia, they were supply-driven: they were not initiated by would-be debtor countries but by Chinese state-owned contractors going abroad to export surplus capacity. The clout and connections of these state-owned enterprises allowed...

English

Theories advanced in the political economy literature concerning China’s presence in Africa have often focused on Beijing’s motive, leaving under-theorized the dynamics that may be causing the responsiveness and embrace of China by these African states. The president of Ghana at the 73rd UN General Assembly defended Chinese investment in Africa and described China as the new avenue that Africans can resort to address their problems. This naturally raises the question of whether African countries and Ghana specifically, are abandoning their traditional neoliberal source of major financial assistance, the IMF and World Bank, and turning to China. It is therefore imperative to understand what mechanisms are necessitating the embrace of Chinese loans and the logic behind state actors’ disinclination from traditional financial sources. This is especially critical when the two neoliberal economic institutions have been major traditional pillars of Ghana’s economy. To unpack these mechanisms, the article takes a theoretical approach grounded on the historical economic relations between Ghana and China vis-à-vis Ghana and neoliberal institutions. Through an analysis of state actors’ rhetoric on economic governance and new financing models, the paper posits two rationales behind Ghana’s embrace of Chinese loans. The first being the need to improve the living standards of Ghanaians and address the persistent public grievances over neoliberal policies, and the second being the recognition of a window of opportunity in the global economic order.   Key words: Ghana, China, state actors, economic governance, financing models.