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How China keeps developing countries in debt

Aerial view of a bridge connecting China to Laos by rail and crossing the Mekong River, Laos, July 2020.

China’s financing to developing countries has reached record levels, far exceeding aid disbursed by all the rich countries on the planet.

Beijing has disbursed, in grants and especially in loans, 843 billion dollars (722 billion euros) to 163 low- and middle-income countries over the past two decades, six times the budget allocation of the Marshall Plan, earmarked for reconstruction of Europe in the aftermath of World War II (taking into account the inflation of the US currency since 1947). This represents, on an annual average, 85 billion dollars, that is, twice the sums paid by the United States and the other great powers.

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This unprecedented figure, taken from a report by the American University William & Mary, published on Wednesday, September 29, gives an idea of ​​the magnitude of Chinese expansionism and the situation of dependency in which developing countries find themselves.

The outstanding amount of Chinese loans now exceeds 10% of gross domestic product (GDP) in forty-two developing countries, while their public finances are weakened by the Covid-19 crisis.

To arrive at these estimates, more than a hundred researchers from around the world, in Germany, South Africa, the United Kingdom or the United States, analyzed nearly 91,000 official documents from 13,427 Beijing-funded projects, written in many languages, from Dutch to Persian via Portuguese.

Help that comes at a high price

China is generous, but its help comes at a high price. Unlike rich countries, it does not finance developing economies with a majority of grants and loans at reduced rates. Since the launch of the “new silk roads” in 2013, the share of commercial loans has quickly gained the upper hand, in particular to finance large infrastructure projects, costing more than € 500 million, the number of which has been increased. triplicate. on annual average between 2013 and 2017.

“China has since shrunk the wing, however, notes Andrew Small, a researcher at the German Marshall Fund. The Covid-19 crisis has occurred there and large projects are not without political and diplomatic consequences. In countries like the Maldives or Sri Lanka, Chinese financing has been accused, for example, of favoring existing power, fueling corruption or increasing debt.

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The interest rates charged are sometimes high because China “lends disproportionately to countries with fragile creditworthiness,” the report read. Beijing can require these countries to take out insurance, or to ask a third party for a surety to protect themselves against risks, or even to promise loans against assets. Although China has rarely taken control of compromised infrastructure like ports or land, it can reap geopolitical gains. The operation of the Port of Hambantota, Sri Lanka, an important stage in maritime traffic in the Indian Ocean, was handed over to a Chinese company in 2019 for 99 years, after Colombo was unable to meet its debt.

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