China’s “One Belt, One Road” lends large amounts of money to developing countries to build infrastructure, but the terms of the loans are only known to the outside world, German and U.S. scholars have found after analysis that China uses this channel to expand its influence over these countries, making them subordinate.
Experts from Germany’s Kiel Institute for the World Economy (IfW) and a U.S. think tank searched for years through government departments and congressional databases in developing countries in Africa, Asia and Latin America to find 100 loan agreements signed by China with 24 countries, and released a report on March 31 analyzing the differences between these agreements and general agreements.
The report’s author, Christoph Trebesch, a German scholar specializing in international finance, said China has become the largest creditor of developing countries through the Belt and Road Initiative, but the agreements not only prohibit the debtor countries from disclosing the terms of the loans, but also sometimes require that the other party not acknowledge the existence of the agreement. The secrecy clause is quite rare.
Trebesch noted that such opaque loans make it difficult for outsiders to estimate the size of the foreign debt, making it difficult to take appropriate measures in the event of a government financial crisis.
What surprises researchers most is that China controls the internal affairs of these countries through tough loan terms that make them subordinate, giving them the right to cancel the contracts if the borrowing country breaks off diplomatic relations with China, changes labor and environmental standards, or “harms the interests of Chinese institutions.
Trebesch noted that China’s state-owned banks have the flexibility to decide whether to continue lending and have a lot of negotiating power, and that some agreements are deliberately vague in wording to facilitate China’s unilateral cancellation and force debtors to make immediate payments.
However, Trebesch said that China often lends to countries where no foreign investment is willing to build long-term infrastructure, and the high demand for risk control is “understandable.
He believes that China needs to improve the transparency of its loans in particular, and that “taxpayers in debtor countries have the right to know what they are taking out as guarantees.
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