China must improve transparency of loans to developing countries

The Yomiuri Shimbun / The original Japanese article appeared in The Yomiuri Shimbun on Oct. 30, 2021.

13:47 JST, October 30, 2021

China’s lending to developing countries is ballooning. In order to prevent excessive debt for developing countries, China should work to increase the transparency of its loans and to provide support that leads to the sound development of developing countries.

The World Bank has released a report saying that the debts owed to China by low- and middle-income countries totaled about $170 billion (about ¥19 trillion) at the end of 2020.

This figure is more than three times as much as at the end of 2011. Most of the loans are related to infrastructure development, and loans to countries in Asia and sub-Saharan Africa stand out. It is believed that the number of countries where China is the largest creditor is increasing.

China is advocating the Belt and Road Initiative to create a huge economic zone and is trying to expand its influence in developing countries through infrastructure development. The rapid increase in loans can be said to reflect this reality.

However, China has not fully disclosed information about its lending to developing countries. A U.S. research institute analyzed loans related to the Belt and Road Initiative and found that the “hidden debts” not reported to international organizations and other bodies reached $385 billion between 2000 and 2017.

The terms of the loan contracts are also questionable. Development loans normally do not require collateral, but it is said that China does require collateral in many cases. Interest rates are higher than for development loans from other countries, and repayment periods are shorter.

It is said that China is lending to countries where corruption is so rampant that they would not normally be eligible to receive loans.

Assistance to developing countries should be intended to help them achieve sound and stable development. It is desirable to lend to developing countries after screening to ensure that the loans do not lead to corruption, human rights abuses or environmental destruction, while also taking their repayment ability into consideration.

China must be criticized for loans that go against the spirit of supporting developing countries. Some countries have argued that they are “debt traps” that put developing countries deeply into debt and obtain gains such as the right to use infrastructure in exchange for repayment.

In fact, after building one of its largest ports with Chinese loans, Sri Lanka became unable to repay the money and China acquired the right to use the port in return.

Laos has received a large loan from a Chinese government-affiliated institution to build its first high-speed railway, but it has been argued that the scale of the project is excessive.

China needs to dispel the concerns of the international community by lending appropriately and disclosing information about its loans to developing countries.

Japan, the United States, Australia and India agreed last month to provide infrastructure assistance to developing countries, and likewise there have been announcements of initiatives one after another to counter the Belt and Road Initiative. Advanced countries must also carefully grasp the needs of developing countries and build frameworks that are easy to use.