China, the largest global creditor today, has extended loans to more than 150 countries in the last two decades but surprisingly the dragon has marched on unhindered.
It is not a member of the Paris Club—an informal group of creditor nations with the aim to strike workable repayment solutions. It is also not part of the Organization for Economic Co-operation and Development (OECD). Both Paris Club and OECD maintain loan records of official creditors.
China’s financial assistance is directed in the form of trade credits, foreign direct investment advances under the Belt and Road Initiative (BRI) besides direct loans. While this is no secret, what is worrying many is the lack of transparency in its lending pattern and record keeping.
According to Harvard Business Review (HBR), China’s outstanding claims now exceeding more than 5 per cent of global GDP. However, a large chunk of loans informally has also been extended by the dragon through its local authorities and lenders, which are practically unaccounted.
While the report suggests that about $1.5 trillion has been directed, analysts have questioned this figure since China has remained silent on the quantum of financial assistance extended to other countries.
“China’s official figures do not present the correct picture and in times like these—crisis-like situation in the coronavirus era—it is important to get a clear and transparent view of the economic situation, loans, repayments. That will not be the case with China,” an analyst on condition of anonymity said.
Until the coronavirus pandemic hit the world bringing global economy to a near halt, all was well with China, which escaped scrutiny by rating agencies.
The picture, however, has changed with the spread of the pandemic. In June, the World Bank in its Global Economic Prospects said that the global economy could contract by 5.2 per cent this year—the worst since the World War II.
Several countries that have been beneficiaries of Chinese loans have indicated their inability to repay. Despite that, China, which already has a whopping debt to GDP ratio of 317 per cent, has been extending fresh assistance in a bid to forge new alliances. Nepal and Bangladesh are cases in point.
“China does not report on its international lending, and Chinese loans literally fall through the cracks of traditional data-gathering institutions. For example, credit rating agencies such as Moody’s and Standard & Poor’s, or data providers, such as Bloomberg, focus on private creditors, but China’s lending is state-sponsored, and therefore off their radar screen,” HBR wrote.
The unaccounted loan or “hidden loan” as referred to by HBR has now become a cause for concern for many international agencies..