New Silk Road: More credit, more dependencies


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Status: 03/28/2023 10:43 a.m

China’s “New Silk Road” is becoming more expensive: 60 percent of foreign loans are in danger of defaulting. To avoid this, Beijing grants rescue loans and thus creates new dependencies.

According to a study by the Kiel Institute for the World Economy (IfW), the ambitious “New Silk Road” trade project will result in high costs for China. More and more emerging and developing countries that have taken out loans from the People’s Republic for the construction of infrastructure can no longer service them as planned. As a result, the Chinese government has significantly increased bailout loans in recent years.

Risks of default on foreign loans

According to the IfW, 60 percent of all Chinese foreign loans are now at risk of default. In 2010, this proportion was only five percent, according to the analysis by researchers at the IfW with AidData, the Harvard Kennedy School and the World Bank.

In order to prevent defaults, China then grants emergency loans on a large scale. By the end of 2021, the authors counted 128 bailout loans to 22 debtor countries totaling $240 billion. As the study shows, $170 billion of these emergency loans were made through central bank lending. These are particularly difficult for international organizations and rating agencies to understand.

Banks are reducing regular lending

According to the information, in most cases it is a question of refinancing loans in which terms or payment terms are extended or new loans are granted to finance debts that are due. “Debts are only waived extremely rarely,” says the IfW.

Due to the extensive bailout loans, Chinese banks have drastically reduced regular lending for new infrastructure and energy projects. According to the analysis, this raises questions about the future of the New Silk Road.

More influence and greater dependencies

The Silk Road was the most important trade link between China and Europe in ancient times and the early Middle Ages. China announced in 2013 that it would revive it. But critics fear that the People’s Republic would like to expand its influence. One thing is certain: By granting more and more new loans, Beijing is ensnaring the debtor countries in increasing dependencies – and thus strengthening its geopolitical position.

“The initiative for a new Silk Road is not what some in Germany believe: it’s not a sentimental reminder of Marco Polo,” warned former Federal Foreign Minister Sigmar Gabriel. “But it stands for the attempt to establish a comprehensive system for shaping the world in the interests of China.”

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