Chinese state banks are responsible for the gradually increasing debts in developing countries i.e. Latin America and African countries. These loans sum up to at least about $152B in oil, mineral, and metal from China. The loans accompanied by many developments i.e. growth in infrastructure and these countries have remained attached to them.
According to Washington based non-governmental organizations, China has been loaning out money and contributing to handsome debts in the developing nations. Of the total loans China lends out, most of it comes from two known banks i.e. China development bank and Exim which accounted for about 77%.
Why do most developing countries rush for Chinese loans?
Most of these developing countries rush for loans issued by China as the payment terms aren’t so demanding. They accompany the loans with cheaper rates and opaque terms. For instance, they base the loan agreements on unconditionally structured reforms between bilateral countries. Economic returns may be lower because they are not accompanied by policy reforms.
What are the impacts associated with these loans?
According to records by analysts, over the past years, debts in emerging markets has increased to $72 trillion. A figure attributed to high borrowing rates. These loans have also promoted heavy debt rates which seem to be crippling the third world countries. Failure to pay these loans has led to the exchange of much valuable collateral as payment. Such cases always end up complex especially when the collateral commodity-backed facilitates resources in developing countries.
What the Chinese Loans comprise
These loans comprise a significant part of a country’s gross domestic product. It refers to the total evaluation of the economic activities of a country such as the value earned from the economic activities. Over 10% of these loans are used to facilitate the country’s economic activities. These loans are a great contributor to the never-ending debt problem. An example is an almost collapsing oil banked because of the crash in oil prices in Congo and Chad. As a result, these two countries could not pay the oil debt and maintain sufficient income at the same time. Hence, they had to restructure their oil banked loan with help from banks. The Internal Monetary Fund and other lenders aided lucky enough Congo. However, the funds were frozen following disagreements between Glencore, the Swiss mining company and the commodity trader. They also made these loans were also available by China of the normal government budget hence didn’t put into consideration budgetary safeguards.
Some loan-stricken countries
Following the $2B loan debt, they plan to speed up bauxite production to clear it. Sino hydro seems impossible.
Already signed for a loan of $20B which is yet to be withdrawn. This loan consists of 200% of their total GDP. With also an additional bauxite production as collateral.
It is a Latin American country with a deteriorating economic system and has relied on china loans for a long time. China is resistant to loaning them following their delayed payments.