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hello and welcome, you are 
listening to Patrick boil on 

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finance a podcast, exploring 
ideas, from quantitative Finance

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examining events occurring in 
markets right now and financial 

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history to see what lessons can 
be taken away including 

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interviews with some of the most
interesting people in the world 

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of Finance to learn more about 
the podcast, visit on finance 

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dot-org, China's belt and Road 
initiative is The largest 

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transnational infrastructure 
program ever undertaken by a 

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single country. 
It was launched in 2013 and is 

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President geez signature policy.
Its goal was to build our Global

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infrastructure and boost China's
influence around the world. 

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Most of the countries that 
signed up to borrow under the 

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program were developing nations 
with weak credit ratings over 

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the last decade China's, 
cumulative engagement in, the 

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project comes to know. 132 
billion dollars which is made up

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of five hundred and sixty 1 
billion dollars in construction 

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contracts and 371 billion 
dollars in investment. 

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A lot of important 
infrastructure projects were 

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built around the world under the
belt and Road initiative a 

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railway line from the Ethiopian 
Capital Addis Ababa to the port 

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of Djibouti has cut the journey 
time from around three days to 

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12 hours, a huge Improvement. 
Movement hydropower dams built 

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in. 
Uganda have provided electricity

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and been opened up as tourist 
destinations roads and pipelines

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built across Central, Asia and 
Southeast. 

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Asia have driven growth in those
parts of the world. 

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To unfortunately there have also
been quite a few wasteful 

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projects like huge skyscrapers 
and sports stadiums in 

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developing countries that run up
debt and do little to benefit 

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the population. 
Allegations of corruption have 

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dogged, many of the high-profile
belt and Road initiative 

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projects, to the core project 
was and is hugely ambitious 

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affecting around 65 percent of 
the world's population covering 

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1/3 of the world's GDP and about
a quarter of all of the goods 

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and services that get moved 
around the world. 

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Now a decade into the project, 
many of the Emerging Market 

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countries who borrowed from 
China have found Themselves in 

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financial distress and not just 
because of the size of the 

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loans, they've taken the 
pandemic and then food and 

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energy inflation driven by the 
war in Ukraine. 

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Have put many of the debtor 
countries under extreme stress 

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over the last few years, Rising 
Global interest rates and a 

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strong US dollar have raised 
additional concerns about the 

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ability of developing countries 
to repay their creditors. 

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It's well-known that China 
reduced its Landing in Response 

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to these problems. 
I've discussed that in Prior 

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videos, net transfers from 
Chinese lenders, to developing 

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country. 
Recipients turned - in 2019 

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after peaking in 2016. 
What this means is the Chinese 

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policy banks have flipped from 
being a source of capital for 

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emerging market growth into 
their new role of global debt 

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collector. 
What's been less? 

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Well, understood until this 
week, when a new paper came out,

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Out is the large number of 
bailouts to China. 

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Has been extending to countries 
and distress over the last 15 

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years or so the paper by horn 
Parks Reinhard and tribush shows

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how the Chinese government has 
created a new system of 

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International Rescue lending, 
which is up until now not been 

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documented or studied. 
This paper has gotten a lot of 

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attention from people in the 
Emerging Market space, as it's 

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the first real. 
We've had at how China is 

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dealing with distressed 
borrowers. 

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This matters. 
As there are a lot of distressed

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borrowers out there who owe 
money to China for the huge 

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infrastructure projects that 
have been built in the last 

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decade, the new paper catalogs. 
All of the bilateral rescue 

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Landing, the different Chinese 
State entities have done, trying

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to avoid any double counting. 
The authors acknowledge that 

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this is a difficult and 
imprecise task as as the Chinese

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institutions in question, don't 
report their exposure to key 

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countries. 
So the numbers had to be pieced 

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together, specifically the 
author's, studied the two main 

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pillars of China's emerging 
system of cross-border bailouts,

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first balance of payment 
support, via the People's Bank 

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of China swap line Network and 
second liquidity support via 

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loans and deposits from Chinese 
state-owned Banks and commodity 

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Enterprises. 
Collected their data from the 

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annual reports and financial 
statements of central banks in 

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borrowing countries. 
The paper shows the China, 

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granted 104 billion dollars 
worth of rescue loans to 

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developing countries between 
2019 and the end of 2021 this 

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figure is almost as large as 
China's, entire bailout Landing 

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over the prior 20 years between 
2000 and the end of 2021. 

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China undertook a 128 bail out 
operations in 22, debtor 

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countries worth a total of 240 
billion dollars. 

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These bailouts are a huge change
of direction for China whose 

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prior infrastructure lending 
made it. 

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The world's biggest financier of
Public Works eclipsing the World

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Bank, three of the largest 
recipients of China's rescue 

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Landing have been Pakistan, Sri 
Lanka and Argentina, other 

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countries, receiving Rescue 
Landing included, Kenya 

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Venezuela Ecuador. 
Angola Laos Suriname Belarus, 

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Egypt Mongolia and Ukraine 
China's approach to bail out. 

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Landing is quite different to 
other countries. 

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Typically, when a country 
struggling to pay its external 

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debt, it turns to the Paris Club
for dead relief. 

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The Paris Club is an informal 
group of creditor Nations that 

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me to eight times a year to find
solutions to Payment problems 

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faced by debtor Nations. 
A debtor countries invited to a 

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negotiation meeting with its 
Paris Club creditors when it has

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concluded an appropriate program
with the IMF, that demonstrates 

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that the country is not able to 
meet its external debt. 

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Obligations and doesn't eat a 
new payment arrangement with its

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external creditors. 
The powers club members are 

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mostly high-income countries but
it also includes countries like 

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Russia and Brazil. 
Other non-member countries can 

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and do participate in the 
negotiations to and the Paris 

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Club has successfully concluded.
Hundreds of restructuring deals 

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over the last 70 years, the 22 
permanent members of the powers 

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Club participate in the 
negotiations. 

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If they have claims towards the 
invited debtor Nation, 

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otherwise, they act as observers
the most important point though,

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is that the creditors all agree 
to accept the In terms of a debt

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restructuring, which usually 
involves some kind of debt 

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relief, China has not joined the
Paris Club, and instead, aims to

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negotiate its own deals, 
privately with the countries, 

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having trouble meeting their 
Debt Service obligations. 

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The difficulty that this causes 
is that if China demands to be 

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paid back in full, the other 
lenders are obviously than less 

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willing to offer debt relief or 
cut the country and new low 

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interest loan. 
No. 

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That the money they provide will
just go straight back out to 

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China rather than be used to 
improve the situation in the 

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debtor Nation. 
China's historic unwillingness 

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to take a right down along with 
the other nations makes an IMF. 

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LED rescue considerably more 
difficult to arrange this lack 

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of coordination amongst 
creditors over the last few 

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years, has been blamed for 
prolonging the crisis in 

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countries like Sri Lanka and 
Zambia. 

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Sri Lanka's president called on 
China last week to reach a 

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compromise with other lenders on
debt. 

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Restructuring after the IMF 
approved, a 3 billion dollar for

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year lending program for the 
country Ghana Pakistan, and 

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other troubled debtors that o 
large amounts to China are 

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carefully watching what happens 
in the case of Sri Lanka and 

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Zambia as it will give them a 
good idea of what their debt 

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negotiations will eventually. 
Look like Beijing has so far. 

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Tried to keep struggling debtor 
Nations afloat. 

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By providing emergency loan 
after emergency loan without 

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asking the powers, to improve 
their Economic Policy, 

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discipline, or pursue debt 
relief through a coordinated 

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restructuring process with all 
major creditors. 

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The paper points out that there 
are notable differences between 

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IMF programs and the Chinese 
bailouts that they've analyzed 

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the Biggest difference is the 
Chinese. 

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Bailout money is not cheap. 
A typical rescue loan from the 

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IMF carries, a two percent 
interest rate. 

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According to the study and the 
average interest rate attached 

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to a Chinese rescue loan is 5%. 
The study also shows that 

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Beijing does not offer bailouts 
to all belt and Road borrowers 

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in distress big, recipients of 
belt and Road initiative 

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financing, who represent a 
significant balance sheet risk 

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for These banks are more likely 
to receive emergency aid, 

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according to Carmen Reinhart. 
One of the authors Beijing is 

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ultimately just trying to rescue
its own Banks. 

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And that's why it has gotten 
into the risky business of 

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international bailout lending, 
China's lending. 

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According to the paper, comes in
two forms. 

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The first is through a swap 
line, facility, where renamed be

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is dispersed by the Chinese 
Central Bank in In return for 

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domestic currency about 170 
billion dollars was dispersed in

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this manner. 
The second is through direct 

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balance of payment support, 
which 70 billion dollars having 

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been pledged in this manner, 
mostly from state-owned Chinese 

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Banks, the scale of these 
bailout highlight, some of the 

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problems with the overall belt 
and Road initiative, where 

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Chinese lenders lent a lot of 
money to countries that already 

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had severe. 
Economic problems and didn't 

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worry about how the money was 
being spent developing country 

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borrowing money is by no means a
bad thing. 

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As long as the money is spent 
productively many Emerging 

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Market countries, have an 
infrastructure deficit and when 

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they are able to borrow, they 
can spend the money on things 

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like power plants, water supply 
ports, and transportation 

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infrastructure. 
If doing this brings about an 

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increase in worker productivity.
T. 

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That's greater than the cost of 
the debt, it's a win. 

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But the return on these 
projects, in terms of economic 

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growth has to be greater than 
the cost of the project 

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otherwise it simply doesn't make
sense. 

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If money is borrowed and spent 
unproductively the dead ends up 

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holding back economic growth. 
I mentioned a lot of good 

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projects earlier but there are 
lots of bad projects to like the

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billion-dollar Road to Nowhere 
in Montenegro the pointless. 

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This Tower in Sri Lanka, the Dam
built next to an active volcano 

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in Ecuador, by Chinese 
contractors that was found to be

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riddled with cracks, the planned
monorails the abandoned ports 

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and airports the money lost her 
corrupt politicians. 

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All of this is just wasted 
spending that the countries now,

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o back and can't pay. 
There's an argument that the 

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lender should have been more 
careful about the projects, they

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lent money to support the 
Chinese government pushed back 

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on Tuesday against some of the 
criticism of their foreign 

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lending practices, a Chinese 
foreign Ministry. 

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Spokesperson mounting told the 
reporters to China has entered 

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financing agreement with 
developing countries based on 

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the principles of openness and 
transparency. 

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She added the China has never 
compelled countries to take its 

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loans or ever attached, 
political strings to such 

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agreement. 
The Argues that the rescue loans

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are mostly just a bailout for 
China's Banks, which of 

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underpinned much of the belt and
Road initiative landing and have

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taken painful hits. 
As a result, the altars put 

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forth, the China has launched a 
new global system for 

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cross-border rescue lending. 
Two countries in debt distress, 

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which is made the Global 
Financial system more opaque and

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fractured than before, one of 
the most interesting parts of 

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the the paper is about how swap 
lines are increasingly being 

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used in situations of Financial 
and macro economic distress, to 

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help bolster growth, Reserve 
Holdings and address short-term.

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Liquidity needs the pboc began 
setting up swap lines in 2008 

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would almost 40 overseas central
banks. 

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Their official purpose was to 
promote the use of the rename be

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for trade and investment and the
Lines. 

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Once in place, mostly went on 
used the paper points out that 

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the swap lines were dormant for 
years and then mostly drawn in 

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situations of Financial and 
macro economic distress by 

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countries with low Reserve, 
ratios and weak, credit ratings 

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out of the 17 countries that use
their swap line so far only for 

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did. 
So, in normal times, with no 

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apparent signs of distress, the 
paper, argues the China's op 

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line network has become an 
increasingly important tool of 

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overseas crisis management. 
The authors say that, it's clear

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that the pboc, swap line, 
drawings, served the purpose of 

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window dressing. 
But there's a lack of clarity 

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about how the funds are actually
being used especially if they're

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being used to directly serve as 
external debts to China. 

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Come and do this paper, is the 
first. 

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Look at the new system of 
bailouts on the belt. 

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And Old developed by China that 
helps recipient countries to 

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avoid default and continue 
servicing their belt and Road 

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initiative debt, at least in the
short, run the paper argues that

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the way the bailouts are 
structured using swap lines, 

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complicates the challenge of 
monitoring debt vulnerabilities 

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in the developing world. 
The reason for this is that the 

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swap line borrowings are 
technically short-term 

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repayment, obligations that fall
outside. 

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00:15:29,700 --> 00:15:33,500
Add most International debt 
disclosure requirements since 

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00:15:33,500 --> 00:15:37,300
they've maturities of three to 
12 months, but because the 

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borrower's are allowed to roll 
these swaps over. 

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Most of these loans are not paid
back for an average of three and

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a half years. 
And thus, the authors argue that

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they should be reported as 
external public debt, 

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00:15:51,100 --> 00:15:54,900
obligations the paper, which 
I've linked to in the video 

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00:15:54,900 --> 00:15:59,600
description shows how much China
has grown as an international. 

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00:15:59,800 --> 00:16:03,400
Manager in recent years its 
position is still far from 

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rivaling that of the United 
States or the IMF and the 

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effectiveness of its rescue 
lending operations are not yet. 

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Well, understood China has shown
that a major creditor country 

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can create a large system of 
cross-border. 

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00:16:19,800 --> 00:16:24,400
Rescue lending to nearly two 
dozen recipient countries while 

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keeping its bailout operations. 
Mostly outside, they conclude 

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that more research is needed to 
understand how this Landing has 

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00:16:33,500 --> 00:16:37,000
and will change the Global 
Financial architecture. 

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00:16:37,400 --> 00:16:41,100
Thanks for tuning in to today's 
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00:16:41,100 --> 00:16:44,200
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Thanks for tuning in. 

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Have a great day and I'll talk 
to you again in the next podcast

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00:16:54,200 --> 00:16:59,200
by If you enjoyed this episode, 
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Boil. 
Thanks for listening. 

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Bye.