Why borrow money from china

China borrows on commercial terms, with interest rates determined by adding a margin to the cost of the funds raised by the lender through its sales of bonds in major financial markets.

China has long since been ineligible for any subsidized lending from the World Bank, but its borrowing has helped the lender to become more profitable.

Second, World Bank loans to China are seen as relatively risk-free compared with those to other developing countries. As a result, all developing countries that borrow from the World Bank benefit by paying less for their loans, while shareholders like the U.

Thus, it would be more appropriate to say that China is subsidizing the World Bank, rather than the other way around. This article was originally published in Caixin. Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author s and do not necessarily reflect the views of Carnegie, its staff, or its trustees. The World Unpacked is a biweekly foreign policy podcast that breaks down the hottest global issues of today with experts, journalists, and policymakers who can explain what is happening, why it matters, and where we go from here.

In an increasingly crowded, chaotic, and contested world and marketplace of ideas, the Carnegie Endowment offers decisionmakers global, independent, and strategic insight and innovative ideas that advance international peace. You are leaving the website for the Carnegie-Tsinghua Center for Global Policy and entering a website for another of Carnegie's global centers. Carnegie Endowment for International Peace. In such contracts, however, China explicitly obliges borrowers to exclude Chinese lenders from collective restructuring initiatives.

Such a provision conflicts with an agreement reached in November by China and other G20 countries not belonging to the Paris Club, which laid out roughly the same terms for restructuring the debt of the poorest sovereign borrowers. These opaque lending practices have taken on a greater significance now that the global health crisis brought on by COVID has increased the risk of financial distress in countries heavily indebted to Chinese lenders.

Not everyone agrees, however, with this characterization of China as an aggressive lending shark. The professors make their case citing an example in which Sri Lanka borrowed money from Chinese banks to fund investments in an ill-fated port. China's questionable lending practices can be chalked up to growing pains, they argue. The authors of the latest study, too, stress that, in many ways, the terms and conditions of loans from Chinese state lenders represent a difference in degree, rather than kind, from those of commercial and other official bilateral lenders.

All creditors, whether commercial banks, hedge funds, or otherwise, will use "any legal, economic, and political means available to them," to increase the likelihood that they will be repaid, the authors say.

China's contracts differ, however, in their use of unique provisions that, while perhaps standard in the context of commercial debt, take on a greater significance when it comes to lending between governments.

Visit the new DW website Take a look at the beta version of dw. Go to the new dw. More info OK. Beijing officials have often characterized their borrowing as a useful way to achieve a number of aims: project-level standards and disciplines that help improve operations at the local and provincial levels, particularly in western China where capacity remains low; incentives to boost domestic investment on behalf of climate mitigation; and more generally, access to expertise across a range of sectors in support of development goals.

In each of these arguments, officials make a particular case about the effectiveness of lending relative to other modes of engagement, such as technical assistance or bank studies. This holds in two important ways. When these populations are regionally or locally concentrated, bank loans can help national governments prioritize engagement in these areas. This likely entails some weighing of non-financial costs e. There are legitimate questions about the fair allocation of scarce World Bank capital, but it is not the case that one dollar less of China lending is one dollar more available to other countries.

China is situated among 56 upper-middle-income borrowing countries, and any policy aimed at ending lending to China would have to do the same for many of these countries. This could be problematic in individual cases and in toto. Does the United States also feel strongly that Mexico should no longer be able to borrow from the World Bank?

China does not report on its international lending, and Chinese loans literally fall through the cracks of traditional data-gathering institutions. Debtor countries themselves often do not collect data on debt owed by state-owned companies, which are the main recipients of Chinese loans. In addition, China is not a member of the Paris Club an informal group of creditor nations or the OECD, both of which collect data on lending by official creditors.

To address this lack of knowledge, we embarked on a multi-year data-gathering effort. We compiled data from hundreds of primary and secondary sources, put together by academic institutions, think tanks, and government agencies including historical information from the Central Intelligence Agency. Most Chinese loans have helped finance large-scale investments in infrastructure, energy, and mining. We also show that China tends to lend at market terms, meaning at interest rates that are close to those in private capital markets.

Other official entities, such as the World Bank, typically lend at concessional, below-market interest rates, and longer maturities. In addition, many Chinese loans are backed by collateral, meaning that debt repayments are secured by revenues, such as those coming from commodity exports. In the s and s, when it lent money to other Communist states, China accounted for a small share of world GDP, so the lending had little or no impact on the pattern of global capital flows.

Today, Chinese lending is substantial across the globe. The last comparable surge in state-driven capital outflows was the U. Very little came at market terms and with strings attached such as collateral.