How China buys developing countries with loans

The China-Iran Comprehensive Economic Cooperation Document has once again focused attention on China’s financial policies in developing countries. China considers this document and similar documents “confidential.” Now, more detailed information from some of the documents has been leaked.

The 25-year cooperation agreement between Iran and China is not the first example of China's economic activities in developing countries. Many other countries, from Laos to Venezuela, from Costa Rica to Ghana, from Argentina to Honduras and Ecuador, and dozens of others, have received "loans" from China.

The content of the comprehensive document on Iran-China cooperation for 25 years has not been disclosed. However, researchers from American universities, in collaboration with several think tanks such as the Kiel Institute for Economics in Germany, have managed to obtain the full text of 100 Chinese credit agreements.

The content of these 100 agreements reveals China's policies and the hidden secrets of its cooperation agreements with developing countries.

Why confidential?

After signing the Comprehensive Cooperation Agreement with China, the Islamic Republic of Iran announced that the text of the document was confidential and that China had prevented the publication of the details of the agreement.

This is not a new phenomenon. China has invested at least $400 billion in various projects in developing countries, making it the largest lender to the world economy.

So far, there is no detailed information available about how the loans will be granted and China's conditions for granting these loans and credits.

Some German media outlets, including the "Spiegel Online" website and the "Süddeutsche" newspaper, have published some of the research results of American universities and think tanks that have obtained the texts of these contracts.

One of the conditions stipulated in these contracts was that they be considered “confidential.” All countries that have received loans from China have guaranteed to remain silent about the points raised in these contracts.

It should be noted that the granting of loans by international financial institutions and various countries, including the Paris Club, is transparent, unlike Chinese contracts, and the text of these loans is published.

What is China hiding?

According to published information, China has so far injected hundreds of billions of dollars into bridge, dam, and port construction projects in various countries around the world.

The contracts are structured in a way that allows China to exert control over recipient countries in exchange for loan payments - control that is not purely economic.

Repayment of loans received by developing countries will be either in the form of oil exports or in dollars. If the recipient country is unable to repay its loan, China will have access to some of those countries' facilities, including their ports.

The right to access bank accounts and assets of those countries outside their borders is one of China's means of compensating that country for its financial losses.

China's loan repayment terms are more unfair than those of other industrialized countries. Usually, developing countries that are facing financial difficulties agree to such agreements. For example, Iran, which has seen a solution in signing such an agreement with China due to financial sanctions.

Christoph Trebsch, a professor of economics at the University of Kiel in Germany and one of those who participated in research into the terms of China's loan waivers, says that disclosing the terms of these agreements would be seen by China as a breach of promise and would have consequences for the country receiving the loan.

These agreements stipulate that if the countries receiving loans fail to meet their financial obligations, Chinese state-owned banks have the right to use that country's financial resources.

On the other hand, when signing the agreement, the countries receiving the loan commit not to use borrowing from another country to repay their loans to China.

Political influence

On the other hand, the payment of these loans not only paves the way for China's access to ports and other infrastructure facilities in developing countries from an economic perspective, but also paves the way for China's expansion of political influence.

The text of the agreements often includes a clause that obliges the countries receiving the loan to respect the interests of the People's Republic of China.

For example, any action by these countries that is considered to harm the interests of one of China's institutions and organizations is a violation of the cooperation agreement, and the "offending" country must bear the costs.

Interlocking loans

Most of the loans China provides to developing countries are spent on projects that are interconnected.

Sometimes China invests in several projects simultaneously. Early cancellation of one of these projects is practically impossible based on the agreement between that country and China.

This can be seen in the case of former Argentine President Mauricio Macri, who in 2015 decided to halt a dam project that was being built with a loan from China.

China then informed the Argentine president that the dam construction project was tied to the railway construction project and that if the dam construction project was stopped, that project would also cease to be implemented.

The newspaper "Süddeutsche" refers to the "New Silk Road" project and writes that by granting loans, China is practically increasing the political dependence of these countries.

Source: DW