China’s ‘payday loans’ are left shrouded in secrecy
Central bank’s currency swap deal comes at a hidden cost as global public debt exceeds $100 trillion
Strands of secrecy run through the heart of the ruling Communist Party of China. It strangles transparency inside the country and casts a giant shadow over the world’s economy.
The Party’s passion for opaque practices has even added to rising “global debt.” Estimates by the International Monetary Fund, or IMF, reveal it will exceed US$100 trillion this year.
Part of the problem revolves around President Xi Jinping’s massive Belt and Road Initiative, a worldwide network of costly infrastructure projects. At the last count, China had lent more than $1 trillion to developing countries.
The downside involves “burdening” New Silk Road club members with “unsustainable debt” and blocking “attempts to restructure it.” China’s central bank appears to be in on the act.
“With the developing world’s growing use of costly and opaque ‘payday loans’ from China’s central bank, the IMF and World Bank need to demand far greater transparency from Beijing,” Benn Steil, of the Council on Foreign Relations, said.
Last year’s total amount outstanding hit a new high.
Benn Steil of the Council on Foreign Relations
Counting the cost:
- China is the world’s largest bilateral creditor.
- It is bigger than the IMF and the World Bank combined.
Delve deeper: “China’s central-bank currency swap lines have become a hidden lifeline for poor, heavily indebted nations. It is also a costly one, with rates well in excess of those charged on IMF and World Bank loans,” he wrote last week.
Between the lines: Steil teamed up with Elisabeth Harding, an analyst at the Greenberg Center for Geoeconomic Studies at CFR, to illustrate the scale of the borrowing binge in the CFR Central Bank Currency Swaps Tracker.
Big picture: “It showed the People’s Bank of China signed an estimated 40 swap-line agreements since 2009, giving its partner central banks access to $600 billion worth of Chinese currency,” Steil said.
The bottom line: “Last year’s total amount outstanding hit a new high of almost $33 billion,” he added, which will “complicate debt monitoring.”
China Factor comment: “Opening Up” are two words that are constantly included in official Communist Party communiques and Comrade Xi’s economic and foreign policy directives. An impossible concept in Beijing’s opaque political system.