China's "confidence" problem: New report says PRC's multi-billion dollar BRI bail-outs are an effort to "rescue its own banks." -- China Boss update 3.31.23
Update
What happened.
Researchers from the World Bank, Harvard, AidData and the Kiel Institute for the World Economy (Germany) last week released a report showing 80% of $240 billion rescue loans made By China to countries in the Belt-and-Road-Initiative were made after 2016.
The researchers also concluded that “China mainly bailed out middle-income countries due to the risks they pose to Chinese banks' balance sheets,” DW news staff said. In former World Bank chief economist Carmen Reinhart’s words: “Beijing is ultimately trying to rescue its own banks. That's why it has gotten into the risky business of international bailout lending.”
DW:
"Beijing has targeted a limited set of potential recipients, as almost all Chinese rescue loans have gone to low- and middle-income BRI countries with significant debts outstanding to Chinese banks," the researchers wrote.
The report said China's bailout loans are small in comparison to the loans offered by the International Monetary Fund or the liquidity extended by the US Federal Reserve, but they are growing quickly.
Financial Times’ James Kynge wrote that “the bailout bonanza reveals shortcomings in the design of a scheme described by Chinese leader Xi Jinping as ‘the project of the century,’” and that, according to the study’s authors, Chinese lenders not only dove deep “into many countries that turned out to have particularly severe problems,” but they did so with “a dearth of feasibility studies and a general lack of transparency.”
Kynge, FT:
Several projects became cause célèbre for how not to undertake development lending. An infamous $1bn “road to nowhere” in Montenegro remains unfinished and dogged by corruption allegations, construction delays and environmental issues.
“White elephants” such as Sri Lanka’s Hambantota port and Lotus Tower are seen as symptoms of the country’s debt crisis, while more than 7,000 cracks were found in an Ecuadorean dam built by Chinese contractors near an active volcano.
Why it matters.
Caveat emptor
The release of the study coincided with new signs of a sputtering Chinese economy. At last week's China Development Forum, a government-organized meeting for investors - a senior Communist Party official told the audience that “[t]he foundation of China's economic recovery is not solid enough,” as he alerted them to “possible spillover effects from global economic problems," CNBC reported.
CNBC:
Some countries have to play a balancing act as they try to stabilize their economies, prices and financial markets, said Han Wenxiu, deputy head of the party's office for financial and economic affairs, adding that the global economy was at risk of stagflation.
Such risks come as many developed countries aggressively tighten their monetary policy causing problems for banks as well as bringing foreign debt woes and financial market turmoil, he said at a government-organized China Development Forum, without naming any specific countries.
On Monday, Danish shipping group AP Møller-Maersk also announced that “China’s economic rebound is weaker than expected,” according to a separate Financial Times upate. Maersk chief Vincent Clerc said that “some of Maersk’s customers were drawing parallels with the outbreak of severe acute respiratory syndrome, or Sars, in 2003, when consumers in the hardest-hit areas took time to recover their confidence.”
FT:
“This is not quite the ‘roaring ’20s’-type mood that one could have expected after this long interruption,” said Clerc, who was among global chief executives gathered in Beijing at the weekend for the country’s annual China Development Forum investor conference.
He said 70 per cent of Chinese savings were in real estate, which has been hit hard by a government crackdown on leverage, while Chinese stocks were also underperforming. The negative mood has been compounded by geopolitical tensions between the US and China.
Beijing’s show of “confidence”
After it ended the zero-Covid policy, Beijing seemed eager to get folks spending again. But one very recent and well-publicized attempt to restore faith in economic recovery looked more like a dog and pony show than a serious effort to address weaknesses.
On Thursday, the news was awash with reports of Alibaba founder Jack Ma's somewhat mysterious return to China after a long stint abroad. But then VOA news staff caught one Guangzhou-based outlet doing a rather awkward and premature victory dance: “Today, Jack Ma returned to China again! I believe this is also a day when the confidence of private entrepreneurs across the country soars.”
Parading a tightly-leashed Ma around in a propaganda bid to pump stocks and lift enthusiasm on the economy is so ostentatious, it’d be laughable - if it wasn’t also an ironic and chilling reminder of what can actually happen to the more “confident” of Chinese high-flyers.
Asia analyst Fraser Howie told Reuters he didn’t think Ma’s return meant much. "I can see how this sort of signals a relaxation but none of the laws and institutions set up to control the private sector have changed,” he said.
Finally, Zongyuan Zoe Liu, fellow for international political economy at the Council on Foreign Relations, stated what should have been very obvious when she told VOA Mandarin, “the most important aspect of Ma’s return is whether it can boost investors’ confidence in China’s economy.” But “confidence in the Chinese economy and expressing support for Ma's return are two different things,” she said.
Watch on YouTube:
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Have a great weekend.