There is a growing sense of caution in the international community about China’s foreign loans.
Loans from the Asian Infrastructure Investment Bank (AIIB), which is a China-led international financial institution established with much fanfare, have been sluggish, apparently due to skepticism that they could be used as a tool for China’s hegemony.
The Chinese government should make efforts to dispel the international concerns.
Since its opening in 2016, the AIIB has approved 87 loans totaling about $20 billion (about ¥2.1 trillion). The figure is a lot less than the initial estimate, and falls far short of the performance of the Asian Development Bank (ADB) backed mainly by the United States and Japan.
In Asia, there is strong demand for funds for infrastructure development. It seems that the AIIB’s loans have not increased despite robust demand, probably because of the bank’s poor management.
Loans require not only the ability to determine the possibility of repayment, but also the ability to make an assessment based on various perspectives such as the impact on the environment and society of the recipient country.
The AIIB has a small number of staff and lacks these capacities. It does not permanently station members of the board of directors who are selected from major countries at its headquarters in Beijing, and the board’s surveillance and governance system is insufficient.
China is in conflict with India, its largest lending partner, over a border that has yet to be demarcated. It tightened its crackdown on Hong Kong and imposed high tariffs on some imports from Australia, which criticized the country’s response to the novel coronavirus. Such a hard-line diplomatic stance seems to have had a negative impact on the AIIB’s loans.
On the other hand, it is worrisome that China is expanding its bilateral external loans to Africa and other countries. As of the end of 2018, China had loaned about $100 billion to nearly 60 developing countries. This figure is comparable to that of the World Bank.
The loans have been criticized as “debt traps” that earn economic and security benefits by burdening developing countries with debts. Sri Lanka granted China the right to use a port for 99 years in return for its inability to repay a debt.
International financial institutions, including the World Bank, extend loans after strictly checking conditions such as fiscal discipline and fairness. Many developing countries are autocratic states and it is said that they tend to rely on Chinese money, which has less stringent requirements. It cannot be overlooked.
The reality is unclear. The international community needs to make efforts to grasp the situation and urge China to extend loans that will lead to the sound development of developing countries.
Japan’s role in the growth of developing countries is also significant. There are many fields to which Japan can contribute, such as medical and public health support in response to the spread of the coronavirus infections.
Japan’s yen loans are provided after carefully examining the repayment capacity of each recipient and it takes a firm stance of not seeking rewards. It is hoped that Japan will promote yen loans while checking the actual state of affairs of recipients in order to gain the confidence of developing countries.