American taxpayer dollars intended to help countries weather the global downturn could flow into Chinese Communist Party coffers, U.S. officials and analysts fear.
“You’re going to have countries that are going to be applying for IMF and World Bank funding, and then they’re going to be looking to China for that funding too,” the German Marshall Fund senior fellow Jonathan Katz said. “And we really have to be careful that these multilateral institutions aren’t used to pay off bad Chinese loans.”
That could be a windfall for China’s Belt and Road Initiative, which U.S. officials regard as a predatory loan program designed to purchase influence and even sovereignty in strategically significant locations. The economic paralysis brought on by the pandemic presents both risks and opportunities for Beijing, which by turns, could lose additional money through the crisis or tighten its grip on debtor nations.
“They’re starting to call some of those bad deals and try to take over sovereign assets of some of those bad deals,” U.S. International Development Finance Corporation Chief Executive Adam Boehler told the Washington Examiner. “I’m seeing China all over the place, in a time like this, trying to either renegotiate terms because the deals aren’t sustainable or threatening to take sovereign assets.”
That statement challenges China’s claim to be playing a magnanimous role during the pandemic and points to how the crisis presents a difficult set of problems to American officials. The United States has an interest in the economic stability of impoverished countries, but Secretary of State Mike Pompeo has long warned the IMF not to subsidize China’s Belt and Road Initiative, emphasizing that the U.S. is the multilateral bank’s largest donor.
“The United States still, I think, exerts enormous influence in these institutions, and so, behind closed doors, even informally there’s still a lot where the U.S. can have influence,” the Heritage Foundation’s James Carafano said. “The flip [side is], if we don’t bail these countries out is what will happen is the Chinese will just move in, and they’ll seize assets and be even more dependent on China than not. This is why diplomacy is an art and not a science.”
The International Monetary Fund and the World Bank urged the G-20 nations to launch a Debt Service Suspension Initiative, while the multilateral banks plan to provide emergency financing and debt relief grants of their own to the world’s poorest countries.
Chinese President Xi Jinping pledged $2 billion of coronavirus-related aid in May, but American officials are suspicious of the gesture given the opacity of Chinese loans and the ambiguity surrounding Xi’s plan to fulfill that promise.
“The CCP needs to move beyond vague public statements and start to fully and transparently implement the DSSI in accordance with its G-20 commitments,” Pompeo said Wednesday.
Some analysts suspect that Xi plans to turn the $2 billion pledge into a tactic to claim compliance with the debt relief pledge but, in fact, count the money as new aid, putting countries even more at China’s mercy.
The efficacy of the IMF and World Bank loans may depend on Western efforts to ensure transparency around the multilateral coronavirus relief as well as the details of China’s loan program.
“If there is egregious behavior on the part of the Chinese and other actors, the U.S. can find ways to bring that information to light,” Carafano said.
Some believe it is easy to imagine Chinese officials pressuring debtor nations, especially those with corrupt leaders, into passing along the IMF, while Beijing uses new grants to buy more influence.
“We’re likely to find some of this money, not to have been used in the way that people hoped it would be used,” Katz said. “That’s been the case and other large-scale projects as well, and other macroeconomic projects as well, so this isn’t new, but the scale of the response is much larger now than it’s ever been.”
