| Abstract: |
This paper shows that China has launched a new global system for cross-border
rescue lending to countries in debt distress. We build the first comprehensive
dataset on China’s overseas bailouts between 2000 and 2021 and provide new
insights into China’s growing role in the global financial system. A key
finding is that the global swap line network put in place by the People’s Bank
of China is increasingly used as a financial rescue mechanism, with more than
USD 170 billion in liquidity support extended to crisis countries, including
repeated rollovers of swaps coming due. The swaps bolster gross reserves and
are mostly drawn by distressed countries with low liquidity ratios. In
addition, we show that Chinese state-owned banks and enterprises have given
out an additional USD 70 billion in rescue loans for balance of payments
support. Taken together, China’s overseas bailouts correspond to more than 20
percent of total IMF lending over the past decade and bailout amounts are
growing fast. However, China’s rescue loans differ from those of established
international lenders of last resort in that they (i) are opaque, (ii) carry
relatively high interest rates, and (iii) are almost exclusively targeted to
debtors of China's Belt and Road Initiative. These findings have implications
for the international financial and monetary architecture, which is becoming
more multipolar, less institutionalized, and less transparent. |