In recent years, China has emerged as a major creditor in the international finance system, lending hundreds of billions of dollars and eclipsing both the World Bank and the International Monetary Fund (IMF). However, China’s role in the global finance system has been contentious, and many view China as a bad actor due to its disregard for international norms and practices.
China’s approach to lending has been marked by a lack of transparency and accountability. In contrast to traditional lenders like the IMF and World Bank, which often attach strict conditions to loans and require extensive documentation, China has frequently lent to countries without any conditions or requirements for transparency. This lack of oversight has allowed some countries to use Chinese loans to fuel corruption, mismanagement, and even authoritarianism.
Moreover, China’s lending practices have also been criticized for promoting unsustainable levels of debt among borrowing countries. As China has sought to expand its global influence through its Belt and Road Initiative (BRI), it has offered loans to a wide range of countries, including many with low credit ratings or questionable creditworthiness. These loans often come with high interest rates and unfavorable repayment terms, which can exacerbate already-strained government budgets and lead to a vicious cycle of debt.
In recent years, China’s borrowers have increasingly found themselves unable to pay back their loans, leading to defaults and requests for debt relief. However, China has been resistant to traditional debt-restructuring practices and has instead favored a bilateral approach to debt renegotiations that often clashes with established norms. As a result, efforts to include China in the Paris Club, an informal group of major creditors that coordinate debt restructuring efforts, have been unsuccessful.
This has put China at odds with other major creditors, including the IMF and World Bank, and has led to concerns that China’s approach could undermine the stability of the global finance system. In particular, critics worry that China’s lack of adherence to established norms could make it more difficult for other creditors to recover their loans in the event of a major debt crisis.
Overall, China’s approach to lending has upended the existing system of international finance and raised serious questions about its role as a global actor. While China has sought to increase its influence through its lending practices, its disregard for established norms and practices has led many to view it as a bad actor in the international finance system. As China’s borrowers continue to struggle with unsustainable levels of debt, it remains to be seen how this will impact the global economy and the future of international finance.