In China’s global lending spree, the US has been the biggest beneficiary, study finds

By Simone McCarthy, CNN

Beijing (CNN) — Washington has spent years warning countries about the dangers of accepting Chinese loans. But over the past two decades the United States has been the largest recipient globally.

That’s the finding of a new report by AidData, a research lab at William & Mary university in Virginia, which has compiled the most expansive public database to date on China’s overseas lending activities.

The findings, released Tuesday, reveal that government or majority state-owned Chinese entities loaned or granted $2.2 trillion of aid and credit spread across more than 200 countries between 2000 and 2023.

And at the top of that list of recipients is the US – a finding that the researchers say stands counter to a common assumption that Chinese financing has mainly poured into developing nations, for example under the auspices of Chinese leader Xi Jinping’s flagship infrastructure drive the Belt and Road Initiative.

Instead, more than three-quarters of China’s overseas lending operations now back projects and activities in upper-middle income and high-income countries, AidData found – and has been used on critical infrastructure, critical minerals, and the acquisition of high-tech assets critical to China’s national security goals.

“The US and its allies in the wealthy, industrialized world have allowed Chinese state-owned creditors to finance critical infrastructure assets within their own jurisdictions. They’ve allowed them to finance the acquisition of critical minerals within their jurisdictional boundaries. They’ve allowed Chinese companies to use loans to buy their technological crown jewels,” AidData executive director Bradley Parks told CNN.

For the better part of the last decade, Washington has been warning countries that, in its view, Beijing is a predatory lender that will take control of another country’s assets if those loans fall into distress, Parks added.

The world’s second largest economy has emerged as the world’s largest official creditor as it vied to position itself as the go-to financial ally for developing countries. Along the way it also came in for significant criticism that its practices saddled countries with unsustainable debt – a charge Beijing denies. Some analysts have also pushed back against the debt-trap narrative.

Now, the latest AidData shows that the US, as the top of the recipient of Chinese official sector financing, has received more than $200 billion for nearly 2,500 projects and activities that can be found in nearly every state in the country.

More than half that credit was in the form of liquidity support to corporations, a kind of financing where Chinese creditors – often as one entity in a syndicate of many international financial institutions – act as a credit line for major companies that need cash.

Such transactions are a common corporate practice and way for banks to make money – and they would not give Chinese firms a stake in companies or control over the borrowers, which have included Fortune 500 companies.

But Chinese state-owned entities have also financed the acquisition of US high-tech companies and bankrolled infrastructure including LNG projects, energy pipelines, power transmission lines and airport terminals since 2000, the researchers found.

Transactions involving sensitive sectors have become increasingly difficult in the US in recent years as regulatory scrutiny tightened amid growing concern in Washington about the national security implications of China’s financial stake in America. Chinese entities have looked to other high-income nations with less robust checks, AidData found.

The United Kingdom has received $60 billion and EU member states $161 billion over the 24-year study period, according to AidData.

Like with the US, there has also been increased scrutiny and warnings in Britain and Europe over the levels of Chinese investment, particularly in critical infrastructure, in recent years.

“We’re not claiming and we don’t believe that all of this lending to the US serves some sort of grand geopolitical or geoeconomic strategy – some of it is really just about the pursuit of profit … China’s financial sector is just dominated by the state,” said Parks.

However, he added, judging which transactions are “benign and (which) are not” constitutes a key challenge for regulators and national security officials.

‘Aligned with the policy’

AidData researchers found “increasing alignment between China’s cross-border lending activities and the policy priorities of the party-state, including those related to national security and economic statecraft,” the team said in their report.

In particular, the “Made In China 2025” initiative appeared linked to shifting priorities in outbound lending, according to the findings. The government plan, released in 2015, was meant to spur China’s development in advanced technologies, especially in high priority sectors that included robotics and automation, aerospace, and computing.

“You see this rapid ramp up in cross-border acquisition lending that is aligned with that policy, and (Chinese entities) start lending for the 10 sectors that were that were identified in Made in China 2025,” said Parks.

That enabled Chinese firms to acquire strategically significant assets using state capital to fill the gap in their own funds, according to Parks, who noted there is “no real analog” to that kind of practice in wealthy industrialized countries.

Examples cited in the report of such high-tech company acquisitions in the US over the past two decades include semiconductor firm OmniVision Technologies, automation firm the Paslin Company and electronics company Ingram Micro, which was subsequently bought by an American private equity firm after the earlier acquisition.

Chinese state-owned creditors have also played a role in Beijing’s access around the world to critical minerals needed for high-tech goods, approving over 100 loan commitments worth $14 billion for overseas critical mineral operations between 2021 and 2023 globally.

As Beijing focused on strategic sectors and its banks became creditors to wealthy Western firms, the overall share of overseas lending and grant-giving that supports low-income and lower-middle income countries has also fallen. Once accounting for some 88% of those activities in 2000, they now account for 24%, according to the findings.

Another shift, according to Parks, has been how Western governments are looking at the Chinese government’s strategy.

China’s rivals in the G7 are responding by making major adjustments that were once inconceivable—for example, slashing overseas development aid budgets, dismantling foreign aid agencies, ramping up cross-border lending on non-concessional terms, and taking equity stakes in critical infrastructure assets overseas, the report found.

The US under the second Trump administration has imposed massive cuts to America’s international aid program, but there are efforts in Washington to vastly expand the budget of the US International Development Finance Corporation and its ability to disburse loans in high-income countries.

Not long ago, according to Parks, “Beijing’s approach to international lending and grant-giving was a source of scorn or ridicule … it just was not a source of inspiration or emulation for policymakers in the G7, and now everything is turned upside down – now the US and its allies are really focused on competing with China on its terms.”

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