On IntelMattersPod this week, host Michael Morell speaks with Brad Parks, executive director of research lab AidData at the College of William and Mary.
BRAD PARKS: It's a pleasure to be on. Thank you, Michael.Banking on Beijing: The Aims and Impacts of China's Overseas Development Program.
BRAD PARKS: Development finance really has two components. There's a foreign aid component and then there is a foreign lending component. So I'll just use the shorthand terms aid and debt. So the lion's share of China's overseas development finance is provided in the form of credit or debt, not in the form of aid.
BRAD PARKS: The overall scale of the program is just under a trillion dollars, $843 billion by last count. That money is spread across 165 countries and across 13,400 projects. In a typical year, Beijing is spending about $85 billion on various overseas projects. That means they're outspending Washington on a more than 2 to 1 basis. They're outspending Brussels on a more than 4 to 1 basis, and they're outspending London on a more than 8 to 1 basis. So in the U.S.
That's why the single biggest year on year increase in Chinese lending was between 2008 and 2009. Because what happened? The global financial crisis hit. And when that happened, the Fed here in the U.S. did quantitative easing. And when they did quantitative easing, the rate of return that China started getting on all of its dollars in U.S. treasuries dropped to about 1 to 2%.
The Chinese state owned enterprise and then the interlocutor in the president's office or the prime minister's office, they agree to inflate the cost of the underlying commercial contract that the loans are going to finance. So imagine you're going to build a road. And if that road was subjected to competitive bidding, it would cost $100 million. Well, they're not going to price it at $100 million. They're going to price it at $120 million.
BRAD PARKS: U.S. lending has dropped to exceptionally low levels. And part of this is because in the late 1990's and early 2000's, there were a whole host of countries that got in over their heads in debt. The U.S. worked with a coalition of like minded countries and multilateral institutions to write down those debts and restore fiscal discipline and give these countries healthy balance sheets. Once they had healthy balance sheets, the U.S.
MICHAEL MORELL: It sounds like to me, correct me if I'm wrong, but it sounds like to me, you hear China political experts say that the fundamental goal of the government is the maintenance of the Communist Party, which in their mind requires continued economic growth to ensure social stability and political stability. And so everything at the end of the day is about making sure the domestic economy continues to grow.
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