For years, Washington has warned countries about the risks of accepting Chinese loans. But a study found that over the past two decades, the country that has received the most Chinese capital credit is actually the United States.

According to the AidData research laboratory at the College of William & Mary in Virginia, China's state banks have funneled $200 billion to U.S. companies over the past two decades. However, many of these loans have remained unknown because the funds were initially transferred through shell companies in places like the Cayman Islands, Bermuda, Delaware, and other locations.

The study shows that most of the loans were aimed at helping Chinese companies acquire shares in U.S. firms, many of which are related to key technologies and national security, including a robotics manufacturer, a semiconductor company, and a biotechnology company.

Hidden Loans Flowing to Western Tech Assets

The laboratory compiled the most extensive public database to date on China's overseas lending activities. The analysis found that Chinese entities provided $2.2 trillion in aid and credit to more than 200 countries. According to the Associated Press, this figure is twice as high as previous estimates, surprising even long-term observers of China's rise.

The report indicates that the share of loans to low-income and lower-middle-income countries dropped from 88% in 2000 to 12% in 2023, and China cut loans for infrastructure projects in the Global South under the Belt and Road Initiative. At the same time, the share of loans to middle-income and high-income countries increased significantly from 24% in 2000 to 76% in 2023, with the UK receiving $60 billion in loans and the EU receiving $161 billion.

"While we others were playing checkers, China was playing chess," said former White House investment advisor William Henagan, who is concerned that hidden loans have allowed China to gain control over critical technology.

To track China's hidden loans, AidData reviewed regulatory documents, private contracts, and stock exchange disclosures written in more than 200 countries and regions in various languages. The research began over a decade ago when China launched the Belt and Road Initiative. Three years ago, the AidData team found that many loans flowed to developed economies such as the United States, Australia, the Netherlands, and Portugal. The findings showed that the use of national credit is changing, shifting from promoting economic development and social welfare to gaining geopolitical economic advantages.

Strategic Resources, Infrastructure

The report states that loans to wealthy countries are mostly concentrated on critical minerals and high-tech assets - rare earths and semiconductors, which are essential for fighter jets, submarines, radar systems, precision-guided missiles, and telecommunications networks.

The United States is the largest recipient of Chinese credit, having received over $200 billion for nearly 2,500 projects and activities spread across almost all states in the country.

More than half of the credit was provided in the form of liquidity support to companies, a financing method where Chinese creditors (usually an entity within a consortium of international financial institutions) provide credit lines to large companies in need of cash.

"For over a decade, the U.S. has emphasized Beijing as a 'predatory' lender, whether under Biden or Trump," said Brad Parks, executive director of AidData. "That's really ironic."

Researchers found that since 2000, Chinese companies have also provided financing for the acquisition of U.S. high-tech companies and have funded infrastructure projects such as liquefied natural gas projects, energy pipelines, power transmission lines, and airport terminals.

Pursuing Profit

In recent years, the U.S. has increased its scrutiny. For example, interagency mechanisms such as the Committee on Foreign Investment in the United States (CFIUS) were strengthened in 2020 to protect sensitive industries in the national economy.

But China has also been improving continuously. In recent years, it has established more than 100 banks and branches overseas, which provide loans to foreign entities, further obscuring the source of the funds. Parks said, "In places with strong enforcement, China has found ways to bypass entry barriers."

The study results particularly show that the "Made in China 2025" plan appears to be closely related to the shift in the focus of overseas lending. This government plan, released in 2015, aims to promote China's development in advanced technology fields, especially in areas such as robotics and automation, aerospace, and computing. At the same time, cross-border M&A loans have grown rapidly.

Parks pointed out that this enables Chinese companies to use state capital to acquire strategically significant assets to fill their own funding gaps. He also mentioned that in wealthy industrialized countries, "there is no real comparable example."

The report lists cases of U.S. high-tech companies acquired over the past two decades, including semiconductor company OmniVision Technologies, automation company Paslin Company, and electronics company Ingram Micro.

Parks said, "We don't think all these loans to the U.S. serve some grand geopolitical or geo-economic strategy - some of them are actually just for pursuing profit."

Sources: DW

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