Research Seminar

China as a Lender of Last Resort — Christoph Trebesch

04 Oct 2022


Christoph Trebesch (Kiel Institute)


This paper documents China’s rapidly expanding system for cross-border support lending to sovereigns in distress, which is tailored to countries that have borrowed from Chinese banks as part of the Belt and Road Initiative. China’s role as a lender of last resort is not widely understood because, like most of its overseas lending, it is shrouded in secrecy. To shed light on this phenomenon, we collect extensive data on the sovereign lending activities of the People’s Bank of China (PBOC) and China Development Bank (CDB). We find that, over the past 10 years, the Chinese state has started to support countries in distress using a combination of short-term and longer-term loans. The PBOC offers short-term liquidity support through its Central Bank Swap Line Network, which now extends to approximately 50 developing, emerging market, and advanced economies. Borrower drawdowns on these currency swap facilities are more frequent and substantial than is widely assumed; nearly two dozen countries have recently made use of them. We show how swap line usage is often coupled with longer-term loans from China Development Bank and other Chinese state-owned banks to facilitate the repayment of existing loans, akin to the usage of IMF bailout funds. China’s “hidden bailouts” are a challenge for macro surveillance efforts in times of crisis because debtor countries do not often disclose the timing and amounts of this kind of rescue lending. These practices can inflate central bank reserves. We highlight that interest rates on Chinese bailout funds are high compared to those of the IMF or World Bank loans. Our findings show the importance of understanding China’s role in global finance both in tranquil and crisis times. China’s brand of international rescue lending may develop into a parallel system to established multilateral and regional rescue facilities.


Sebastian Horn (World Bank) – Brad Parks (College of William & Mary) –  Carmen M. Reinhart (Harvard University) –  Christoph Trebesch (Kiel Institute)


Paul Nortz Saal (HWC-EG)