‘‘If you’re lending tens of billions of dollars to a borrower ..., you want to make sure that loan is secured against something,’’ she said. ‘‘In the case of Venezuela, it’s the most valuable thing they can offer. It’s just one way to ensure they get paid.’’
In dozens of cases, the Chinese have also demanded that their own companies build the infrastructure that will help governments extract and ship the commodities used to pay back the loans. In Argentina, that means agreements to bring in Chinese companies to revamp the country’s decrepit rail system, which would speed up shipments of soy to Chinese consumers.
‘‘The money goes from one account in the China Development Bank into the hands of small- and medium-sized businesses in China,’’ Gallagher said, while noting the majority involve big state companies.
The Chinese also hold a valuable trump card: They’re betting that Chavez and other financial pariahs won’t dare alienate their last source of affordable money by defaulting on Chinese loans or seizing Chinese assets.
‘‘The Chinese have the upper hand,’’ Downs said. ‘‘The China Development Bank sees this country that’s thumbed their nose at the IMF. And if they borrowed from the IMF and had to be subjected to IMF conditionality, the regime would fall.’’
Perhaps with that in mind, more than 30 Chinese consultants toured Venezuela in 2011 and handed Chavez a thick binder with recommendations on everything from exchange rate reform to agriculture.
While news cameras clicked, Chavez held up the book, thanked his Chinese benefactors and pledged to study the prescriptions. Unlike IMF loans, however, the Chinese recommendations weren’t a requirement, and Chavez has shown no sign of curbing public spending.
The investments and loans have contributed to a substantial shift in commerce toward China. Venezuela, for example, saw its trade with the U.S. drop from 26 percent of its GDP in 2006 to 18 percent in 2011, according to an Associated Press analysis of IMF databases. Meanwhile, Chinese trade grew from virtually nothing in 2001 to nearly 6 percent a decade later, much of it in the form of oil to repay loans.
But the money doesn’t necessarily save countries from their own bad financial bets.
Zimbabwe, which has received generous Chinese financing, saw inflation peak at 79.6 billion percent a month in November 2008. At one point, a loaf of bread reportedly cost 500 million Zimbabwe dollars. Gideon Gono, governor of the Reserve Bank of Zimbabwe, suggested one possible remedy: Adopt the Chinese yuan as the official currency. (Zimbabwe eventually overcame the crisis by switching to a mix of Western and African currencies.)
Argentina is fighting off an economic reckoning despite receiving more than $12 billion in Chinese loans, according to the Gallagher report. In 2001, the country defaulted on some $100 billion in loans. It struck a deal with most of its lenders, but over the past year, a group of creditors is insisting on payment in full.
‘‘It’s extremely concerning,’’ said Margaret Meyers, a China expert at the U.S. think tank the Inter-American Dialogue. ‘‘Chinese financing won’t be able to sustain these economies unless they go through substantial macroeconomic reforms. For Argentina, that means open markets, reforming institutions, reforming the banking system, fiscal accountability, ending lots of misspending.’’
Some in the borrowing countries have watched with worry as the Chinese bets play out.
Opposition politicians in Venezuela have slammed the deals for locking in contracts for everything from Chinese-made refrigerators to Chinese construction workers while giving Chavez free rein to spend billions of dollars.
‘‘There’s no doubt we’re going to need China, they are an economic powerhouse,’’ opposition leader Henrique Capriles said last year. ‘‘But many of the agreements the government has signed involve political loyalties that don’t interest us.’’
On the beaches of New Providence in the Bahamas, hundreds of Chinese construction workers are toiling around the clock to ready the Baha Mar project for a scheduled grand opening in late 2014.
The project will add thousands of hotel rooms not far from the islands’ biggest resort, the Atlantis.
‘‘Going forward, we have to achieve a sustainable tourism product,’’ said James Smith, the former state minister of finance for the Bahamas. ‘‘If we don't, Baha Mar could be cannibalizing Atlantis.’’
Baha Mar has opened sales offices all over Asia to promote and presell hundreds of pricey condos, hoping to imprint new travel habits on a continent that’s traditionally spent beach vacations in Southeast Asia. It is also working with the Bahamian government to open more consular offices in China to issue visas.Continued...