How China gains leverage over developing countries through secret debt contracts

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Even though China is the largest official creditor in the world, many of the contracts it makes with the governments of developing countries are secret – until now.

A group of researchers examined 100 Chinese debt contracts to learn how the country extends its reach beyond its borders. They released a lengthy report on Wednesday.

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"It’s a big deal because there is a lot going on in these contracts. The basic principle is these are governments making commitments on both sides of the ledger … and their citizens have a right to understand," researcher Scott Morris of the Center for Global Development told Fox News. "What is striking, frankly, about the work we’ve done is the degree to which it has been secret."

The countries on the other ends of these contracts include the Philippines, Cameroon, Serbia and Argentina.

Chinese President Xi Jinping shakes hands with U.S. Vice President Joe Biden (L) inside the Great Hall of the People in Beijing December 4, 2013. REUTERS/Lintao Zhang/Pool

"We would consider them all developing countries. They’re not wealthy countries," Morris said. "I think the U.S. would count many of them among our allies."

The contracts often include "unique" provisions ensuring confidentiality, giving the Chinese an out to demand immediate repayment and allowing punishment of debtors for doing something against the interests of a "PRC entity," according to the report.

"The Chinese, to some degree, act like commercial lenders and pretty aggressively so," Morris said. "We see very broadly written terms that essentially empower the Chinese lender to cancel the contract at their discretion. They can point to foreign policy reasons. Perhaps the country has fallen out of favor."

Some of the contracts even require the developing country to keep the funds in special accounts that benefit the Chinese lender most, including giving the lender the ability to block the debtor from withdrawing from the account.

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China's lending to other governments has scaled up dramatically over the last 10 years, although it flagged a bit in the last two, Morris said. The Chinese are committed to large-scale financing for both political and commercial gain, he said.

The report comes as China is increasing investment in its military. China announced a nearly 7% growth in its military spending budget in March, just one day after eight GOP lawmakers pressed President Biden to increase U.S. defense spending to account for inflation.