China has laid a liability trap (Debt Trap) not only for developing countries but also for the United States. A full audit of the scale of Vice Minister and financing that the Chinese government and state-owned corporations spread across the world over the past two decades found that the largest debtor was not a developing country but the United States. While the U.S. political establishment was warning Third World nations about the risks of Chinese capital, Chinese money was in fact encroaching on infrastructure and high-tech corporations at home.
According to the sprawling, more than 200-page report "Chasing China" released on the 18th (local time) by AidData, a research lab at the College of William & Mary, the total aggregates of Vice Minister and subsidies that 1,193 Chinese government and state-owned corporations and institutions sprayed across 179 countries over the past 24 years reached a staggering $2.2 trillion (about 3,228 trillion won). That is an astronomical scale two to four times larger than estimates previously made by academia or international organizations.
The country that owed the most to China was the United States, the report said. During this period, the United States raised more than $200 billion (about 293 trillion won) from a consortium of Chinese state-owned creditors. The United States alone swallowed about 10% of all Chinese overseas lending. The finding upends the entrenched Western notion that Chinese Vice Minister focuses on developing countries' social overhead capital such as African railways or Southeast Asian ports. Brad Parks, the head of AidData, told the Washington Post (WP), "While the Washington establishment was making the rounds preaching the risks of Chinese liability to the world, borrowers inside the United States were in fact taking out money from Chinese state banks."
The $200 billion flowed into core U.S. infrastructure and marquee corporations. Chinese state banks injected funds into critical projects akin to the arteries of the U.S. economy, such as construction of a terminal at JFK Airport, the gateway to New York, liquefied natural gas (LNG) projects in Texas and Louisiana, and data center build-outs in Northern Virginia. Even Fortune 500 corporations emblematic of America—such as Tesla, Amazon, Boeing, Walt Disney, and AT&T—tapped operating funds through credit lines opened by Chinese state banks.
Many of these were commercial investments in pursuit of revenue. Andrew Collier, a senior researcher at the Harvard Kennedy School, told the New York Times (NYT), "Chinese bankers prefer profitable projects, but at the same time they have to listen to the Communist Party." Even when it looks like simple business, it suggests there is room for an "invisible hand" to intervene at any time in line with the political objectives of China's top leadership.
Armed with massive funds provided by the government and state-owned corporations and institutions, China shopped for the advanced technology that the United States had long touted. According to the report, right after the Chinese government released its advanced manufacturing strategy "Made in China 2025" in 2015, Chinese state banks concentrated funding on mergers and acquisitions (M&A) in sensitive technology sectors such as robotics, biotech, and semiconductors.
The very year the strategy was released, Chinese state banks financed a Chinese consortium's acquisition of U.S. semiconductor corporation OmniVision for $1.9 billion (about 2.79 trillion won). In 2016, they backed the acquisition of Paslin, a Michigan-based robotics equipment firm. With full-throated support, China raised the success rate of overseas corporate acquisitions in the 10 core areas related to "Made in China 2025" from 68% in 2015 to 100% in 2023.
Parks told the Washington Post, "When Chinese corporations tried to acquire expensive Western tech corporations, the message from China's top leadership was clear," adding, "It was like, 'We've got your back, go on a spending spree.'" In effect, money knocked down the technology barrier.
China used complex financial techniques to secure such strategic asset. Instead of headquarters of state banks stepping in directly, they fronted special purpose vehicles (SPVs) set up in overseas branches or in tax havens to launder funding sources.
AidData's analysis found that about 30% of China's overseas lending was executed through overseas branches or subsidiaries rather than mainland China. Providing Vice Minister this way creates so-called "stealth funds" that do not show up as Chinese capital in international financial monitoring networks such as the Bank for International Settlements (BIS).
Not only U.S. corporations but also the Dutch semiconductor corporation Nexperia and the U.K. semiconductor corporation Imagination Technologies were embroiled in controversies over technology leakage involving Chinese-linked funds. After Nexperia was acquired by the Chinese corporation Wingtech, concerns over technology leakage mounted, prompting the Dutch government to step in recently and take back control. At Imagination Technologies, there was an attempt immediately after acquisition by a Chinese private equity fund to "buy it, strip it, and sell it," which sparked controversy.
In the early days of the Belt and Road in the 2000s, China concentrated most overseas Vice Minister on developing countries and across Africa. At that time, 88% of China's overseas lending was focused on low- and lower-middle-income countries. The share for high-income countries was a mere 12%.
But starting in 2023, as the world entered the endemic phase, that ratio completely flipped. The flow of money to low-income countries dried up to 12%. In contrast, funds flowing to high-income countries such as the United States and the United Kingdom jumped to 76%. Experts said that after the endemic, as developing countries trapped in a liquidity pit fell one after another into default (debt nonperformance) risk, China turned its eyes to advanced economies with clear repayment capacity and abundant asset to acquire.
Brooke Escobar, a co-author of the AidData report, told Nikkei Asia, "China is no longer a benevolent donor angel; it is focused on cementing its position as a 'lender of last resort' that no one can ignore."
The report pointed out that China is weaponizing finance to secure key infrastructure and technology in advanced economies. The United States and Western countries, belatedly, are bolting the doors by tightening reviews of foreign investment (CFIUS) and controlling semiconductor exports.
Michael Kuiken, a Commissioner at the U.S.-China Economic and Security Review Commission (USCC), told WP, "Chinese overseas investment is a clear strategic tool to strengthen its domestic industrial capacity and narrow the technology gap."
William Hennigan, a researcher at the Council on Foreign Relations (CFR), also said in a WP interview, "China is far ahead of the United States in the realm of economic statecraft," warning that "U.S. asset already acquired by Chinese corporations could become a highway for stripping intellectual property."