Political Economist

The International Monetary Fund warned on Thursday that China’s emergence as an alternative lender was creating a new wave of hidden debt in Africa as it backed its companies’ expansion overseas with increasingly aggressive lending.

Adnan Mazarei, a director at the fund, said action was needed “to avoid another round of debt accumulation” as emerging lenders such as China became an important source of funds. An IMF official said that while it was working to strengthen surveillance, the fund did not have precise numbers or details about the amounts borrowed by poor countries.

“This is a new situation,” said Martine Guerguil, an IMF official. “We have new creditors.”

A report prepared by the IMF and World Bank shows China is the largest of six new creditor nations. The others are Kuwait, Brazil, India, South Korea and Saudi Arabia. It said lending by China had risen to $5bn in 2004, double the figure 10 years earlier.

“The terms of emerging creditors’ credits to LICs [low income countries] are not well known,” it said. “Many have non-traditional financial structures [including implicit or explicit collateralisation, foreign exchange clauses and variable fees] that hamper the assessment of their impact on debt sustainability.”

The fund and World Bank are dependent on voluntary co-operation from China, as it seeks to secure energy supplies and commodities in Africa and elsewhere in the developing world to fuel its economic growth.

James Adams, the World bank’s vice-president for east Asia and the Pacific, said in Beijing the bank had proposed to China the idea of jointly financed projects.

“We’ve had constructive discussions and we’re pretty confident that we’ll be able to find a broad range of activities where we can work together,” he said.

But Mr Adams said China had insisted it would not attach detailed conditions to its loans to governments in Africa and other developing regions.

“Given that position, the challenge is in the areas that they want to work: is there an appropriate framework for investment and will that investment be productive?” he said.

Chen Yuan, governor of the China Development Bank (CDB), the world’s largest development institution by assets, said last week the bank’s lending abroad would rise “very fast” as it backed the overseas push of China’s state-owned energy and mineral companies into Africa and elsewhere.

Concern has risen sharply among rich nations’ development ministries and international aid agencies that China’s push into Africa could reverse their work of the past decade writing off African countries’ official debts and making sure that aid was spent well.

China has done deals in countries such as Sudan, in which it secured valuable oil concessions, where the World Bank’s human rights and environmental safeguard rules prevent it operating.

The CDB came under fire last year for its role in plans for a palm-oil plantation in a forested region of Indonesia.

Philippe Maystadt, president of the European Investment Bank, an EU-backed financing institution, has said the EIB and other multilateral banks were losing projects in Asia and Africa to Chinese banks because they “don’t bother about social or human rights conditions”.

Chinese officials have argued that China cannot be expected immediately to adhere to the same lending rules as rich donor countries, and that it helps African nations by building roads, railways, hospitals and schools in return for access to natural resources.

So much of the world's wealth is concentrated in a few hands that if it were distributed evenly, each person would have $20,500 of assets at their disposal, according to a survey published yesterday.

The finding was one of the more striking illustrations of how personal wealth is distributed so unevenly that the richest 2 per cent of adults own more than 50 per cent of global assets, while the poorest half of the population holds only 1 per cent of wealth.

To belong to the top 1 per cent of the world's wealth-iest you need more than $500,000, something that 37m people have achieved, according to data from the World Institute for Development Economics Research of the United Nations University (UNU-Wider). Adults with more than $2,200 of assets were in the top half of the global wealth league table, while those with more than $61,000 were in the top 10 per cent.

The report shows that middle-income countries with high growth rates still have a long way to go before they catch up with the levels of prosperity of the richest. Almost 90 per cent of the world's wealth is held in North America, Europe and rich Asian and Pacific countries, such as Japan and Australia. While North America has 6 per cent of the world's adult population, it accounts for 34 per cent of household wealth.

The concentration of wealth in different countries varies considerably, with the top 10 per cent in the US holding 70 per cent of the nation's wealth, compared with 61 per cent in France, 56 per cent in the UK, 44 per cent in Germany and 39 per cent in Japan.

Professor Anthony Shorrocks, the director of Unu-Wider, said that wealth was important to provide people with a source of income, insurance against unemployment or ill-health and as collateral for starting a business.

"For the poor there is a 'double whammy': not only do poor countries have disproportionately lower wealth but it is also more important for them," he said.

Mr Shorrocks said the number of wealthy individuals in a country depended on the size of the population, average wealth and the extent of inequality.

"China fails to feature strongly among the super-rich because average wealth is modest and wealth is evenly spread by inter-national standards," he said.

As countries grow richer, their population changes how it holds wealth, according to the report. In developing countries, property, particularly land and farm assets, are important, while cash savings tend todominate in middle-income countries.

Only in some advanced countries with developed financial sectors is there a strong appetite for holding equities and other more sophisticated financial assets.

Debt is also low in poor countries because financial institutions do not exist to allow people to borrow on the same scale as in the developed world.