“God will provide!” So said Nicolas Maduro, Venezuela’s president, last week following his apparently empty-handed return from a trip to China and Saudi Arabia to drum up emergency financial help. Investors did not share Mr Maduro’s faith, marking down the Venezuelan benchmark bond to levels that suggest a surge in default risks. As thousands of people queue outside sparsely-stocked supermarkets in Caracas and inflation runs at about 70 per cent, the oil-rich Latin American country is paying a painful price for years of economic mismanagement.

For China, the country’s biggest creditor, the crisis represents more than a passing headache. It holds up a mirror to Beijing’s state-to-state financing model, which has seen it extend huge loans with few conditions and little transparency to developing world governments often in return for resources. In the case of Venezuela, Chinese state entities have lent more than $45bn since 2007, about $20bn of which is thought to be outstanding. The debt was initially agreed in a blaze of political fervour with “a good friend of the Chinese people”, the late Hugo Chávez, Mr Maduro’s predecessor.

The Chinese lending was never authorised by Venezuela’s parliament as Caracas insisted that because it was to be repaid in oil — not in dollars — it could not be classified as “debt”. This has meant, as Harvard academic Ricardo Hausmann wrote in the Financial Times last week, that the money was never accounted for in the national budget, thus escaping all forms of control and bypassing oil revenue-sharing rules. But when PDVSA, the national oil company, was unable to meet its debt-for-oil repayment schedules, it was forced to borrow from the central bank, contributing to the hard currency shortage that is fuelling inflation and hampering imports of food.