This is the part of “belt and road” where they beat you with the belt.
I wonder what "stepping in to help" is supposed to mean in this context.
Also, "found paying back that debt is consuming an ever-greater amount of the tax revenue needed to keep schools open, provide electricity and pay for food and fuel". No shit, servicing debts requires money, who could have thought. If only everyone could just print more money like the US does to service it's loans (oh wait, it seems like it no longer can do that!)
The problem for China is that countries won't be cooperating willingly. The moment shooting war starts between China and US, the countries will nationalize anything sold to China, default on the loans, and call the US asking them to take over the bases.
One problem China has is that they think the US is forcing other countries to be allies and enforce their hegemony. This leads them to think that they need to act same way and coerce other countries into their sphere. US is more subtle, using "soft power", mutual interest, and limited coercion. The US also doesn't care about most of the world beyond companies having access.
The author is upset that China isn't willingly choosing to forgive billions in loans.
Why would any country do that?
The loans were not made by special investment banks but regular banks of China, if they are not repayed it will be havoc.
They expect the loans to be repaid, and are definitely in trouble now that there are defaults.
Also the terms were less generous than IMF etc..
Then there are the direct loans from those "forgiving" debtors (as per the article) which always come with all kinds of strings attached, political pressure to act as satellites, and policy change instructions.
China learned from the best.
The IMF is a lender of last resort. Countries only go to it to borrow when they absolutely need money and have nowhere else to go. And for obvious reasons, when countries are in such desperate straits that literally no private or public entity will lend money to them, the IMF requires fairly stringent rules so their leaders don’t just pocket the money and run away, or don’t spend it on buying elections, as opposed to rebuilding the economy. The reason the IMF has refused to allow Pakistan to draw down money from its IMF loans is because under the Imran Khan govt they spent it on oil subsidies and allowing arbitrage on the Pakistani currency (interesting that if as you say the IMF is a tool used by the west to control countries, they are the ones saying no to a country borrowing from the country, while the country is going out of its way to get money from the IMF).
It’s not a surprise that countries that can literally not raise funds from any private or public entities are expected to endure financial restraint (since it was the lack of restraint that brought them there in the first place).
But the Belt and Road loans were not to desperate countries desperately looking for funds. The Belt and Road initiative was for countries, which at the time were financially stable. Their leaders figured that getting sparkly Chinese infrastructure investment would boost their re-election chances. And as a bonus, unlike the World Bank funds (which is the correct equivalent to the BRI loans), the Chinese didn’t require you to prove the economic viability of the projects, they didn’t require you to raise additional private capital for the project, and most importantly, the Chinese had absolutely no qualms about their companies personally bribing the leaders of the recipient companies tens of millions of dollars.
In return, all these countries’ leaders had to agree to was paying higher interest rates, not creating local jobs because the Chinese would export their own workers, and not building local businesses because Chinese companies would get all the contracts. But that was a future leader and citizens’ problem, while they could stash the cool Chinese payoffs in London and Dubai.
They also force target countries to grow cash crops instead of wheat, for example. This forces the client country to become dependent on food imports, usually from the US.
The main barrier I see is they’d have to become willing to run an ongoing current account deficit to replace the dollar, which is a totally alien strategy up until now so far as I can tell.
Or so it self-advetises.
"Advancing democracy" originated as an anti-communist theme, in the Cold war era fight for global influence, and after 1991 it turned into a hammer to yield against mostly Arab countries and others with resources and/or independent foreign policy.
This democracy advancing didn't have issues sponsoring and supporting dictatorships (say, Pinochet in the 70s and Saddam in the 80s to name but a few), or being best buddies with a family that owns a whole country non-democratically and are known for huge human rights abuses (buddies until recently at least).
In the last 20 years alone, it has turned 4 countries into much worse than they were.
Gyude Moore: “China in Africa: An African Perspective” https://www.youtube.com/watch?v=P5uzxV8ub9k (Author has BS in Political Science from Berea College and an MS in Foreign Service from Georgetown University.)
By the time the bill comes due, you've got enough money to catch a private jet off into the sunset.
It's elite capture 101.
But people can be blinded by better initial conditions even if long term it is worse.
I honestly feel a weird kind of anthropomorphisation going on here. These kinds of contracts involve armies of professional bureaucrats, lawyers and financial experts from both sides.
Denying these countries their own agenda and responsibility is kind of dishonest, is it? These are sovereign states, not some well educated corpos fooling countryside simpletons.
In the west, loans like these are usually looked at as "aid"[1] and structured with some sort of guarantee that ensures the banks involved see it as a tolerable risk. Is that not true for Chinese loans? The article doesn't really say. But if not, again, that's extremely bad for China, not Kenya!
[1] Which is not to say they aren't or haven't been exploitive. Just that the loan risk itself tends to be borne by western governments.
" This is just a rehash of the awful AP article from yesterday: https://apnews.com/article/china-debt-banking-loans-financia...
It amounts to what is essentially misinformation.
> Countries in AP’s analysis had as much as 50% of their foreign loans from China and most were devoting more than a third of government revenue to paying off foreign debt. Two of them, Zambia and Sri Lanka, have already gone into default, unable to make even interest payments on loans financing the construction of ports, mines and power plants.
Yes. BILATERAL LOANS. i.e. a fraction of a country's total debt. China amounts to 65% of Nigeria's bilateral loans, but <4% of their total debt (as an example)
The VAST majority of debt in these countries is owed to private creditors (in London and New York) via eurobond loans. Those loans have far higher interest rates, often require massive principle repayments and are generally impossible to renegotiate or suspend in times of debt distress. Eurobonds are what caused Sri lanka to default, what caused Zambia to default and what are causing everyone else to default.
During covid China suspended more debt repayments than the rest of the intl community combined, despite having only 30% of the total lending. Doesn't sound very evil to me.
There are plenty of real problems with China's historic lending, but jesus the lies need to stop. "
To add to that, only ~10% of Sri Lanka's outstanding loans are owed to Beijing, in any form, and even if you add up every company with any PRC ties whatsoever and the AIIB, it's only ~20% of outstanding loans. Considering how close Sri Lanka ties are, probably every other debtor country would have a lower ratio.
It's unfortunate that the Associated Press and Fortune have reduced their credibility to the level of Hollywood accountants, but I guess that's how the cookie crumbled when there's so much geopolitical pressure to fudge reporting.
However, the west knows that these countries notoriously never pay back the loans so the investment is made back by operating this infrastructure for the benefit of western firms.
It appears China has made a strategic error in not doing the same OR China is in a far worse economic condition than they're letting on.
If they expect these countries' legal courts to hold up these agreements to pay in full, then they clearly aren't as smart as their PISA scores suggest.
If they refuse to hand over the collateral?
> In Pakistan, millions of textile workers have been laid off because the country has too much foreign debt and can’t afford to keep the electricity on and machines running.
> In Kenya, the government has held back paychecks to thousands of civil service workers to save cash to pay foreign loans. The president’s chief economic adviser tweeted last month, “Salaries or default? Take your pick.”
Furthermore, another bad thing for Kenya, Pakistan, etc. would be China repossessing. In fact some speculate thats really the end goal. China would love to operate all these ports themselves. Already happened in Sri Lanka. Unfortunately for the people in these countries the leaders can make a lot of money by signing off on bad loans and then they never have to face the consequences themselves.
It is easy to bribe or to force governments in poor countries to take a loan in disadvantageous terms. Public servants easily do actions that will have consequences in the long term for a bribe, since when the concequences will reach, they will be gone already.
They are working on building up such a capability and the situation may be different in 10 years. But as of today, they really can't.
Countries can and do nationalize this infrastructure kicking out the western firms, this typically makes the debtor angry which leads to the classic intelligence over throw ops we see.
Yeah, that's what we're discussing.. these 'loans' are in pursuit of their strategic objectives.
But being able to takeover ports, build bases, make claims on other nations is a way to extend sovereignty far outside your borders, that is power that sometimes yes will be used to make money. But sometimes there are indeed other more direct interests that need serving, that these debts will lever them access to.
Overall I think it's more harmful than useful to flatten the interests down to being all about money. States have other things they must also do & maintain, and not all of them are easily buyable.
You'd be surprised.
>They always have the option of living within their means.
Yeah, if only their means weren't plundered for centuries by people from countries calling them to do so. Including their countries supporting the most corrupt (but friendly to their companies) politicians to get power there.
Was anyone forcing countries to take Chinese loans?
I suggest you look up the IMF's track record. India had to use the IMF in the early 90s due to decades of "socialism."
We are long past that point, forex reserves were close to USD 600 billion last time I checked.
So there's no question of "cope."
For the same reason people get loans from the mafia and loan sharks: they are desperate.
Also because the political personel is encouraged (with "gifts") to go that way (as the loans come with strings that enable the plundering of the country's resources, which they supervise).
The BRI is sort of like a hybrid merger of the World Bank and the Asian Development Bank (in reality controlled and managed by Japan) aimed at LDCs in Asia+Africa which Japan+SK wouldn't touch (either because it's not within Asia, or it's not financially viable).
The same way the ADB would subcontract with Japanese corporations, you'd see BRI contract to Chinese corporations.
That said, the ADB tended to train+hire local staff, while BRI projects tended to mainly hire solely Chinese. And conversely, the ADB would add additional regulations+scrutiny into potential malpractices, malfeasance, and financial viability while BRI financed projects were much more lax with such compliance.
This is why JP+SK's FDI has been aimed at more mature markets like India, Indonesia, PH, VN, TH, MY, MX, BR while Chinese FDI is aimed at Laos, Cambodia, Central Africa, Central America, South Asia.
This is irrelevant.
> And as a bonus, unlike the World Bank funds (which is the correct equivalent to the BRI loans), the Chinese didn’t require you to prove the economic viability of the projects, they didn’t require you to raise additional private capital for the project, and most importantly, the Chinese had absolutely no qualms about their companies personally bribing the leaders of the recipient companies tens of millions of dollars.
May I ask, what is exactly your source for this? This really feels narrated. For one, IMF doesn't really invest in specific projects: https://www.imf.org/en/About/Factsheets/IMF-Lending
Neither does the parent poster claim they do. If I read the quoted part correctly, it only talks about the World Bank funds.
Also, everyone is aware that this could be the reality and of the outcomes.
In reality - China's loans were regular commercial loans made by regular commercial banks (don't get me wrong, at the behest of the CCP).
The amount of $ lent out is staggering and it's not going to come back and it's yet another gigantic problem for China.
And yes, in the end, 'ports will be seized' etc..
Also I think we should be cynical in that China has zero goodwill whatsoever, unlike I think the duplicitous goodwill of the West they don't care one bit and will absolutely dig their tentacles into poor countries in an attempt to control them.
Unlike Soviet policy which was based on defence and handouts, China is based on deeper economic integration and they uses their 'very cheap labour and zero regard for anything' to build a lot of stuff. Africa is getting roads and airports which will go a long way to providing cover for the local regimes.
It remains to be seen if they can keep this up, but I don't see it subsiding - China is in a very good position to provide 'very cheap stuff' to 'very poor countries' and lever that economic clout. India also uses it's 'serf population' as a form of geopolitical leverage, if you were wondering 'who build the Qatar stadiums' ... it was that.
It's right for us to be cynical but we can't be arbitrarily cynical, it's generally a bit more complicated, and unfortunately there is zero public discussion or anything in the media in North America, and not enough in Europe either.
https://www.nytimes.com/2018/06/25/world/asia/china-sri-lank...
But basically because it’s not “those countries” giving those things away, it’s the corrupt kleptocrats who represent those countries which are giving them away in exchange for some personal gain. They don’t care about what it does the country because they can take their personal wealth and family to London or Miami and forget about it
Needless to say, China is not exactly a pioneer in this space...
It is a kind of economic warfare, you could say, except it’s completely legal to bet on some country lending and defaulting.