> Behind the scenes is China’s reluctance to forgive debt and its extreme secrecy about how much money it has loaned and on what terms, which has kept other major lenders from stepping in to help. On top of that is the recent discovery that borrowers have been required to put cash in hidden escrow accounts that push China to the front of the line of creditors to be paid.
This is the part of “belt and road” where they beat you with the belt.
> which has kept other major lenders from stepping in to help
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!)
People talk about "belt and road" being soft power, but that sounds ineffective soft power.
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.
This article has no "hint claim" that China is the sole lender. In fact, there's no such thing as "the front of the line" when you're the sole lender.
It's an article about Chinese lenders rejecting and sabotaging the traditional practice of lenders working together to avoid a default. They're trying to grab as much as they can for themselves while the debtor falls into chaos. You don't need to be the sole or even majority lender to cause immense pain through short-sighted greed by doing that.
Their intent all along was to wait for the defaults to start pouring in so they can claim all the assets they funded. The speedrun way to plant infrastructure around the globe and manage their own banana republics without raising the hackles of an adversary. Making a deal was never an option.
>You should check Sri Lanka's, Zambia's and Pakistan's foreign debts. You will be absolutely surprised majority of those debts are from American private institutions.
Do you have any data to back your assertion? The quick search I did on Sri Lankan debt suggests something different.
Like a lot of countries, China has a social influence department. China's just seems massive because they pop up everywhere making insanely obvious claims/comments.
They're either just really bad at it, or these attempts just smokescreen their proper influence campaign.
The important context is that these loans were given with the expectation that the recipient would eventually default. These loans are backed by resource rights, and would also giving China considerable leverage to demand the right to create ports / military bases, etc. Anybody paying attention has seen this coming miles away (example: https://doi.org/10.1016/j.resourpol.2018.04.014), but such loans are too tempting for borderline dysfunctional governments with short-sighted politicians to pass up.
On one hand I don’t think China is doing that much wrong here, at least nothing worse than other countries.
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
If the debtor country doesn't cooperate the lender has all manner of soft and hard power to fall back on. They can fund political opponents or instigate coups to install a puppet government. Organize sanctions, train guerilla fighters, or even overtly start a war.
Needless to say, China is not exactly a pioneer in this space...
But doesn’t this make a huge opening for someone like the US to step in and say: “hey, we will bail you out and stop China from interfering. Just sign this treaty and let us occupy with some troops”?
You can’t buy infrastructure in other countries because it’s not for sale. But when countries default on their loans, they can repay with infrastructure, e.g. with the thing they lent money to build.
It is a kind of economic warfare, you could say, except it’s completely legal to bet on some country lending and defaulting.
If they don't, they can't get new loans anymore, which will doom the country. It's really hard to grow your economy without foreign reverses. Even North Korea, a hermit kingdom, works really hard to grow their foreign reserve.
Regular banks or not, the Congo's Sicomines agreement (linked above) and Sri Lankan port seizure make it pretty clear - China stands to achieve strategic goals when countries default on loans.
So yes, but, it's not very clear at all, and this idea that 'China is making the loans so they default and then get access to ports' is 'rationally cynical' but not quite right.
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.
You hear the same language with fear mongering about foreign countries “calling in” US debt. These people must be terrified of their bank all of a sudden demanding the entirety of their remaining mortgage now.
Meanwhile the IMF, used as tool by western capitalism, has drove countries to the ground, using its loans to pressure for all kind of unpopular ultra-neoliberal reforms that destabilized countries, driving people to extreme poverty, and shredding their social safety nets.
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.
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.
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.
> 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.
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.
>No one is forcing countries to take those IMF loans
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.
The IMF has a history of releasing loans to clear interest payments on older loans.
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.
Here’s a simple question. If the IMF loans are so terrible, why do countries apply for them? And if giving out loans to countries is such an awesome tool for the IMF, why is it refusing to allow Pakistan to draw down already approved loans?
The comment you're responding to is typical cope from corrupt, inept, and poorly-run countries looking for excuses on why they remain poor. I see this in my country (Nigeria) too...that somehow it's the IMF keeping us poor, not our stupid leaders and an equally stupid populace voting them in.
And the comment above is typical gaslighting from neo-colonialist countries (as often internalized by local people benefiting from the above, or having studied abroad and learned to blame their own) getting the benefits or such deals, "why dont you live within your means" etc (often after centuries of the same countries calling the shots and plundering the means, supporting the most corrupt politicians to get office and punishing said countries when they opted for others, and of course, doing the bribing).
Yes, that is me ranting about how my race and continent remains undeveloped…but sure, I guess you’re about to accuse me of racism for stating facts, lol
>Here’s a simple question. If the IMF loans are so terrible, why do countries apply for them?
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).
I wonder if they’re going to squeeze the vice a bit and then offer the opportunity to refinance in RMB as part of their larger strategy of de-dollarizing the world economy.
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.
Thats the thing I don't get about countries turning to China. America does things for itself but also does things just to advance democracy. China's only interest is China. If your choice is a semi-friendly loan shark or a smash your kneecaps loan shark, I have no idea why countries are choosing the latter.
"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.
Exactly. The democracy advanced always exactly matches the current US interests. Funny that. We’re just so damn perfect we never ever ever get anything wrong.
You realise that institutions like the IMF and World Bank do exactly that? What exactly do you think happens to third world countries that can’t pay back IMF and World Bank loans? They get to walk off scott free? Here’s a hint: neoliberalisation gets introduced into the country and its assets get taken and privatized by western corporations.
The answer is you pick the one doing whole red carpet royal treatment.
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.)
The semi-friendly loan shark doesn't pay you personal bribes. The kneecap shark pays you bribes to take loans on behalf of your country which you aren't personally on the hook for.
By the time the bill comes due, you've got enough money to catch a private jet off into the sunset.
So china lent money loan-shark style for things that these countries probably didn’t need but china convinced them would help them, and now it’s calling the loans due and of course the promised revenues didn’t materialize so these destitute countries are left holding the bag.
Oh those poor gullible down to earth simple hard working average Joe countries.
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.
There's a weird frame to this article that seems to be painting China as a "loan shark" villain pressuring the poor debtor countries. But that's not the way loans work at this scale. If this debt is bad, it's bad, and pressure isn't going to get those RMB back. China is on the hook here, and that's extremely bad for China. At the end of the day Kenya or Zambia can just refuse to pay (it's not like their credit is great to begin with).
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.
Money is one compelling form of power, sure. And one a regular citizen also sort of understands, albeit not at scale.
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.
They give loans backed by resource rights to build up some infrastructure, roads and ports particularly, then wait for them to default. Now they have resource extraction rights as well as the infrastructure needed to extract those resources. Cash is less important than power, China means to reshape the international order because they're tired of being a second class player in global affairs.
Money can't buy everything. But if you lend the money and the borrower can't pay it back, suddenly you can ask something that normally can't be bought directly with money.
Typically there is collaterial involved, in this case "owning" or operating the airports, railways, roads, or what have you.
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.
The collateral is already handed over. It's mostly western firms operating the infrastructure which you can see is where the money is made.
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.
This explains why the debt is bad for Pakistan, Kenya.
> 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.
Perhaps Pakistan should cancel their nuclear weapons program and stop funding terrorists. That would probably free up some money to pay for electricity.
I don't know what's going on behind the scenes, but if I were to speculate, they probably have a contingency plan for this scenario which involves concessions from those countries if they default. Maybe land or mineral rights, maybe something more complicated. That's just a guess from my side though.
I suppose the "contingency plan" was the main plan all along.
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.
These countries defaulting is precisely what China intended from the start. The loans are backed by mineral rights, and refusal to honor those agreements would give China all the excuse it needs to back coups, or even resort to military intervention (particularly if the RBIO falls apart, probably due to domestic political strife in America.)
China still doesn't have an expeditionary military. They have very little capability for direct military intervention in any country farther away than Vietnam or India. Even sustaining a small naval flotilla in the Persian Gulf was a major stretch for them.
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 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.
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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.
This is the part of “belt and road” where they beat you with the belt.