Country, estimated to be owed up to $1.5trn, is increasing penalties for late payments and cutting back on infrastructure projects
China has become the world’s biggest debt collector, as the money it is owed from developing countries has surged to between $1.1tn (£889bn) and $1.5tn, according to a new report. An estimated 80% of China’s overseas lending portfolio in the global south is now supporting countries in financial distress.
Since 2017, China has been the world’s biggest bilateral lender; its main development banks issued nearly $500bn between 2008 and 2021. While some of this predates the belt and road initiative (BRI), Beijing’s flagship development programme has mobilised much of the investment in developing countries.
But a new report by researchers at the AidData research lab at William & Mary, a public university in Virginia, found that China, the world’s second largest economy, is now navigating the role of international debt collector as well as being a bilateral funder of major infrastructure projects.
Who honestly didn’t see this outcome?
China splashes money at developing countries they have little or no ability to repay.
The money is spent contracting Chinese construction companies to build infrastructure projects of dubious relevance and value.
So, China loans the money, which returns to China via Chinese construction companies and the countries are left holding the bill.
I doubt the CCP ever actually expected to be paid back but will hold the outstanding loans over the country’s heads as leverage.
I also expect that some of the countries involved never had any intention of paying back the loans and are playing the CCP for idiots. Once things get worse internationally they will nationalise the projects and tell China to go fuck themselves with the west’s tacit support and backing.
the companies are paying the loans back by granting China resource extraction rights which are especially useful to China because their construction companies are already there and the loans are for infrastructure that will help with extraction and shipping
Behold Chinese colonialism.
It is what it is.
Or by giving complete control of the megastructure, if it’s a shipping port or something essential
So, China loans the money, which returns to China via Chinese construction companies
This is par for the course in international assistance, not specific to China. Not limited to development assistance, either; most famously, US military aid to many countries around the world is earmarked for spending on US weapons firms.
Most of the loans are secured by oil or other ressources besides money. So theoretically those lands can always “pay”.
Rare earth metals is another big one besides oil
When politics stopped being about helping the country and became more about point scoring and massaging one’s own reputation, it became a breeding ground for wealthy countries like China to swoop in as a lifeline.
What do I mean?
Well, imagine you’re a country struggling financially. The new president is sworn in, promising an infrastructure reform, more jobs and prosperity to the country.
The president then sells the country to China and China comes over and starts developing their infrastructure, builds hospitals and creates a lot more jobs. The president gets hailed as a turning point for the country, the end of corruption. They end their term, get set up for the rest of their life with money, protection etc.
Then, the next president takes the job, and China says it’s time to pay up. The guy who just sat in his new fancy chair has no idea what deals the previous president made, and realises the previous president made a deal with the devil, sorted themselves out and is leaving the cleanup to the next guy.
Is there a way out? No, not really. It’s less about whether you owe money and more about who you owe it to. IMO owing a particular country is never a good idea because you could find relations break down between your country and the country you owe and suddenly that debt comes with a side serving of pain.
When ever was politics about helping the country?
Usually when countries are founded.
Like, imagine a country living under oppression finally gains their independence and can govern themselves. Everyone alive in that country knows how bad things were and the leader they elect promises that they will no longer have to worry.
Sure they have their challenges but they get on with it and they make it work.
The person who becomes the leader 3 generations later? To them it’s just a way to gain power, make money and do what they want. They have no idea how people felt when they were being oppressed, and how desperately they wanted to be liberated.
One of my favourite quotes by G. Michael Hopf summarises this perfectly:
Hard times create strong men.
Strong men create good times.
Good times create weak men.
And, weak men create hard times.Doesn’t even happen all that often in those conditions.
Everyone saw the debt trap.
Reminds me of this scene from the Simpsons: https://youtu.be/3xmGQdMijDU?si=4L6gyPZXoia6vy0X
This was always the endgame of Belt and Road. Loan money to countries who can’t afford the payments, then turn them into indentured servants and seize all the infrastructure that was built with Chinese loans.
They beat out the IMF? Impressive.
Yeah they went to those counties that for some unimaginable reason don’t trust the IMF.
Meet the new boss, same as the old boss.
I mean I guess but the imf charges 2% interest on loans. China charges 5%
@zepheriths the trouble with the IMF is it requires very specific economic restructuring that tends to lower social spending on things like health.
For many years NGO doctors nicknamed it the Infant Mortality Fund for this reason.
And this has subsequently been backed up by research which found that yes, a rise in infant mortality really does follow an IMF loan, even when you control for other factors.
So basically which would you rather: children in your country die now, or your railway gets reposessed later?
(Example of research = Globalization and health equity: The impact of structural adjustment programs on developing countries)
You will see a lot of bad outcomes following an IMF intervention for the same reason you will see a lot of bad outcomes following oncology visits. Once you’ve gotten to the point the IMF get involved, things are already going to hell. What do you believe the effect on infant mortality of bankruptcy to be?
@hanekam that’s the conclusion you would jump to if you’re not familiar with the actual research, but this is why I mentioned that they control for other factors.
I’m not ignorant, I know correlation doesn’t equal causation. But the fact that the actual conditions of IMF loans drive specific negative social outcomes has been well-established.
Here are a couple of starting points:
we find that IMF policy reforms reduce fiscal space for investment in health, limit staff expansion of doctors and nurses, and lead to budget execution challenges in health systems. Further, we use cross-national fixed effects models to evaluate the relationship between IMF-mandated policy reforms and government health spending, adjusting for confounding economic and demographic factors and for selection bias.
International Monetary Fund Programs and Tuberculosis Outcomes in Post-Communist Countries
I’ve looked at all of the sources you provide, and they all point out the fact that countries experience bad outsomes after an IMF intervention, which nobody’s disputed. My argument is that countries in similar dire straights will experience even worse outcomes if there is no such intervention. As an example, I could name Venezuela, which experienced an extreme increase in child mortality, your favored metric, after leaving the IMF. The root cause is economic distress, not the IMF intervention.
Minimizing the negative effects of government failure is absolutely worth examining. Identifying the mistakes made by the IMF in past interventions is a noble goal. But we should not blame international organizations when poor governance causes countries to fail.
I understand your argument but it doesn’t really apply. With all due respect I don’t think you can have looked at my links very well.
The TB one for instance found that TB gets worse whenever there is an IMF loan but not in the same circumstances when there is a loan from somewhere else.
But we should not blame international organizations when poor governance
You don’t seem to realize that IMF loan conditions have very specific governance requirements which directly impact governmental decisions around health spending.
These are called Structural Adjustment Programs.
There have been a bunch of these types of finding. Like I said, it’s well known in NGO circles.
There is a reason China’s loans are so popular. I think being able to govern your health system as you see fit is a much more compelling reason for choosing a particular loan style, than some vague ideological mumbo jumbo.
Alright: meet the new boss, slightly worse than the old boss, maybe.
China is way way worse than the IMF. The IMF restructures the debts of distressed countries to help them avoid bankruptcy. China sabotages this sort of help by refusing to negotiate on the same terms as other creditors, preventing the IMF from doing it’s job.
Charity and extortion. Has there ever been a more iconic duo?
On one hand, does the US ever give charity before the extortion? Not entirely unique to the CPC
The world can have two bullies.
Sure, but do you really want more countries doing it?
buwuduboutamerica 😭😭😭
Is this the belt part of belt and road?
Less of a silk road and more of a yoke.
They got the roads, now they get the belt.
* yoke
My bad
It’s fairly common, no biggie.
This is the best summary I could come up with:
Lending from Chinese state-backed banks has helped to build railways in Kenya and power plants in Cambodia, along with thousands of other projects.
To mitigate the risk of future defaults, Chinese policymakers have introduced a number of measures, including reducing loans for infrastructure projects while ramping up emergency lending.
China has created “a safety net” for countries in financial distress – “and, by extension, their highly exposed Chinese creditors”.
The AidData report cites figures from the Gallup World Poll which shows that public approval ratings for China in low- and middle-income countries fell from 56% in 2019 to 40% in 2021.
But the AidData researchers found that between the early years of the BRI (2014-2017) and the latter period (2018-2021), Chinese lenders increased the maximum penalty interest rate for late repayments from 3% to 8.7%.
Bradley Parks, one of the report’s authors and the executive director of AidData, said: “Beijing is trying to find its footing as the world’s largest official debt collector at a time when many of its biggest borrowers are illiquid or insolvent.
The original article contains 605 words, the summary contains 176 words. Saved 71%. I’m a bot and I’m open source!
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1.5trn? Like 1.5 trillion Russian Nevnuts?
why don’t they just write the whole fucking God damn word it’s permanent record that like a million people are going to see on the internet you can spell out the whole goddamn word it’s a few more letters
Does the US have similar program? I like to compare. But I couldn’t find anything. Maybe US only provided aid and expect international brownies in return.
No, not really. But that’s more because the government and economy of China and the USA works fundamentally different. The US does a lot of foreign investment. But it’s done by the private sector. Chinese companies aren’t allowed to do foreign investments without approval of the Chinese government. So everytime a “private” Chinese company does an investment abroad, the Chinese government is directly involved.
The closest would probably be the landlease to Ukraine. All/most of the aid packages have to be paid back. Not necessarily with direct payments but by awarding (re-)building projects to US companies.
And obviously there is the IMF where the US pays the highest quota to and therfore has the highest voting power in how the money of the IMF is distributed.
@dreadedsemi the closest is the World Bank group. The US is the largest participant and has the most votes. Similar situation with the IMF which is also quartered in Washington.
USAID?
USAID is not a loan program.
offering loan guarantees to businesses,
Right, so a loan guarantee is not a loan.
The DCA, or the Development Credit Authority, on the other hand, was the initiative used by USAID to give loans, loan guarantees, and risk assurances to businesses—which essentially protected those businesses from any financial risks when they entered into new markets and privatized public infrastructure in developing countries.
Edit: Wikipedia
This is world news, comparing USA to China will not be tolerated in this lemmy group. Especially with this kind of anti Chinese article
