China risk of ‘ soot hon ‘ with ‘ debt trap ‘ strategy

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Many countries want to be cleared or dilate for the debt billions for Covid-19, pushing China into the dilemma.

When Covid-19 spread around the world, the Secretary of state of Pakistan, in front of the people in Beijing, had to make an urgent request: the country’s economy is in a recession and they want to restructure billions of DOLLARS from China.

China also received similar requests from Kyrgyzstan, Sri Lanka and several African countries, the proposal to restructure, postpone or delete billions of debts due this year.

Each such request is as an obstacle to China in an attempt to become the biggest creditor of developing countries. Over the past two decades, Beijing has promoted the global lending campaign, pouring into poor countries hundreds of billions, aiming to expand its influence and become a political-economic superpower.

Many international experts have called this “debt trap strategy”, when countries to borrow money from China for large-scale infrastructure projects had to be “mortgages” by seaport, mineral mines or other valuable assets.

A Chinese-funded power plant was constructed in Islamkot, Sindh Province, Pakistan, in 2018. Picture: AFP.

A Chinese-funded power plant was constructed in Islamkot, Sindh Province, Pakistan, in 2018. Photo:Afp.

But the “debt trap” strategy never fell into the current scene, as the world economy, since Covid-19, had more and more countries announce to Beijing that they could not pay when they were due.

This fact makes China stand in front of tough choices. If Beijing restructured or cleared debts worth more than US $ billion, it could put enormous pressure on the country’s financial system, while also leaving the Chinese people angry when they themselves were being subjected to influences from the stagnation economy.

But if China firmly recollection in the context of many countries that are outraged about the response to Beijing’s epidemic, the goal of increasing influence and building global imagery can be intimidated.

“China is in political disadvantage”, Andrew Small, senior member of the German Marshall Foundation, U.S. Public Policy Research Institute, identified. Small added that if determined to make a debt, “Beijing will take over strategic assets in countries that are now not capable of caring for their people”.

The reputation of China is at stake. Many countries openly suspect the role of Beijing during the outbreak of the epidemic, after the country’s 1st month rehabilitation has lowered the severity and infectious capacity of the nCoV. Beijing sold and donated the medical equipment to many countries to restore the image. Now, a false step in debt recovery can make Beijing’s global ambitions suffer a big failure.

The funds that China lenders are also great. The Kiel Institute, the German research team, said that China had been developing countries borrowing around 520 billion or more, with the majority being split into small loans over the last few years. This causes Beijing to become a creditor larger than the World Bank (WB) or the International Monetary Fund (IMF).

The leader in China’s debt lending campaign is the perimeter and Road initiative, a trillion USD plan that was launched by the Chairman of the Pacific to finance infrastructure construction projects and search for allies around the world. Since the initiative started in 2013, China has lent US $350 billion, of which much of the country borrowers are considered “debtors” at a high risk.

China rejected the idea of debt removal, but the signal generator that Beijing is ready to negotiate. In some cases, Peking actually took action. Government of Kyrgyzstan May 4 notice that China has agreed to undo the repayment deadline of 1.7 billion, but does not disclose the details.

Some other countries also hope to receive similar assistance. S. R. Attygalle, finance minister of Sri Lanka, said the Chinese development Bank has increased its credit limit to 700 million, lowering interest rates and deferral for two years for Sri Lanka.

In addition to those actions, some close sources indicate that Chinese officials are still undecided how to solve this problem.

Debt reduction is not a simple and effective way, the extortion, officials belonging to the research Department of the China Department of Commerce, written on Global Times. “What Chinese can do to help the country is bringing the funded projects by working loans back and earning sustainable profits, instead of CEvil remedies as simple as debt removal, this officer said.

The Belt initiative and the path became a sensitive subject before the outbreak of the epidemic. Chinese officials are worried that there are too many banks and companies that are pouring money into the same place, but agencies and organizations are very few that work together. China’s financial system is under pressure from public debt of state companies and local governments to sustain growth.

Some people in China catch the question of whether the money they struggle to earn is being used wasted overseas. Although China has become increasingly wealthy, many households in this country still have lower incomes than people in developed countries. The country’s economy is also on the island because of the epidemic, which caused the first growth to decline over the last several decades.

China’s “debt trap” strategy also suffered criticism from international commentary. The loan that China is for developing countries is very different from the money borrowed from rich countries or from organizations like the WB. Beijing often leave higher interest rates and shorter maturity periods, requesting refinancing after every two years. They also regularly require country collateral by national property. These factors make China’s state banks more confident when for poor countries to borrow money.

In some countries, loans have skyrocketed. The Chinese loan of Djibouti accounts for over 80% of the annual economic yield, while the incidence of Ethiopia is 20% and that of Kyrgyzstan is about 40%.

Chairman of the nearby Collective Binh (left) and Rwandan President Paul Kagame in Rwanda, Jan. 7/2018. Photo:

Chairman of the nearby Collective Binh (left) and Rwandan President Paul Kagame in Rwanda, Jan. 7/2018. Photo: Reuters.

The U.S. President Donald Trump accused China of using the “foreign policy of Debt trap”, as the poor countries lent their funds beyond their ability to pay, with the ultimate purpose of acquiring strategic assets and expanding the economic and military influence.

Beijing denied these allegations and many Chinese experts agree with it. They argue that the acquisition of collateral in foreign countries is difficult. China’s loan has a higher interest rate by the “creditors” facing the risk of non-withdrawal of funds.

“A lot of loans should have a higher interest rate to reflect the true risks,” said Tran Long, partner of Primus, economic analysis firm in Beijing, for the best.

But the wave of China’s opposition has been rising in recent years, as many countries are struggling to repay. The projects in the Belt initiative and the path are often not profitable, causing the borrowers to pay a lot. When Beijing gained control of a strategic seaport in Sri Lanka, many Chinese borrowing countries were really concerned.

Beijing is also said to rely on covert bilateral negotiations to force countries to accept ridiculous terms when borrowing money builds infrastructure in the Belt initiative and the path. Malaysia has opposed the debt package of $16 billion, pressured the Beijing to reduce loan amounts to 11 billion USD.

Beijing seems to be underestimate the risks of getting serious credit problems that could affect all developing countries at the same time. China remains resolutely that it can cope with each of their “debtors”. But leaders of these nations increasingly call on global efforts to help solve their problems.

“China wants to separate the countries of the Belt initiative and the path, because they are stronger when negotiating with individual countries”, Benn Steil, the Director of international economic affairs at the Committee on Foreign Relations, the US, said.

April 4, Pakistani Prime Minister Imran Khan urged wealthy organizations and countries to reduce debt to all developed countries. Two weeks later, the G20 group, including China, announced the expiration of all debts to the poorest countries until later this year.

But Mr. Song said the incentives of China import and Export bank “are not subject to debt reduction”. The bank is considered the “money jar” of the Belt initiative and the road, when funding for more than 1,800 projects with a total value of at least 149 billion.

As the global economic crisis is exacerbated, the pressure for China will increase. Officials participating in the negotiation process said many countries are requesting China to decline or remove debt, including some African countries.

Ethiopia, Africa’s fastest growing economy, has asked China to remove part of the debt and to take on the role of representingEuropeans conducted negotiations with China.

“It’s too early to tell how things will happen. But I know China often realized the challenges that countries are facing, “Eyob Tekalign Tolina, Ethiopian finance minister said and added that a group of less developed African nations has called for Beijing to defy.

“This is just a support call given in a global context with the island and the economy being influenced by the epidemic,” he said.

But Ghana finance Minister Ken Ofori-Atta said in an online interview with the Center for Global development that China needs to do more and act stronger.

Hambantota port is handed over by the Sri Lankan government to China under the Agreement 99 years to remove debt. Photo: NYTimes.

Hambantota port is handed over by the Sri Lankan government to China under the Agreement 99 years to remove debt. Photo: NYTimes.

Chinese officials one ink asserts they will continue projects in developing countries. Pakistan last week won a dam construction contract valued at $5.8 billion between a state-owned Chinese company with a Pakistani military company. The details of this contract are not disclosed.

But if China requires too many benefits, the national debt can be linked together and respond to Beijing. They can announce the amount borrowed from China and the terms and conditions of borrowing money, making this problem more troublesome to Beijing. Other countries can also change the way they lend, which makes China forced to adjust their own ways of doing so.

“It’s a math article for China. If you look at the situation and the scale of the countries that can break the debt, it can be a big risk to China. Do they accept a large amount of money to reduce debt? Or are they willing to collect the assets of those countries in such a sensitive period? “, Scott Morris, the senior member of the Center for Global Development, the Research institute is headquartered in the USA, for Hay.

Thanh Center (According to NYTimes)

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