‘China’s trade plan piling debt on smaller nations’

Source: ‘China’s trade plan piling debt on smaller nations’ | The Herald 06 MAR, 2018

BEIJING. — A new report says China’s massive plan to pump hundreds of billions of dollars into ports, rail lines and other projects across Asia, Europe and Africa could pile debt problems onto smaller countries. Loans from China’s Belt and Road Initiative “will significantly add to the risk of debt distress” for eight countries, including Pakistan, Montenegro and Djibouti, according to a report published Sunday by the Centre for Global Development, a US-based nonprofit think tank.

“Belt and Road provides something that countries desperately want – financing for infrastructure. But when it comes to this type of lending, there can be too much of a good thing,” John Hurley, a visiting fellow at the center and co-author of the study, said in a statement.

Pakistan is “by far the largest country at high risk,” the centre says. Its report estimates China is financing about $50 billion worth of infrastructure and energy projects in Pakistan.

“Adding to Pakistan’s risk of debt distress are the relatively high interest rates being charged by China,” it warned.
The authors also attempted to estimate the growing indebtedness to China of the other seven countries, although they caution that China doesn’t report its foreign lending “in a systematic or transparent manner.”

In Djibouti, 82 percent of the country’s external debt was owned by China at the end of 2016, according to the report.
In Kyrgyzstan, the authors estimate China’s share of the country’s debt could spike from 37 percent at the end of 2016 to 71 percent in the coming years, based on the Belt and Road projects it has in the pipeline.
China one belt one road

The other nations singled out by the report as vulnerable are Laos, the Maldives, Mongolia and Tajikistan.
If any of them run into problems managing their debts, one concern is that China will be in a strong position to influence their strategic decisions or even gain control of important infrastructure.

In 2011, China reportedly agreed to write off debt in Tajikistan in exchange for disputed territory, according to the study. Last year, Beijing worked out an agreement with Sri Lanka over an $8 billion loan, securing a 99-year lease for a newly built port.
China deals with lending problems on a case by case basis rather than following widely accepted “rules of the road” set out by the International Monetary Fund or the World Bank, according to the report.

Instead of spurring growth and economic opportunity, China could be pushing a project that “introduces new debt vulnerabilities in developing countries and risks growth setbacks,” the authors wrote.

They suggest other countries and organisations like the World Bank should encourage China to embrace more sustainable lending practices and avoid the dangers of acting as a “go-it-alone” creditor. — CNNMoney.


  • comment-avatar
    Ndonga 3 years ago

    It’s a very big worry that so many countries fall into a deep debt trap by often satisfying “wants” and not “needs”.

    And I am not convinced that China will be a kind lender when the borrower’s money runs out.

    But why am I now reminded of a poem that my kids learn at school here in the UK?

    It runs something like “Will you walk into my parlour, said the Spider to the Fly”. It’s a clever story warning people to be careful of those that use flattery and charm to hide their true wicked intentions, to gain control over them.

    • comment-avatar
      harper 3 years ago

      Look how much our bigwigs lost to the Bank of Credit and Commerce International after falling victim to their charm offensive. And are probably still loosing millions to the con artists of Dubai and Singapore.