China is calling in loans to dozens of countries from Pakistan to Kenya

https://fortune.com/2023/05/18/china-belt-road-loans-pakistan-sri-lanka-africa-collapse-economic-instability/

by mutexjp • 3 years ago

94 75 3 years ago

User23• 3 years ago

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.

ajross• 3 years ago

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.

ignormies• 3 years ago

China's primary goal here isn't to make money -- it's political and economic leverage in emerging economies.

https://en.wikipedia.org/wiki/Belt_and_Road_Initiative

cpursley• 3 years ago

The very purpose of political and economic leverage is to make money, even if not from those you are leveraging. Otherwise, what’s the point?

Reubend• 3 years ago

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.

nonethewiser5• 3 years ago

They already repossessed a port in Sri Lanka

arein3• 3 years ago

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.

freitzkriesler22• 3 years ago

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.

worrycue• 3 years ago

Typically there is collaterial involved, in this case "owning" or operating the airports, railways, roads, or what have you.

If they refuse to hand over the collateral?

George837286• 3 years ago

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.)

nradov4• 3 years ago

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.

nonethewiser5• 3 years ago

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.

nradov4• 3 years ago

Perhaps Pakistan should cancel their nuclear weapons program and stop funding terrorists. That would probably free up some money to pay for electricity.

vxNsr• 3 years ago

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.

foverzar4• 3 years ago

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.

koolba• 3 years ago

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.

crop_rotation• 3 years ago

And then bulldoze you on the road :D

49erfangoniners2• 3 years ago

And then take your roads, which were collateral

foverzar4• 3 years ago

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!)

ianburrell• 3 years ago

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.

missedthecue• 3 years ago

What a weird headline. China isn't "calling in" the loans. Nothing sudden is happening here. They are following their preset repayment schedule.

The author is upset that China isn't willingly choosing to forgive billions in loans.

George837286• 3 years ago

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.

bequanna2• 3 years ago

Sure, but wouldn’t China be relying on those countries willingly giving those things (ports, resources, etc) to them?

Why would any country do that?

jasmer3• 3 years ago

No, this is not true.

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..

coldtea6• 3 years ago

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.

China learned from the best.

nonethewiser5• 3 years ago

What kind of reforms? Like labor laws, worker protections?

SanjayMehta2• 3 years ago

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.

rhaway847732• 3 years ago

This is a completely false narrative.

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.

nradov4• 3 years ago

Every loan comes with conditions. No one is forcing countries to take those IMF loans. They always have the option of living within their means.

nonethewiser5• 3 years ago

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.

wonderwonder• 3 years ago

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.

coldtea6• 3 years ago

but also does things just to advance democracy

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.

bombcar• 3 years ago

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.

NovaDudely• 3 years ago

Maybe they provide a better initial deal? No idea.

But people can be blinded by better initial conditions even if long term it is worse.

rasz• 3 years ago

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.)

c_o_n_v_e_x• 3 years ago

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.

It's elite capture 101.

MichaelZuo• 3 years ago

I'll repost the top voted comment from r/anime_titties for this article, since apparently most users here were fooled by the reporting:

" 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.

China is calling in loans to dozens of countries from Pakistan to Kenya

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