In its bid to spread its economic tentacles around the globe, China has loaned at least $520 billion to developing countries to boost their economies. The countries put up mines, airports, and other property as collateral for the loans.
The loans left China as the world’s biggest lender, passing the World Bank and the International Monetary Fund.
Now those nations are telling China they can no longer make their loan payments. As a result, China faces a dilemma.
It can take over the property of countries already poor and be seen as hostile and cruel, destroying the good will the loans were meant to foster; or it can restructure the loans, appearing weak in the eyes of its’ own people, who already are suffering under domestic economic weakness.
Either option leaves China with less global heft, not more as it had planned.
About $350 billion of the loans are part of China’s $1-trillion Belt and Road Initiative, which has financed about 1,800 building projects in poor countries, in large measure so those nations have the infrastructure to boost their trade with China.
The loans have made “debt serfs” of several countries. Djibouti owes China the equivalent of 80 percent of its GDP, Kyrgyzstan 40 percent, and Ethiopia 20 percent.
This debt slavery is creating anti-China backlashes, especially after China seized a Sri Lankan airport recently when the tiny island nation was unable to make its payments.
China has dealt with the troubled countries individually to maintain its advantage in negotiations. Ethiopia, however, is assuming a role as lead negotiator with China on behalf of African debtors.
If China continues to refuse to loosen its loan terms, more debtor countries could unite in a “class action” to force China to restructure or forgive portions of the loans.
“It’s a reckoning for China,” said Scott Morris, senior fellow at the Center for Global Development.
TRENDPOST: Considering the lack of trust for the Chinese government to release the hard data, it is well assumed that economic conditions have deteriorated much worse than is being reported.
And, it is essential to note that the government is so unsure of the nation’s economic future, for the first time in decades, because of the “great uncertainty” caused by the virus, China will not estimate its 2020 GDP target.
