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Debt war along the Silk Road
In his book "The Dirty Silk Road" STANDARD correspondent Philipp Mattheis explains how China is flooding the world with US dollars
Philipp Mattheis
May 21, 2023, 09:00
The African country of Zambia is not necessarily considered a hotspot by international donors. Lusaka was therefore all the more pleased to finally receive loans for infrastructure projects from Beijing. Over the past ten years, China has given the country several billion U.S. dollars in loans. Zambia used the money to build an international airport, two sports stadiums and a hospital. A hydroelectric power plant near the capital Lusaka was also recently opened. Now, however, Zambia is in payment difficulties and caught between two fronts: Opposing each other are the American-Western dominated International Monetary Fund and Beijing, which in recent years has become the world's largest creditor. And it is not only the African country of Zambia that is affected.
China as the biggest creditor
According to the IMF, 21 countries are currently facing "insolvency" or are having problems repaying their debts: from Egypt to Pakistan, from Sri Lanka to Laos. There is even talk of the biggest debt crisis in history, if the number of people affected is taken as a yardstick - around 700 million. The fact that this has come about is due not only, but above all, to the Chinese "New Silk Road" project.
Ten years ago, Chinese President Xi Jinping made a momentous speech in the Kazakh capital Astana, which is regarded as the starting signal for the project also known as the Belt & Road Initiative. In the following years, the Chinese government flooded emerging countries in particular with billions of U.S. dollars to finance infrastructure projects in the respective countries. Among other things, a rail line was built to connect the Chinese metropolis of Chongqing with the German city of Duisburg. Above all, however, Beijing built rail lines, roads and ports in Africa and Asia to transport raw materials to China.
Beijing awards U.S. dollars
Pipelines, airports and highways are also among the projects. The billions from Beijing came in particularly handy for dictators and corrupt politicians because, unlike Western loans, they were not tied to environmental and liberalization requirements. The pattern has always been the same: Beijing grants a billion dollar loan for such a project, with the condition that Chinese companies are contracted and Chinese materials are ordered. Ideally, the project generates a profit that the country can use to repay its loan. But this happens less and less often. The port of Hambantota in Sri Lanka hit the headlines a few years ago. When the island nation at the southern tip of India could no longer service its loan, Beijing unceremoniously "leased" the port for the next 99 years. Sri Lanka is an extreme example, but more and more countries on the "New Silk Road" are currently experiencing payment difficulties.
And this is by no means only Beijing's problem. A sovereign default by a single country not only has a negative impact on the largest creditor, but can trigger a whole cascade of bankruptcies and bring countries to the brink of civil war.
For a long time, the problem smoldered under the surface. It was not until the sharp interest rate hikes by the U.S. Federal Reserve, which began about a year ago, that financing costs rose all over the world. Added to this are the high energy prices that are burdening the budgets of numerous states.
Hidden debt
Multilateral cooperation would be necessary to avert a global debt crisis. But Beijing refuses to do so and sees the IMF as a Western power vehicle, since the United States has the most voting rights in the organization. Since its founding in 1944, the organization has lent about $700 billion to 150 countries. That is most likely a lot less than China has distributed in the past decade. But here lies another problem: No one, and probably not even the Chinese government itself, knows exactly how much money has been lent and on what terms. However, a study by Aid Data in 2021 concluded that China's claims amount to at least $840 billion. Of this amount, around 385 billion is "hidden debt".
Geopolitical interests
Over the past 65 years, it has usually been the "Paris Club" that has sought multilateral solutions. The informal body serves to create a framework where indebted countries can reach agreement with their creditors. But China never wanted to join the body, despite invitations to do so. The consequences are now being felt: The IMF and Western countries only want to cancel debts or step in with emergency loans if Beijing goes along, otherwise the money would flow more or less directly into the pockets of China's creditors.
China, on the other hand, is insisting on bilateral solutions such as follow-up loans and debt rescheduling. Behind this may also be Beijing's geopolitical program to expand its influence in the countries of the Global South.
The ones who suffer in this case are the indebted countries. Sri Lanka, which has already had to give a port to Beijing as a "pledge," has been in payment difficulties again since last summer and in one of its worst economic crises. (Philipp Mattheis, 5/21/2023)
Source (derstandard.at) | Archive
Philipp Mattheis
May 21, 2023, 09:00
The African country of Zambia is not necessarily considered a hotspot by international donors. Lusaka was therefore all the more pleased to finally receive loans for infrastructure projects from Beijing. Over the past ten years, China has given the country several billion U.S. dollars in loans. Zambia used the money to build an international airport, two sports stadiums and a hospital. A hydroelectric power plant near the capital Lusaka was also recently opened. Now, however, Zambia is in payment difficulties and caught between two fronts: Opposing each other are the American-Western dominated International Monetary Fund and Beijing, which in recent years has become the world's largest creditor. And it is not only the African country of Zambia that is affected.
China as the biggest creditor
According to the IMF, 21 countries are currently facing "insolvency" or are having problems repaying their debts: from Egypt to Pakistan, from Sri Lanka to Laos. There is even talk of the biggest debt crisis in history, if the number of people affected is taken as a yardstick - around 700 million. The fact that this has come about is due not only, but above all, to the Chinese "New Silk Road" project.
Ten years ago, Chinese President Xi Jinping made a momentous speech in the Kazakh capital Astana, which is regarded as the starting signal for the project also known as the Belt & Road Initiative. In the following years, the Chinese government flooded emerging countries in particular with billions of U.S. dollars to finance infrastructure projects in the respective countries. Among other things, a rail line was built to connect the Chinese metropolis of Chongqing with the German city of Duisburg. Above all, however, Beijing built rail lines, roads and ports in Africa and Asia to transport raw materials to China.
Beijing awards U.S. dollars
Pipelines, airports and highways are also among the projects. The billions from Beijing came in particularly handy for dictators and corrupt politicians because, unlike Western loans, they were not tied to environmental and liberalization requirements. The pattern has always been the same: Beijing grants a billion dollar loan for such a project, with the condition that Chinese companies are contracted and Chinese materials are ordered. Ideally, the project generates a profit that the country can use to repay its loan. But this happens less and less often. The port of Hambantota in Sri Lanka hit the headlines a few years ago. When the island nation at the southern tip of India could no longer service its loan, Beijing unceremoniously "leased" the port for the next 99 years. Sri Lanka is an extreme example, but more and more countries on the "New Silk Road" are currently experiencing payment difficulties.
And this is by no means only Beijing's problem. A sovereign default by a single country not only has a negative impact on the largest creditor, but can trigger a whole cascade of bankruptcies and bring countries to the brink of civil war.
For a long time, the problem smoldered under the surface. It was not until the sharp interest rate hikes by the U.S. Federal Reserve, which began about a year ago, that financing costs rose all over the world. Added to this are the high energy prices that are burdening the budgets of numerous states.
Hidden debt
Multilateral cooperation would be necessary to avert a global debt crisis. But Beijing refuses to do so and sees the IMF as a Western power vehicle, since the United States has the most voting rights in the organization. Since its founding in 1944, the organization has lent about $700 billion to 150 countries. That is most likely a lot less than China has distributed in the past decade. But here lies another problem: No one, and probably not even the Chinese government itself, knows exactly how much money has been lent and on what terms. However, a study by Aid Data in 2021 concluded that China's claims amount to at least $840 billion. Of this amount, around 385 billion is "hidden debt".
Geopolitical interests
Over the past 65 years, it has usually been the "Paris Club" that has sought multilateral solutions. The informal body serves to create a framework where indebted countries can reach agreement with their creditors. But China never wanted to join the body, despite invitations to do so. The consequences are now being felt: The IMF and Western countries only want to cancel debts or step in with emergency loans if Beijing goes along, otherwise the money would flow more or less directly into the pockets of China's creditors.
China, on the other hand, is insisting on bilateral solutions such as follow-up loans and debt rescheduling. Behind this may also be Beijing's geopolitical program to expand its influence in the countries of the Global South.
The ones who suffer in this case are the indebted countries. Sri Lanka, which has already had to give a port to Beijing as a "pledge," has been in payment difficulties again since last summer and in one of its worst economic crises. (Philipp Mattheis, 5/21/2023)
Source (derstandard.at) | Archive
