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China ‘world’s biggest debt collector’ as poorer nations struggle with its loans (www.theguardian.com)
submitted 11 months ago* (last edited 11 months ago) by MicroWave@lemmy.world to c/world@lemmy.world
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Country, estimated to be owed up to $1.5trn, is increasing penalties for late payments and cutting back on infrastructure projects

China has become the world’s biggest debt collector, as the money it is owed from developing countries has surged to between $1.1tn (£889bn) and $1.5tn, according to a new report. An estimated 80% of China’s overseas lending portfolio in the global south is now supporting countries in financial distress.

Since 2017, China has been the world’s biggest bilateral lender; its main development banks issued nearly $500bn between 2008 and 2021. While some of this predates the belt and road initiative (BRI), Beijing’s flagship development programme has mobilised much of the investment in developing countries.

But a new report by researchers at the AidData research lab at William & Mary, a public university in Virginia, found that China, the world’s second largest economy, is now navigating the role of international debt collector as well as being a bilateral funder of major infrastructure projects.

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[-] Pons_Aelius@kbin.social 88 points 11 months ago

Who honestly didn't see this outcome?

China splashes money at developing countries they have little or no ability to repay.

The money is spent contracting Chinese construction companies to build infrastructure projects of dubious relevance and value.

So, China loans the money, which returns to China via Chinese construction companies and the countries are left holding the bill.

I doubt the CCP ever actually expected to be paid back but will hold the outstanding loans over the country's heads as leverage.

I also expect that some of the countries involved never had any intention of paying back the loans and are playing the CCP for idiots. Once things get worse internationally they will nationalise the projects and tell China to go fuck themselves with the west's tacit support and backing.

[-] match@pawb.social 43 points 11 months ago

the companies are paying the loans back by granting China resource extraction rights which are especially useful to China because their construction companies are already there and the loans are for infrastructure that will help with extraction and shipping

[-] Moonrise2473@feddit.it 5 points 11 months ago

Or by giving complete control of the megastructure, if it's a shipping port or something essential

[-] cyd@lemmy.world 15 points 11 months ago

So, China loans the money, which returns to China via Chinese construction companies

This is par for the course in international assistance, not specific to China. Not limited to development assistance, either; most famously, US military aid to many countries around the world is earmarked for spending on US weapons firms.

[-] Cit@lemmy.world 8 points 11 months ago

Most of the loans are secured by oil or other ressources besides money. So theoretically those lands can always "pay".

[-] match@pawb.social 4 points 11 months ago

Rare earth metals is another big one besides oil

[-] Why9@lemmy.world 7 points 11 months ago* (last edited 11 months ago)

When politics stopped being about helping the country and became more about point scoring and massaging one's own reputation, it became a breeding ground for wealthy countries like China to swoop in as a lifeline.

What do I mean?

Well, imagine you're a country struggling financially. The new president is sworn in, promising an infrastructure reform, more jobs and prosperity to the country.

The president then sells the country to China and China comes over and starts developing their infrastructure, builds hospitals and creates a lot more jobs. The president gets hailed as a turning point for the country, the end of corruption. They end their term, get set up for the rest of their life with money, protection etc.

Then, the next president takes the job, and China says it's time to pay up. The guy who just sat in his new fancy chair has no idea what deals the previous president made, and realises the previous president made a deal with the devil, sorted themselves out and is leaving the cleanup to the next guy.

Is there a way out? No, not really. It's less about whether you owe money and more about who you owe it to. IMO owing a particular country is never a good idea because you could find relations break down between your country and the country you owe and suddenly that debt comes with a side serving of pain.

[-] msage@programming.dev 2 points 11 months ago

When ever was politics about helping the country?

[-] Why9@lemmy.world 1 points 11 months ago* (last edited 11 months ago)

Usually when countries are founded.

Like, imagine a country living under oppression finally gains their independence and can govern themselves. Everyone alive in that country knows how bad things were and the leader they elect promises that they will no longer have to worry.

Sure they have their challenges but they get on with it and they make it work.

The person who becomes the leader 3 generations later? To them it's just a way to gain power, make money and do what they want. They have no idea how people felt when they were being oppressed, and how desperately they wanted to be liberated.

One of my favourite quotes by G. Michael Hopf summarises this perfectly:

Hard times create strong men.
Strong men create good times.
Good times create weak men.
And, weak men create hard times.

[-] msage@programming.dev 1 points 11 months ago

Doesn't even happen all that often in those conditions.

[-] Nobody@lemmy.world 28 points 11 months ago

This was always the endgame of Belt and Road. Loan money to countries who can't afford the payments, then turn them into indentured servants and seize all the infrastructure that was built with Chinese loans.

[-] hark@lemmy.world 21 points 11 months ago

They beat out the IMF? Impressive.

[-] FMT99@lemmy.world 12 points 11 months ago

Yeah they went to those counties that for some unimaginable reason don't trust the IMF.

Meet the new boss, same as the old boss.

[-] zepheriths@lemmy.world 12 points 11 months ago

I mean I guess but the imf charges 2% interest on loans. China charges 5%

[-] FMT99@lemmy.world 4 points 11 months ago

Alright: meet the new boss, slightly worse than the old boss, maybe.

[-] livus@kbin.social 4 points 11 months ago* (last edited 11 months ago)

@zepheriths the trouble with the IMF is it requires very specific economic restructuring that tends to lower social spending on things like health.

For many years NGO doctors nicknamed it the Infant Mortality Fund for this reason.

And this has subsequently been backed up by research which found that yes, a rise in infant mortality really does follow an IMF loan, even when you control for other factors.

So basically which would you rather: children in your country die now, or your railway gets reposessed later?

@FMT99

(Example of research = Globalization and health equity: The impact of structural adjustment programs on developing countries)

[-] hanekam@lemmy.world 1 points 11 months ago

You will see a lot of bad outcomes following an IMF intervention for the same reason you will see a lot of bad outcomes following oncology visits. Once you've gotten to the point the IMF get involved, things are already going to hell. What do you believe the effect on infant mortality of bankruptcy to be?

[-] livus@kbin.social 1 points 11 months ago* (last edited 11 months ago)

@hanekam that's the conclusion you would jump to if you're not familiar with the actual research, but this is why I mentioned that they control for other factors.

I'm not ignorant, I know correlation doesn't equal causation. But the fact that the actual conditions of IMF loans drive specific negative social outcomes has been well-established.

Here are a couple of starting points:

The impact of IMF conditionality on government health expenditure: A cross-national analysis of 16 West African nations

we find that IMF policy reforms reduce fiscal space for investment in health, limit staff expansion of doctors and nurses, and lead to budget execution challenges in health systems. Further, we use cross-national fixed effects models to evaluate the relationship between IMF-mandated policy reforms and government health spending, adjusting for confounding economic and demographic factors and for selection bias.

International Monetary Fund Programs and Tuberculosis Outcomes in Post-Communist Countries

[-] hanekam@lemmy.world 1 points 11 months ago* (last edited 11 months ago)

I've looked at all of the sources you provide, and they all point out the fact that countries experience bad outsomes after an IMF intervention, which nobody's disputed. My argument is that countries in similar dire straights will experience even worse outcomes if there is no such intervention. As an example, I could name Venezuela, which experienced an extreme increase in child mortality, your favored metric, after leaving the IMF. The root cause is economic distress, not the IMF intervention.

Minimizing the negative effects of government failure is absolutely worth examining. Identifying the mistakes made by the IMF in past interventions is a noble goal. But we should not blame international organizations when poor governance causes countries to fail.

[-] livus@kbin.social 1 points 11 months ago* (last edited 11 months ago)

I understand your argument but it doesn't really apply. With all due respect I don't think you can have looked at my links very well.

The TB one for instance found that TB gets worse whenever there is an IMF loan but not in the same circumstances when there is a loan from somewhere else.

But we should not blame international organizations when poor governance

You don't seem to realize that IMF loan conditions have very specific governance requirements which directly impact governmental decisions around health spending.

These are called Structural Adjustment Programs.

There have been a bunch of these types of finding. Like I said, it's well known in NGO circles.

There is a reason China's loans are so popular. I think being able to govern your health system as you see fit is a much more compelling reason for choosing a particular loan style, than some vague ideological mumbo jumbo.

[-] hanekam@lemmy.world 1 points 11 months ago

The TB one for instance found that TB gets worse whenever there is an IMF loan but not in the same circumstances when there is a loan from somewhere else.

Yes, because the countries taking those loans aren't distressed.

There is a reason China’s loans are so popular.

They are popular because they come with very little oversight. Countries with higher transparency do not find them very appealing, as Italy's recent withdrawal from the program attests.

You don’t seem to realize that IMF loan conditions have very specific governance requirements which directly impact governmental decisions around health spending.

They come with very specific governance requirements which impact governmental decisions about a whole host of things, because those governments have proven incapable of sound fiscal management.

Again, the IMF is in no way perfect and I'm sure there is a myriad ways the conditions of their loans can be tailored to minimize negative outcomes. But that does not mean they cause these problems any more than every cancer death being a failure of medicine means doctors cause cancer.

[-] hanekam@lemmy.world 5 points 11 months ago

China is way way worse than the IMF. The IMF restructures the debts of distressed countries to help them avoid bankruptcy. China sabotages this sort of help by refusing to negotiate on the same terms as other creditors, preventing the IMF from doing it's job.

[-] Aurenkin@sh.itjust.works 19 points 11 months ago

Is this the belt part of belt and road?

[-] fleabomber@lemm.ee 11 points 11 months ago* (last edited 11 months ago)

Less of a silk road and more of a yoke.

[-] DefyTheLegends@lemmy.world 8 points 11 months ago

They got the roads, now they get the belt.

[-] athos77@kbin.social 3 points 11 months ago

* yoke

[-] fleabomber@lemm.ee 2 points 11 months ago

My bad

[-] athos77@kbin.social 2 points 11 months ago

It's fairly common, no biggie.

[-] dreadedsemi@lemmy.world 10 points 11 months ago

Does the US have similar program? I like to compare. But I couldn't find anything. Maybe US only provided aid and expect international brownies in return.

[-] Hillock@feddit.de 11 points 11 months ago

No, not really. But that's more because the government and economy of China and the USA works fundamentally different. The US does a lot of foreign investment. But it's done by the private sector. Chinese companies aren't allowed to do foreign investments without approval of the Chinese government. So everytime a "private" Chinese company does an investment abroad, the Chinese government is directly involved.

The closest would probably be the landlease to Ukraine. All/most of the aid packages have to be paid back. Not necessarily with direct payments but by awarding (re-)building projects to US companies.

And obviously there is the IMF where the US pays the highest quota to and therfore has the highest voting power in how the money of the IMF is distributed.

[-] livus@kbin.social 8 points 11 months ago

@dreadedsemi the closest is the World Bank group. The US is the largest participant and has the most votes. Similar situation with the IMF which is also quartered in Washington.

[-] TokenBoomer@lemmy.world 5 points 11 months ago

USAID?

[-] NaibofTabr@infosec.pub 4 points 11 months ago

USAID is not a loan program.

[-] TokenBoomer@lemmy.world 3 points 11 months ago* (last edited 11 months ago)

Learn.

offering loan guarantees to businesses,

[-] NaibofTabr@infosec.pub 1 points 11 months ago

Right, so a loan guarantee is not a loan.

[-] TokenBoomer@lemmy.world 2 points 11 months ago* (last edited 11 months ago)

The DCA, or the Development Credit Authority, on the other hand, was the initiative used by USAID to give loans, loan guarantees, and risk assurances to businesses—which essentially protected those businesses from any financial risks when they entered into new markets and privatized public infrastructure in developing countries.

Edit: Wikipedia

[-] Sgt_choke_n_stroke@lemmy.world 3 points 11 months ago

This is world news, comparing USA to China will not be tolerated in this lemmy group. Especially with this kind of anti Chinese article

[-] autotldr@lemmings.world 4 points 11 months ago

This is the best summary I could come up with:

Lending from Chinese state-backed banks has helped to build railways in Kenya and power plants in Cambodia, along with thousands of other projects.

To mitigate the risk of future defaults, Chinese policymakers have introduced a number of measures, including reducing loans for infrastructure projects while ramping up emergency lending.

China has created “a safety net” for countries in financial distress – “and, by extension, their highly exposed Chinese creditors”.

The AidData report cites figures from the Gallup World Poll which shows that public approval ratings for China in low- and middle-income countries fell from 56% in 2019 to 40% in 2021.

But the AidData researchers found that between the early years of the BRI (2014-2017) and the latter period (2018-2021), Chinese lenders increased the maximum penalty interest rate for late repayments from 3% to 8.7%.

Bradley Parks, one of the report’s authors and the executive director of AidData, said: “Beijing is trying to find its footing as the world’s largest official debt collector at a time when many of its biggest borrowers are illiquid or insolvent.

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this post was submitted on 07 Nov 2023
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