Pakistan eventually had to “seek a bailout from the International Monetary Fund anyway”.
Pakistan, for instance, “received around $23 billion in fresh loans from Chinese sources between 2017 and last year, according to AidData-financing that was intended to shore up the country’s foreign-exchange reserves and credit ratings so its debt-servicing costs didn’t rise”. China, for the first time, became the world’s largest official creditor. ‘China is attempting a course correction,’ Zhong said.”Īccording to data available through media reports, i around 10 years, China gave away nearly $1 trillion in loans and other funds for development projects in almost 150 countries, such as Ecuador and Angola. While it used to tout the economic benefits of Chinese lending for recipient countries, it now emphasizes managing risks and improving international cooperation, said Weifeng Zhong, a senior research fellow who tracks Chinese government propaganda at the free-market think tank Mercatus Center at George Mason University. “Beijing has also dialed down its rhetoric in state media. The report also says China is forced to changed its approach to BRI because of these embarrassments. The other option is to extend the repayment period, relax the repayment terms, remove the penalty clauses or, if everything fails, extend the maturity of the loans indefinitely. The question before the Chinese government is, what to do now with the near-dead loans? Should they be written off? If so, it will mean forcing Chinese banks to accept massive losses. It’s coordinating with members of the Group of 20 advanced and developing economies to negotiate debt relief in some countries.” Nearly “60% of China’s overseas loans are now held by countries considered to be in financial distress, compared with 5% in 2010”, according to economists Sebastian Horn, Carmen Reinhart and Christoph Trebesch, who have written about international debt.Ĭhina has begun working with other creditors to resolve current debt quagmires, the WSJ says, adding: “To do so, Beijing has had to abandon its longstanding resistance to working with international institutions like the Paris Club, an association of large sovereign creditors including the US, Japan and France. The media report says Chinese banks have “already sharply reduced lending for new projects in low-income countries as they focus on cleaning up their existing loan portfolios”. Pertinently, even President Xi Jinping aired his reservations about the BRI practices which he called “increasingly complex,” and stressed the need to strengthen risk controls and expand cooperation, according to state-media reports of the meeting. They have also become open to accepting some losses on loans and renegotiating debt, something they had been previously unwilling to do.” The WSJ reports: “After nearly a decade of pressing Chinese banks to be generous with loans, Chinese policy makers are discussing a more conservative program, dubbed Belt and Road 2.0 in internal discussions, that would more rigorously evaluate new projects for financing, the people involved said. Western economists have repeatedly said China’s lending practices are not healthy because they are contributing to debt crises in many countries including Zambia and Sri Lanka.Īs a result, “tens of billions of dollars of loans have gone sour, and numerous development projects have stalled” and the project is being labeled “debt-trap diplomacy”, embarrassing Beijing.Ĭhina is now revising the program completely. Repaying BRI loans is the least among their priorities. Loan-taking countries are reeling under a slowing global economy, high inflation and weak attempts to come out of the pandemic years.
Now, Beijing is working on an overhaul of the troubled initiative, according to people involved in policy-making.” The Wall Street Journal reports: “China has spent a trillion dollars to expand its influence across Asia, Africa and Latin America through its BRI program.
Thus, the country’s plan to expand its areas of influence in Asia and Africa through a string of overseas investments has nearly boomeranged. The world’s financial experts believe China is learning a hard lesson for trying to dump money in developing and least developed countries at high interest rates and questionable penalties that include attachment of land and property in case of non-payment. China has put brakes on its ambitious Belt and Road Initiative (BRI) after it realised its finances are in a mess with nearly 60 per cent of foreign country loans piling up, as those countries are in financial distress and there is no question of repayment.
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