Why is China keeping a low profile on emerging countries' debt relief?-
China is the world's largest creditor of bilateral lenders. In May, G7 finance ministers named China for its assistance to debtor countries. However, China's attitude has always been low-key, and it has not issued any statement so far. Analysts say China's own fiscal difficulties will largely limit its ability to provide aid to economically struggling economies. In addition, China is also waiting for an opportunity for a single bilateral consultation with individual debtor countries, and uses the individualized and differentiated negotiation content to strike a better balance between its own financial difficulties and the arrears of debtor countries. However, analysts also cautioned that China should be prepared for poor countries to fully default on their debts.
Reuters reported on July 4 that after the outbreak of the new crown epidemic, many countries are in distress due to huge economic pressures and are seeking debt relief, such as Zambia, the first Chinese Belt and Road African country to default on some dollar-denominated bond bonds during the new crown epidemic, is seeking China to reduce its foreign debt of more than $17 billion.
It is understood that China's financing for Zambia's airports, highways and hydroelectric dams and other large-scale infrastructure has exceeded 6 billion US dollars; There are also 813 investment projects in Laos, with a total value of more than US$16 billion. Kenya and Ethiopia are also struggling to repay loans for railways and other infrastructure built by Belt and Road projects.
Over the past decade, many emerging market countries have accumulated huge amounts of debt amid inflation and low interest rates. According to the International Monetary Fund, about 60 percent of low-income countries are in debt distress or at high risk.
Sri Lanka announced in April that it would not be able to repay $51 billion in loans due and interest payments. Among them, China accounts for 10% of Sri Lanka's creditors, ranking with Japan and is the country's largest creditor.
According to a March report by the Center for Green Finance and Development at Fudan University in Shanghai, 68 developing countries owe China $110 billion in debt, making China the largest single creditor after the World Bank's Agency for International Development. These countries must pay down China's debt of up to $14 billion this year.
The report also said that more than 8 of these 68 countries have 2% of their national income to pay off China's debt, and Angola in Africa pays interest and principal on Chinese loans, accounting for 5% of its national income.
China keeps a low profile
At the Finance Ministers' Meeting in May, the G7 also publicly named China, hoping that China could play a more active role in helping debt-distressed developing countries. But China has so far kept a low profile and has not responded clearly.
From the $360 million expansion of Lusaka International Airport in Zambia to the $1.4 billion port construction in Colombo, Sri Lanka, some emerging market countries are negotiating a series of debt relief projects, but in these complex negotiations, China, the largest creditor, has been nowhere to be seen, Reuters said.
Analysts interviewed by VOA generally believe that Beijing's silence is partly because it is not a member of the G7, especially in the increasingly fierce competition between the West and China, Beijing naturally does not follow the policy guidance issued by the G7; On the other hand, China is also waiting for debtor countries to make demands for resumption of negotiations, but there is no need for China to inform the G7 countries of the content of these negotiations, nor does it need to make high-profile rebuttals in the international media, because it is more beneficial to conduct them privately and individually.
Beijing is in a dilemma
Therefore, he said, the focus is not on what criticism and accusations the G7 or any major power has against it, but on how it can negotiate with the debtor countries of the Belt and Road and recover the arrears, so as to achieve a better balance between its own financial difficulties and the dilemma of arrears of debtor countries. The best solution is to deal with the debt problems of debtor countries individually, which is why China has kept a low profile on debt relief.
Li Kongzhi said that the needs of each debtor country are different, the domestic political situation is different, sometimes small countries do not have so mature political culture and people's literacy, these countries have their own problems, but China can help solve some of these problems by threading the needle.
Individual negotiations are most beneficial
He said: "If [China] can be familiar with the internal affairs of various countries, I think there is actually room to negotiate solutions for each country, and such negotiations will make China lose the least." ”
Mr. Lee argues that if the debtor countries offer Beijing a new repayment offer, Beijing should compromise moderately, because if it does not, Beijing's original envisaged international diplomatic influence will be greatly reduced.
Liu Xiaoxiang, an associate researcher at the National Security Research Institute of Taiwan's National Defense and Security Research Institute, also said in an interview with VOA that the main reason why China keeps a low profile on debt relief is because it does not want to make the terms of its loans with debtor countries transparent, because this is likely to make other related cooperation projects in the Belt and Road Initiative public, and attract more criticism from Western countries, which is not a good thing for China.
Taiwan's Central News Agency reported in late May, citing people familiar with the matter, that China's lack of experience in the thorny debt restructuring and slow coordination among public lenders delayed debt relief for Zambia.
However, some analysts say that in fact, China has not failed to deal with debt relief cases in the past, such as when Malaysian Prime Minister Mahathir Mohamad came to power in 2018, scrapping the Eastern Railway plan signed with China by the previous Prime Minister Najib Najib and drawing up a new repayment plan with China, the cost of the new plan is about one-third lower than the old one. This satisfied Mahathir's personal political prestige and the expectations of the majority of Malaysians at that time.
Political propaganda aims and strategic interests
In addition, Liu Xiaoxiang pointed out that in November 2021, at the eighth ministerial meeting of the Forum on China-Africa Cooperation, China provided US$2.1 billion in debt relief to poor countries in order to implement the G20 debt agenda. Earlier, at the Beijing Summit of the Forum on China-Africa Cooperation in September 2018, China also forgave the outstanding intergovernmental interest-free loan debt of poor African countries with which it has ties by the end of 2018.
Liu Xiaoxiang said: "From the above examples, it can be seen that China's willingness to provide debt relief to emerging countries is mostly for a very strong political propaganda purpose, and it is on important occasions to shape China as a responsible big country, which is China's main consideration." ”
Liu Xiaoxiang stressed that this does not mean that China really wants to be a responsible big country, but can let emerging countries take what they want, China is selective debt relief, such as in April 2020, China did not compromise on debt relief for Tanzania, even if it said it would scrap the cooperation plan with China.
Liu Xiaoxiang said: "China's willingness to forgive its debt must be beneficial to it, and this economic loss is still within the scope of its ability to bear, in exchange for higher political reasons and strategic benefits." ”
Pressure China
Liu Xiaoxiang said that China's wave of debt relief crisis is not unrelated to the Russian-Ukrainian war, G7 this time specifically named China, somewhat of the meaning of pressure on China, hope that China in the Russian-Ukrainian war can make a statement or action, because for the G7, the Russian-Ukrainian war may have a greater impact on them, and the debt crisis of these emerging countries is not a day or two, and similar debt problems, in the past, have been dealt with by the Paris Club, and the G20 also has a common framework for related debt problem resolution.
Liu Yongyu, an assistant professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore, said in an interview with VOA that Beijing may not be able to provide debt relief to debtor countries at present due to two factors: first, China's own economic and financial situation is not good, and it cannot afford debt relief; Second, if Beijing now grants debt relief to one debtor country, it could set a dangerous precedent for other debtor countries participating in the Belt and Road Initiative.
China needs to be prepared to be in arrears
He said that global inflationary pressures and economic recession have hit developing countries hard, and will also be accompanied by more social and political contradictions and instability, many of which are participating countries in the Belt and Road Initiative. This means that the financial sustainability of many BRI projects may be weakened, and it also means that Beijing may not be able to reap as much profit from these projects as initially expected, so China needs to be prepared that poor countries may default across the board.
Mr. Liu said China's own fiscal difficulties would largely limit its ability to provide aid to economically struggling economies, as doing so could exacerbate an already poor economic situation at home. But with strategic benefits outweighing economic costs, China will still lend a hand to countries such as Southeast Asia and Africa because of their geostrategic or natural resource importance.
Liu Xiaoxiang said that when China promoted the Belt and Road Initiative in the past, there were some internal criticisms about "overseas coin spilling", and now that the 20th National Congress of the Communist Party of China is about to convene, Xi Jinping's re-election is a top priority. In such an atmosphere, China will take care of itself first, looking at the recent bankruptcy of Sri Lanka, China has no intention of saving, is the best example, and China has always advertised that it does not interfere in the internal affairs of other countries, if China reaches out to help the bankrupt Sri Lanka at this time, it will really put itself in a more dilemma.
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