According to Nikkei Asia on September 20, many emerging or developing countries in China’s Belt and Road Initiative (BRI) are suffering terribly from an economic downturn caused by the COVID pandemic, surging interest rates, and rising food and energy prices. Therefore, Beijing will likely face more problem loans from these nations and thus suspend future lending in the time ahead.
The outlet, citing data from U.S.-based think tank Rhodium Group, reported that China’s renegotiations for interest payment relief and other loan terms between 2020 and 2021 amounted to $52 billion. This was a more than three-fold increase from the total $16 billion for 2019 and 2020.
World Bank economist Sebastian Horn and other researchers calculated that 60% of the communist regime’s overseas loans come from nations facing debt crises. Meanwhile, this figure was only 5% in 2010.
Takahide Kiuchi at Nomura Research Institute in August noted that the Chinese Communist Party’s distressed borrowers, including Nigeria, Egypt, Turkey, and Ghana, have high risks of a currency crisis due to shrinking foreign reserves.
As reported by the International Monetary Fund, emerging or developing nations’ foreign reserves dropped about 5% between December 2021 and June 2022, indicating the largest six-month fall in about six years.
As of the end of August, China’s foreign currency reserves totaled $3.1 trillion. Nikkei Asia noted this amount includes lending to other developing and illiquid nations. Thus, it would also tumble rapidly if these countries’ debts continue to worsen.
Facing growing risks of emerging nations struggling to meet debt obligations, the communist regime had to cut down on its foreign lending.
Nikkei Asia, citing World Bank data, reported that in 2020, the country’s new loans to lower-middle income nations reached only $13.9 billion, a 58% drop from the record high in 2018.
As of the end of 2020, China’s loan balance was $170.4 billion, up 2% from a year ago.
In the first seven months of 2022, U.K. research institute Janes estimates that Beijing extended only two loans of more than $1 billion each, a decline from eight loans last year.
The outlet reported that among Beijing’s borrowers, Pakistan has the highest debt balance of $23.3 billion. Over the past years, the Chinese regime invested huge amounts of money into infrastructure in Pakistan to create a counterweight to India.
However, the country is now encountering potential default due to weakened currency and a deficit current account.
According to Financial Times, some analysts think China’s emergency loans cannot help those at risk of financial crises but rather serve other CCP’s plans.
Analysts believe that the primary goal of Beijing’s emergency loan is to avoid defaults on infrastructure loans it gave through the BRI. Moreover, these lendings would likely help it avert potential full-blown crises such as those that hit Asia in 1997 and Latin America in the 1980s.
He said, “Beijing has tried to keep these countries afloat by providing emergency loan after emergency loan without asking its borrowers to restore economic policy discipline or pursue debt relief through a co-ordinated restructuring process with all major creditors.”
Parks explained that when this happens, the CCP “effectively kicks the can down the road and leaves it to others to solve the underlying solvency problem.”
Regarding Sri Lanka’s foreign debt default, Nikkei Asia reported that the CCP offered to forgive debts for the country in exchange for 99 years of rights to operate in the southern port of Hambantota.
A Sri Lankan shopkeeper who lives near the port complained, “Jobs have not increased, and this is not helping anyone.”
He added, “All they did was build ridiculous facilities.”