Recent news states that more than 88 countries across the world owe China more than $23 trillion in debt. In 201 9-2021 China had to bailout many of its debtors. While reports state that provincial Chinese administrations owe $5.8 trillion to foreign investors. The slowing Chinese GDP and the mounting foreign debt is a primary factor in China’s Debt Crisis.
The People’s Republic of China (PRC) had made grand plans for reviving China’s former glory. However, the PRC planes were seemingly derailed due to overextended finances and untrustworthy partners. Currently, the local governments of Chinese provinces are under crippling foreign debts to finance local developments within China. Additionally, the nation is undergoing a slowdown in its economic markets. Thus, the Debt Trap laid out by China for developing economies around the globe has become its own coffin.
Causes for China’s Lending Spree
The CCP aims to dominate the world through its debt trap for third-world economies. The ruling government attempts to regain former glory through its Belt and Road Initiative. This initiative is known in China as the ‘One Belt One Road’ plan. Since 2013 the CCP has furthered PRC’s ambition for the Belt and Road Initiative by collaborating with over 150 countries to enable Chinese access to a unified global market. The stated aim of this major policy is to enable the exploration of international and domestic markets, through cultural exchange and integration.
This innovative economic plan by China was based on infrastructural development in partner nations to construct the actual physical road through which this economic exchange was to be accomplished.
Thus, China extended many loans to its partner nations to build infrastructure and support its global economic venture in the form of the Belt and Road Initiative. However, these loans came with draconian clauses of high returns, mortgage of national resources to China, etc. The loans were an effective strong-arm tactic applied by China on its partner countries to support China’s policies on global platforms.
Consequences of Chinese Loans
Several nations that took loans from China are unable to pay it back. China was forced to forgive loans of more than $100 billion to its global partners in the year 2019-2020. Moreover, in 2020-2021 the PRC forgave loans for more than $200 billion. Despite these measures, several nations like Pakistan, Sri Lanka, and Zambia have found their economies on the brink of collapse. Such countries have begged the IMF and the world bank to intervene. Moreover, these nations have been unable to complete their promise of using China’s funds to partly support the Belt and Road Initiative. Therefore, the current One Belt One Road plan of China is incomplete with only small blocks of development in place.
Furthermore, the acts of pardoning part payments over the years have proved to be vastly expensive to the Chinese government. The local economies in China have found themselves cash-strapped. The push by the central government to increase local development resulted in placing local administrations in a difficult position. Therefore, local Chinese administrations requested loans from foreign investors to meet their needs. Currently, its local administrations owe $5.8 billion, which is 44% of the GDP of China.Â
China’s Debt Crisis
China is the biggest lender in the global economic market. The slowing economic growth and the downfall of the housing sectors in China have put PRC in a tough spot. More than 44% of China’s GDP is committed towards outstanding loans of its provincial governments. The inability of its partner nations to return China’s loan has become the root cause of China’s Debt Crisis. Moreover, the rising need for money from local administrations is a primary contributing factor to China’s Debt Crisis. The PRC finds itself cash-strapped as the nations, in which it had invested, do not complete their end of the bargain. Additionally, these nations are able to return loan payments on time. Thus, the Chinese debt has become 3 times its GDP and it is accompanied by bad investments in developing economies.
While the Chinese government strives to resolve its domestic crisis, most nations under Chinese debt are looking towards the IMF for a bailout. The IMF’s involvement in these partner nations with drowning economies may result in further financial losses for China. The IMF may ask China to forgive more interest payments; additionally, it may also ask to forgive part of its loan. Thus despite the severe economic crisis in countries like Pakistan and Sri Lanka, China is not yet open to discussions that may ultimately harm its own economy.Â