9 ms·

China is calling in loans to dozens of countries from Pakistan to Kenya

94 points by mutexjp 3y ago

User23 3y ago
I wonder if they’re going to squeeze the vice a bit and then offer the opportunity to refinance in RMB as part of their larger strategy of de-dollarizing the world economy. The main barrier I see is they’d have to become willing to run an ongoing current account deficit to replace the dollar, which is a totally alien strategy up until now so far as I can tell.
ajross 3y ago
There's a weird frame to this article that seems to be painting China as a "loan shark" villain pressuring the poor debtor countries. But that's not the way loans work at this scale. If this debt is bad, it's bad, and pressure isn't going to get those RMB back. China is on the hook here, and that's extremely bad for China. At the end of the day Kenya or Zambia can just refuse to pay (it's not like their credit is great to begin with). In the west, loans like these are usually looked at as "aid"[1] and structured with some sort of guarantee that ensures the banks involved see it as a tolerable risk. Is that not true for Chinese loans? The article doesn't really say. But if not, again, that's extremely bad for China, not Kenya! [1] Which is not to say they aren't or haven't been exploitive. Just that the loan risk itself tends to be borne by western governments.
- ignormies 3y ago
  China's primary goal here isn't to make money -- it's political and economic leverage in emerging economies. https://en.wikipedia.org/wiki/Belt_and_Road_Initiative https://en.wikipedia.org/wiki/Belt_and_Road_Initiative
  - cpursley 3y ago
    The very purpose of political and economic leverage is to make money, even if not from those you are leveraging. Otherwise, what’s the point?
    - George83728 3y ago
      They give loans backed by resource rights to build up some infrastructure, roads and ports particularly, then wait for them to default. Now they have resource extraction rights as well as the infrastructure needed to extract those resources. Cash is less important than power, China means to reshape the international order because they're tired of being a second class player in global affairs.
    - ricardobeat 3y ago
      See the other comments regarding resource rights.
    - rektide 3y ago
      Money is one compelling form of power, sure. And one a regular citizen also sort of understands, albeit not at scale. But being able to takeover ports, build bases, make claims on other nations is a way to extend sovereignty far outside your borders, that is power that sometimes yes will be used to make money. But sometimes there are indeed other more direct interests that need serving, that these debts will lever them access to. Overall I think it's more harmful than useful to flatten the interests down to being all about money. States have other things they must also do & maintain, and not all of them are easily buyable.
    - neurostimulant 3y ago
      Money can't buy everything. But if you lend the money and the borrower can't pay it back, suddenly you can ask something that normally can't be bought directly with money.
- Reubend 3y ago
  I don't know what's going on behind the scenes, but if I were to speculate, they probably have a contingency plan for this scenario which involves concessions from those countries if they default. Maybe land or mineral rights, maybe something more complicated. That's just a guess from my side though.
  - nonethewiser 3y ago
    They already repossessed a port in Sri Lanka
  - arein3 3y ago
    I suppose the "contingency plan" was the main plan all along. It is easy to bribe or to force governments in poor countries to take a loan in disadvantageous terms. Public servants easily do actions that will have consequences in the long term for a bribe, since when the concequences will reach, they will be gone already.
- freitzkriesler2 3y ago
  Typically there is collaterial involved, in this case "owning" or operating the airports, railways, roads, or what have you. However, the west knows that these countries notoriously never pay back the loans so the investment is made back by operating this infrastructure for the benefit of western firms. It appears China has made a strategic error in not doing the same OR China is in a far worse economic condition than they're letting on. If they expect these countries' legal courts to hold up these agreements to pay in full, then they clearly aren't as smart as their PISA scores suggest.
  - worrycue 3y ago
    > Typically there is collaterial involved, in this case "owning" or operating the airports, railways, roads, or what have you. If they refuse to hand over the collateral?
    - freitzkriesler2 3y ago
      The collateral is already handed over. It's mostly western firms operating the infrastructure which you can see is where the money is made. Countries can and do nationalize this infrastructure kicking out the western firms, this typically makes the debtor angry which leads to the classic intelligence over throw ops we see.
- George83728 3y ago
  These countries defaulting is precisely what China intended from the start. The loans are backed by mineral rights, and refusal to honor those agreements would give China all the excuse it needs to back coups, or even resort to military intervention (particularly if the RBIO falls apart, probably due to domestic political strife in America.)
  - nradov 3y ago
    China still doesn't have an expeditionary military. They have very little capability for direct military intervention in any country farther away than Vietnam or India. Even sustaining a small naval flotilla in the Persian Gulf was a major stretch for them. They are working on building up such a capability and the situation may be different in 10 years. But as of today, they really can't.
    - George83728 3y ago
      > They are working on building up such a capability and the situation may be different in 10 years. Yeah, that's what we're discussing.. these 'loans' are in pursuit of their strategic objectives.
- nonethewiser 3y ago
  This explains why the debt is bad for Pakistan, Kenya. > In Pakistan, millions of textile workers have been laid off because the country has too much foreign debt and can’t afford to keep the electricity on and machines running. > In Kenya, the government has held back paychecks to thousands of civil service workers to save cash to pay foreign loans. The president’s chief economic adviser tweeted last month, “Salaries or default? Take your pick.” Furthermore, another bad thing for Kenya, Pakistan, etc. would be China repossessing. In fact some speculate thats really the end goal. China would love to operate all these ports themselves. Already happened in Sri Lanka. Unfortunately for the people in these countries the leaders can make a lot of money by signing off on bad loans and then they never have to face the consequences themselves.
  - nradov 3y ago
    Perhaps Pakistan should cancel their nuclear weapons program and stop funding terrorists. That would probably free up some money to pay for electricity.
    - selimthegrim 3y ago
      Saudis pay the bill for those. Power problems are more from overcapacity and high fixed capacity charges.
vxNsr 3y ago
So china lent money loan-shark style for things that these countries probably didn’t need but china convinced them would help them, and now it’s calling the loans due and of course the promised revenues didn’t materialize so these destitute countries are left holding the bag.
- foverzar 3y ago
  Oh those poor gullible down to earth simple hard working average Joe countries. I honestly feel a weird kind of anthropomorphisation going on here. These kinds of contracts involve armies of professional bureaucrats, lawyers and financial experts from both sides. Denying these countries their own agenda and responsibility is kind of dishonest, is it? These are sovereign states, not some well educated corpos fooling countryside simpletons.
koolba 3y ago
> Behind the scenes is China’s reluctance to forgive debt and its extreme secrecy about how much money it has loaned and on what terms, which has kept other major lenders from stepping in to help. On top of that is the recent discovery that borrowers have been required to put cash in hidden escrow accounts that push China to the front of the line of creditors to be paid. This is the part of “belt and road” where they beat you with the belt.
- crop_rotation 3y ago
  And then bulldoze you on the road :D
- 49erfangoniners 3y ago
  And then take your roads, which were collateral
- oneTbrain23 3y ago
  [flagged]
  - lowdownfork 3y ago
    This article has no "hint claim" that China is the sole lender. In fact, there's no such thing as "the front of the line" when you're the sole lender. It's an article about Chinese lenders rejecting and sabotaging the traditional practice of lenders working together to avoid a default. They're trying to grab as much as they can for themselves while the debtor falls into chaos. You don't need to be the sole or even majority lender to cause immense pain through short-sighted greed by doing that.
    - kevin_thibedeau 3y ago
      Their intent all along was to wait for the defaults to start pouring in so they can claim all the assets they funded. The speedrun way to plant infrastructure around the globe and manage their own banana republics without raising the hackles of an adversary. Making a deal was never an option.
missedthecue 3y ago
What a weird headline. China isn't "calling in" the loans. Nothing sudden is happening here. They are following their preset repayment schedule. The author is upset that China isn't willingly choosing to forgive billions in loans.
- George83728 3y ago
  The important context is that these loans were given with the expectation that the recipient would eventually default. These loans are backed by resource rights, and would also giving China considerable leverage to demand the right to create ports / military bases, etc. Anybody paying attention has seen this coming miles away (example: https://doi.org/10.1016/j.resourpol.2018.04.014 https://doi.org/10.1016/j.resourpol.2018.04.014), but such loans are too tempting for borderline dysfunctional governments with short-sighted politicians to pass up.
  - bequanna 3y ago
    Sure, but wouldn’t China be relying on those countries willingly giving those things (ports, resources, etc) to them? Why would any country do that?
    - George83728 3y ago
      If the debtor country doesn't cooperate the lender has all manner of soft and hard power to fall back on. They can fund political opponents or instigate coups to install a puppet government. Organize sanctions, train guerilla fighters, or even overtly start a war. Needless to say, China is not exactly a pioneer in this space...
      - bequanna 3y ago
        But doesn’t this make a huge opening for someone like the US to step in and say: “hey, we will bail you out and stop China from interfering. Just sign this treaty and let us occupy with some troops”?
    - 3y ago
wonderwonder 3y ago
Thats the thing I don't get about countries turning to China. America does things for itself but also does things just to advance democracy. China's only interest is China. If your choice is a semi-friendly loan shark or a smash your kneecaps loan shark, I have no idea why countries are choosing the latter.
- NovaDudely 3y ago
  Maybe they provide a better initial deal? No idea. But people can be blinded by better initial conditions even if long term it is worse.
- coldtea 3y ago
  >but also does things just to advance democracy Or so it self-advetises. "Advancing democracy" originated as an anti-communist theme, in the Cold war era fight for global influence, and after 1991 it turned into a hammer to yield against mostly Arab countries and others with resources and/or independent foreign policy. This democracy advancing didn't have issues sponsoring and supporting dictatorships (say, Pinochet in the 70s and Saddam in the 80s to name but a few), or being best buddies with a family that owns a whole country non-democratically and are known for huge human rights abuses (buddies until recently at least). In the last 20 years alone, it has turned 4 countries into much worse than they were.
  - bombcar 3y ago
    Exactly. The democracy advanced always exactly matches the current US interests. Funny that. We’re just so damn perfect we never ever ever get anything wrong.
    - 49erfangoniners 3y ago
      OP compared the US to a loan shark, you're arguing against a strawman
      - cced 3y ago
MichaelZuo 3y ago
I'll repost the top voted comment from r/anime_titties for this article, since apparently most users here were fooled by the reporting: " This is just a rehash of the awful AP article from yesterday: https://apnews.com/article/china-debt-banking-loans-financial-developing-countries-collapse-8df6f9fac3e1e758d0e6d8d5dfbd3ed6 https://apnews.com/article/china-debt-banking-loans-financia... It amounts to what is essentially misinformation. > Countries in AP’s analysis had as much as 50% of their foreign loans from China and most were devoting more than a third of government revenue to paying off foreign debt. Two of them, Zambia and Sri Lanka, have already gone into default, unable to make even interest payments on loans financing the construction of ports, mines and power plants. Yes. BILATERAL LOANS. i.e. a fraction of a country's total debt. China amounts to 65% of Nigeria's bilateral loans, but <4% of their total debt (as an example) The VAST majority of debt in these countries is owed to private creditors (in London and New York) via eurobond loans. Those loans have far higher interest rates, often require massive principle repayments and are generally impossible to renegotiate or suspend in times of debt distress. Eurobonds are what caused Sri lanka to default, what caused Zambia to default and what are causing everyone else to default. During covid China suspended more debt repayments than the rest of the intl community combined, despite having only 30% of the total lending. Doesn't sound very evil to me. There are plenty of real problems with China's historic lending, but jesus the lies need to stop. " To add to that, only ~10% of Sri Lanka's outstanding loans are owed to Beijing, in any form, and even if you add up every company with any PRC ties whatsoever and the AIIB, it's only ~20% of outstanding loans. Considering how close Sri Lanka ties are, probably every other debtor country would have a lower ratio. It's unfortunate that the Associated Press and Fortune have reduced their credibility to the level of Hollywood accountants, but I guess that's how the cookie crumbled when there's so much geopolitical pressure to fudge reporting.

94 points by mutexjp 3y ago

I wonder if they’re going to squeeze the vice a bit and then offer the opportunity to refinance in RMB as part of their larger strategy of de-dollarizing the world economy. The main barrier I see is they’d have to become willing to run an ongoing current account deficit to replace the dollar, which is a totally alien strategy up until now so far as I can tell.

ajross 3y ago

There's a weird frame to this article that seems to be painting China as a "loan shark" villain pressuring the poor debtor countries. But that's not the way loans work at this scale. If this debt is bad, it's bad, and pressure isn't going to get those RMB back. China is on the hook here, and that's extremely bad for China. At the end of the day Kenya or Zambia can just refuse to pay (it's not like their credit is great to begin with). In the west, loans like these are usually looked at as "aid"[1] and structured with some sort of guarantee that ensures the banks involved see it as a tolerable risk. Is that not true for Chinese loans? The article doesn't really say. But if not, again, that's extremely bad for China, not Kenya! [1] Which is not to say they aren't or haven't been exploitive. Just that the loan risk itself tends to be borne by western governments.

ignormies 3y ago
China's primary goal here isn't to make money -- it's political and economic leverage in emerging economies. https://en.wikipedia.org/wiki/Belt_and_Road_Initiative https://en.wikipedia.org/wiki/Belt_and_Road_Initiative
- cpursley 3y ago
  The very purpose of political and economic leverage is to make money, even if not from those you are leveraging. Otherwise, what’s the point?
  - George83728 3y ago
    They give loans backed by resource rights to build up some infrastructure, roads and ports particularly, then wait for them to default. Now they have resource extraction rights as well as the infrastructure needed to extract those resources. Cash is less important than power, China means to reshape the international order because they're tired of being a second class player in global affairs.
  - ricardobeat 3y ago
    See the other comments regarding resource rights.
  - rektide 3y ago
    Money is one compelling form of power, sure. And one a regular citizen also sort of understands, albeit not at scale. But being able to takeover ports, build bases, make claims on other nations is a way to extend sovereignty far outside your borders, that is power that sometimes yes will be used to make money. But sometimes there are indeed other more direct interests that need serving, that these debts will lever them access to. Overall I think it's more harmful than useful to flatten the interests down to being all about money. States have other things they must also do & maintain, and not all of them are easily buyable.
  - neurostimulant 3y ago
    Money can't buy everything. But if you lend the money and the borrower can't pay it back, suddenly you can ask something that normally can't be bought directly with money.
Reubend 3y ago
I don't know what's going on behind the scenes, but if I were to speculate, they probably have a contingency plan for this scenario which involves concessions from those countries if they default. Maybe land or mineral rights, maybe something more complicated. That's just a guess from my side though.
- nonethewiser 3y ago
  They already repossessed a port in Sri Lanka
- arein3 3y ago
  I suppose the "contingency plan" was the main plan all along. It is easy to bribe or to force governments in poor countries to take a loan in disadvantageous terms. Public servants easily do actions that will have consequences in the long term for a bribe, since when the concequences will reach, they will be gone already.
freitzkriesler2 3y ago
Typically there is collaterial involved, in this case "owning" or operating the airports, railways, roads, or what have you. However, the west knows that these countries notoriously never pay back the loans so the investment is made back by operating this infrastructure for the benefit of western firms. It appears China has made a strategic error in not doing the same OR China is in a far worse economic condition than they're letting on. If they expect these countries' legal courts to hold up these agreements to pay in full, then they clearly aren't as smart as their PISA scores suggest.
- worrycue 3y ago
  > Typically there is collaterial involved, in this case "owning" or operating the airports, railways, roads, or what have you. If they refuse to hand over the collateral?
  - freitzkriesler2 3y ago
    The collateral is already handed over. It's mostly western firms operating the infrastructure which you can see is where the money is made. Countries can and do nationalize this infrastructure kicking out the western firms, this typically makes the debtor angry which leads to the classic intelligence over throw ops we see.
George83728 3y ago
These countries defaulting is precisely what China intended from the start. The loans are backed by mineral rights, and refusal to honor those agreements would give China all the excuse it needs to back coups, or even resort to military intervention (particularly if the RBIO falls apart, probably due to domestic political strife in America.)
- nradov 3y ago
  China still doesn't have an expeditionary military. They have very little capability for direct military intervention in any country farther away than Vietnam or India. Even sustaining a small naval flotilla in the Persian Gulf was a major stretch for them. They are working on building up such a capability and the situation may be different in 10 years. But as of today, they really can't.
  - George83728 3y ago
    > They are working on building up such a capability and the situation may be different in 10 years. Yeah, that's what we're discussing.. these 'loans' are in pursuit of their strategic objectives.
nonethewiser 3y ago
This explains why the debt is bad for Pakistan, Kenya. > In Pakistan, millions of textile workers have been laid off because the country has too much foreign debt and can’t afford to keep the electricity on and machines running. > In Kenya, the government has held back paychecks to thousands of civil service workers to save cash to pay foreign loans. The president’s chief economic adviser tweeted last month, “Salaries or default? Take your pick.” Furthermore, another bad thing for Kenya, Pakistan, etc. would be China repossessing. In fact some speculate thats really the end goal. China would love to operate all these ports themselves. Already happened in Sri Lanka. Unfortunately for the people in these countries the leaders can make a lot of money by signing off on bad loans and then they never have to face the consequences themselves.
- nradov 3y ago
  Perhaps Pakistan should cancel their nuclear weapons program and stop funding terrorists. That would probably free up some money to pay for electricity.
  - selimthegrim 3y ago
    Saudis pay the bill for those. Power problems are more from overcapacity and high fixed capacity charges.

vxNsr 3y ago

So china lent money loan-shark style for things that these countries probably didn’t need but china convinced them would help them, and now it’s calling the loans due and of course the promised revenues didn’t materialize so these destitute countries are left holding the bag.

foverzar 3y ago
Oh those poor gullible down to earth simple hard working average Joe countries. I honestly feel a weird kind of anthropomorphisation going on here. These kinds of contracts involve armies of professional bureaucrats, lawyers and financial experts from both sides. Denying these countries their own agenda and responsibility is kind of dishonest, is it? These are sovereign states, not some well educated corpos fooling countryside simpletons.

koolba 3y ago

> Behind the scenes is China’s reluctance to forgive debt and its extreme secrecy about how much money it has loaned and on what terms, which has kept other major lenders from stepping in to help. On top of that is the recent discovery that borrowers have been required to put cash in hidden escrow accounts that push China to the front of the line of creditors to be paid. This is the part of “belt and road” where they beat you with the belt.

crop_rotation 3y ago
And then bulldoze you on the road :D
49erfangoniners 3y ago
And then take your roads, which were collateral
oneTbrain23 3y ago
[flagged]
- lowdownfork 3y ago
  This article has no "hint claim" that China is the sole lender. In fact, there's no such thing as "the front of the line" when you're the sole lender. It's an article about Chinese lenders rejecting and sabotaging the traditional practice of lenders working together to avoid a default. They're trying to grab as much as they can for themselves while the debtor falls into chaos. You don't need to be the sole or even majority lender to cause immense pain through short-sighted greed by doing that.
  - kevin_thibedeau 3y ago
    Their intent all along was to wait for the defaults to start pouring in so they can claim all the assets they funded. The speedrun way to plant infrastructure around the globe and manage their own banana republics without raising the hackles of an adversary. Making a deal was never an option.

missedthecue 3y ago

What a weird headline. China isn't "calling in" the loans. Nothing sudden is happening here. They are following their preset repayment schedule. The author is upset that China isn't willingly choosing to forgive billions in loans.

George83728 3y ago
The important context is that these loans were given with the expectation that the recipient would eventually default. These loans are backed by resource rights, and would also giving China considerable leverage to demand the right to create ports / military bases, etc. Anybody paying attention has seen this coming miles away (example: https://doi.org/10.1016/j.resourpol.2018.04.014 https://doi.org/10.1016/j.resourpol.2018.04.014), but such loans are too tempting for borderline dysfunctional governments with short-sighted politicians to pass up.
- bequanna 3y ago
  Sure, but wouldn’t China be relying on those countries willingly giving those things (ports, resources, etc) to them? Why would any country do that?
  - George83728 3y ago
    If the debtor country doesn't cooperate the lender has all manner of soft and hard power to fall back on. They can fund political opponents or instigate coups to install a puppet government. Organize sanctions, train guerilla fighters, or even overtly start a war. Needless to say, China is not exactly a pioneer in this space...
    - bequanna 3y ago
      But doesn’t this make a huge opening for someone like the US to step in and say: “hey, we will bail you out and stop China from interfering. Just sign this treaty and let us occupy with some troops”?
  - 3y ago

wonderwonder 3y ago

Thats the thing I don't get about countries turning to China. America does things for itself but also does things just to advance democracy. China's only interest is China. If your choice is a semi-friendly loan shark or a smash your kneecaps loan shark, I have no idea why countries are choosing the latter.

NovaDudely 3y ago
Maybe they provide a better initial deal? No idea. But people can be blinded by better initial conditions even if long term it is worse.
coldtea 3y ago
>but also does things just to advance democracy Or so it self-advetises. "Advancing democracy" originated as an anti-communist theme, in the Cold war era fight for global influence, and after 1991 it turned into a hammer to yield against mostly Arab countries and others with resources and/or independent foreign policy. This democracy advancing didn't have issues sponsoring and supporting dictatorships (say, Pinochet in the 70s and Saddam in the 80s to name but a few), or being best buddies with a family that owns a whole country non-democratically and are known for huge human rights abuses (buddies until recently at least). In the last 20 years alone, it has turned 4 countries into much worse than they were.
- bombcar 3y ago
  Exactly. The democracy advanced always exactly matches the current US interests. Funny that. We’re just so damn perfect we never ever ever get anything wrong.
  - 49erfangoniners 3y ago
    OP compared the US to a loan shark, you're arguing against a strawman
    - cced 3y ago

MichaelZuo 3y ago

I'll repost the top voted comment from r/anime_titties for this article, since apparently most users here were fooled by the reporting: " This is just a rehash of the awful AP article from yesterday: https://apnews.com/article/china-debt-banking-loans-financial-developing-countries-collapse-8df6f9fac3e1e758d0e6d8d5dfbd3ed6 https://apnews.com/article/china-debt-banking-loans-financia... It amounts to what is essentially misinformation. > Countries in AP’s analysis had as much as 50% of their foreign loans from China and most were devoting more than a third of government revenue to paying off foreign debt. Two of them, Zambia and Sri Lanka, have already gone into default, unable to make even interest payments on loans financing the construction of ports, mines and power plants. Yes. BILATERAL LOANS. i.e. a fraction of a country's total debt. China amounts to 65% of Nigeria's bilateral loans, but <4% of their total debt (as an example) The VAST majority of debt in these countries is owed to private creditors (in London and New York) via eurobond loans. Those loans have far higher interest rates, often require massive principle repayments and are generally impossible to renegotiate or suspend in times of debt distress. Eurobonds are what caused Sri lanka to default, what caused Zambia to default and what are causing everyone else to default. During covid China suspended more debt repayments than the rest of the intl community combined, despite having only 30% of the total lending. Doesn't sound very evil to me. There are plenty of real problems with China's historic lending, but jesus the lies need to stop. " To add to that, only ~10% of Sri Lanka's outstanding loans are owed to Beijing, in any form, and even if you add up every company with any PRC ties whatsoever and the AIIB, it's only ~20% of outstanding loans. Considering how close Sri Lanka ties are, probably every other debtor country would have a lower ratio. It's unfortunate that the Associated Press and Fortune have reduced their credibility to the level of Hollywood accountants, but I guess that's how the cookie crumbled when there's so much geopolitical pressure to fudge reporting.