According to Liberty Times, China is falling into the pit of a “debt trap” it has dug for other countries.
China has been advocating the Belt and Road Initiative for the past few years.
However, in recent years, due to the Covid pandemic, the Russia-Ukraine war, high inflation, rising interest rates and the risks of recession in the U.S. and Europe, many infrastructure projects have been stalled.
The initiative, formerly known as One Belt One Road, was adopted from 2013, which saw a flood of money pouring into infrastructure projects in developing countries in an attempt to create several China-led trade routes.
This plan was favored by many countries at the beginning, believing that their countries had the opportunity to grow with the Belt and Road Initiative.
China has strongly advocated that they replace Western countries as financiers in developing countries. But while the major loans of Western governments and international institutions go into health, education and humanitarian projects in poor countries, China provides hundreds of billions of dollars in loans to infrastructure projects.
Statistics from an American think tank show that China has spent more than 1 trillion dollars to build infrastructure for developing countries.
Critics denounced China’s overseas lending practices as a sinister debt trap that eventually turned loan recipients into China’s economic vassal states.
According to media reports in March, 68 developing countries owed China $110 billion in debt, making China the largest single creditor country after the World Bank.
These 68 countries have totaled $52.8 billion in debt repayments this year, with China being the largest creditor, estimated at about $14 billion.
It is estimated that 2% of the national income of at least 8 countries will be used to repay China’s debt this year.
Angola is the worst debtor. The African country will have to use 5% of its national income to pay principal and interest on Chinese loans.
Kyrgyzstan’s total public debt at the end of June was $4.7 billion, of which $4.1 billion was held by foreign creditors, including nearly $1.8 billion by China.
In Sri Lanka, its government last year was unable to deal with its debts. It had to lease the southern port of Hambantota to China for 198 years.
Governments in poor countries are finding it increasingly difficult to repay Chinese loans due to capital flight, food shortages and soaring energy prices.
Two thirds of China’s loans are used for infrastructure projects. China uses these projects as collateral.
Unexpectedly, the income of ports, power plants or toll highways in poor countries has dropped sharply this year due to the Covid epidemic, the geographic conflict and economic slump. It is very difficult for them to use construction projects to generate the income needed to repay loans.
Commodity prices also plummeted in recent months, making poor countries unable to earn money to repay their debts.
And China is falling into a situation of losing money and bad debts.
It seems that China is aware of the risks of this large-scale investment and the flip side of the debt trap it has created for other countries.
Experts believe that China must prepare for a debt crisis of its own making, as the poor countries could follow Sri Lanka’s footsteps and default on overseas loans.
In case the developing countries have to deal with an economic crisis, it does not make any sense for China to collect debts at this time. It will only have the opposite effect. In the process of debt collection, China will not only lose money, but also destroy its own reputation.
But a write-off of the debt would destroy the balance sheets of Chinese state-owned banks, which make these loans. And Beijing would eventually be forced to cover the banks’ losses.