Bangkok These were airports and highways, ports and railway lines. Many already heavily indebted countries have made their expensive dreams come true with the help of China in the past, now they are suffering from the loss of control. The global economic crisis drives them bankrupt, but the former granting China’s wishes often thwarts their debt relief efforts.
Sri Lanka, Kenya, Argentina and other countries have thus ended up in a sinister relationship of dependence: Beijing has long since decided their future.
Take Laos for example: the country is one of the poorest in Asia, but the landlocked country of Southeast Asia doesn’t have to do without expensive infrastructure. The most expensive construction project is about 20 kilometers from the capital Vientiane. The new main station of a high-speed line stretches between uncultivated fields, financed by large loans from China. Since December, an express train hisses from here every morning to the Chinese border, 400 kilometers away.
Construction cost around six billion dollars, and thus significantly increased the country’s already huge mountain of debt to China. With the agreement, the Communist government of Vientiane has consolidated a notable status.
The best works of Tagus
Find the best jobs now and
be notified by email.
Measured in terms of economic output, no other country in the world is so dependent on loans from China. According to a study by the research institute Aid Data, the public debt of Laos towards the People’s Republic represents about 65% of the gross domestic product, a global high. But Laos can hardly cope with the huge mountain of debt.
The country of seven million people is in a deep economic crisis and on the verge of insolvency. The Asian country is not alone in this.
China’s other major borrowers, such as Pakistan, are also having growing problems serving billions in loans.
Sri Lanka must ask China to cancel its debt
Example Sri Lanka: the island state is already broke – and is now trying to get debt relief. As in many other emerging countries, readily available money from China has been very popular with the Sri Lankan government for years.
Until now, most of China’s troubled trading partners could be confident that the Asian superpower would not let them down. According to Aid Data’s calculations, China has made around $ 33 billion in emergency loans over the past five years to Pakistan, Sri Lanka and Argentina alone. According to the organization, countries such as Laos, Ecuador and Kenya have also received additional financial aid from Beijing.
But China’s willingness to keep debtors afloat has its limits. In the case of Sri Lanka, the Beijing government stopped the money supply this year after a series of additional cash injections.
The result was the first sovereign default in Asia Pacific in decades, leaving the country with a severe shortage of fuel, food and medicine. Mass protests followed and the government was overthrown.
Laos has also experienced huge bottlenecks in fuel supplies sometime this year. As the local currency, the kip, has depreciated by a third against the dollar since the start of the year and foreign exchange reserves have melted, the country could not afford any more imports.
Although the situation has calmed down somewhat in the meantime, the population still suffers from an inflation rate of 34 percent. And the rating agency Moody’s warns: “The risk of default will remain high in view of a very weak government, a very high debt burden and insufficient coverage of foreign debt owed by foreign exchange reserves.”
>> Read also: As Xi consolidates his power, the Chinese economy slips
However, observers believe that China is unlikely to allow further insolvency following the bankruptcy of the state of Sri Lanka. “China is not prepared to bear the financial and political consequences,” said Toshiro Nishizawa, a professor of politics at the University of Tokyo. Willingness to accept defaulting loans from Chinese banks is too low, and concern over further loss of reputation for China’s controversial “Belt and Road” initiative, under which billions of loans have been made for infrastructure projects, are too much. great.
Laos is one of the poorest countries in Asia and particularly dependent on Chinese loans.
(Photo: imago images / Xinhua)
However, diplomats in Vientiane predict that further aid, such as an extension of the credit period, will also lead to further growing influence from China. Two years ago, in the midst of financial turmoil, Laos ceded control of its power grid to a Chinese-majority company.
Additionally, Chinese investors operate several so-called special economic zones in Laos, some of which operate as Chinese enclaves, with Chinese street names and the yuan as their official currency. Observers suspect that Laos may be forced to cede more areas in the future.
So far, China hasn’t agreed to cut their hair
Similar experiences have also been made in Sri Lanka. The country had to cede control of the strategically important port of Hambantota to a Chinese company for a period of 99 years after it could no longer honor the debt for the construction project.
Now the Colombo government is once again dependent on China: the International Monetary Fund (IMF) has approved in principle a $ 2.9 billion aid package for the bankrupt state. Before the money can flow, however, the country must agree debt relief with its major creditors.
Chinese Belt and Road loans to Sri Lanka amount to approximately $ 7 billion. So far, however, the country has shown no willingness to accept debt relief.
>> Read also: Fighter planes in Thailand, spy ship in Sri Lanka – How the Chinese military is expanding its influence
Sovereign creditors of the so-called “Paris Club” – an informal coalition of largely Western nations – have turned to both China and India with a desire to jointly coordinate debt restructuring negotiations. There hasn’t been an answer yet. “Debt restructuring talk becomes extremely difficult when big creditors can’t even agree on how to set up negotiations,” said Brad Setser, a sovereign debt expert at the US think tank Council on Foreign Relations (CFR. ).
However, the Sri Lankan government is optimistic. “We are confident that China will help us in these difficult times,” Sri Lankan President Ranil Wickremesinghe told his country’s parliament earlier this month. “We now expect to reach a joint agreement as soon as possible.”
Currently, China is not only facing bad debt negotiations in Asia: there are similar problems in Africa and South America as well. In talks with Ecuador in September, China agreed to reduce debt worth $ 1.4 billion. In the case of Zambia, China is currently negotiating a solution with other creditors.
Furthermore, the Beijing government announced in August that it would renounce interest-free loans for 17 African countries, but this is only a small fraction of Chinese loans on the continent.
The United States is putting the pressure on
Western countries are asking China to do more: it is crucial that all the world’s major bilateral creditors participate significantly in debt relief to help low- and middle-income countries get back on their feet, the US secretary of state said. Janet Yellen earlier this month.
This is especially true for China. “So far, China has faced troubled debtors with delays or offered insufficient solutions to restore the debt sustainability of the debtor.”
Meanwhile, Chinese debtors are bracing for Beijing-funded investments to remain a subsidy business for a long time to come. The Laotian government hopes the bullet train can be profitable in 23 years.
The country paid for the high-speed line from the capital Vientiane to the Chinese border with Chinese loans.
(Photo: imago images / Xinhua)
But even this long period of time still seems ambitious. Ticket sales are slow, partly because there is no way to book tickets online.
They are also quite expensive by local standards: the price of a return ticket to the Chinese border is nearly 70 percent of a minimum wage’s monthly income. Demand is therefore limited and Vientiane’s huge departure hall with around 1000 seats is regularly largely empty.
Moreover: Power outages and low productivity: The energy crisis in Europe is putting emerging markets under pressure
