When I first heard about China’s Belt and Road Initiative, I thought that China was giving aid to third-world countries, the way the U.S. does. But that’s not true. In fact, for every dollar of aid to low-income and middle-income countries, China has provided $9 of debt. The opposite is true of the U.S.: For every dollar of debt that it provides to low-income and middle-income countries, it provides at least $9 of aid.
Since China is a totalitarian country, the government ordered banks to make loans to countries that couldn’t necessarily pay them and which the banks would not have otherwise made.
China Reins In Its Belt and Road Program, $1 Trillion Later
After loans have gone sour and projects have stalled, Beijing is revamping its troubled initiative
By Lingling Wei, The Wall Street Journal, Sept. 26, 2022
China has spent a trillion dollars to expand its influence across Asia, Africa and Latin America through its Belt and Road infrastructure program. Now, Beijing is working on an overhaul of the troubled initiative, according to people involved in policy-making.
A slowing global economy, combined with rising interest rates and higher inflation, have left countries struggling to repay their debts to China. Tens of billions of dollars of loans have gone sour, and numerous development projects have stalled. Western leaders have criticized China’s lending practices, which some have labeled “debt-trap diplomacy,” embarrassing Beijing. Many economists and investors have said the country’s lending practices have contributed to debt crises in places like Sri Lanka and Zambia…
In just a decade, according to the Foreign Ministry, China handed out about $1 trillion in loans and other funds for development projects in almost 150 countries. Nearly 60% of China’s overseas loans are now held by countries considered to be in financial distress, compared with 5% in 2010… The process could force Chinese banks to accept losses, something they’ve long opposed. For years, Beijing preferred to extend the maturity of troubled loans, a practice known in the finance industry as “extend and pretend.” That strategy risks prolonging countries’ debt woes rather than fixing them. [end quote]
This is a huge amount of bad debt to pile on top of the bad debt caused by China’s real estate industry. I wonder if their banking system may be building up pressure for a full-blown financial crisis based on bad debt.