The chickens have come home to roost.
China’s lending to some of the most fragile countries was poorly structured and often not in the best interest of recipient countries.
I will spell out the issues
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ft.com/content/5a3192…
China’s lending to some of the most fragile countries was poorly structured and often not in the best interest of recipient countries.
I will spell out the issues
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ft.com/content/5a3192…
The timing of BRI was driven by Chinese self-interest: a country with massive surplus savings, needed new places to invest post-2008 as US could no longer receive as much as before.
So China turned to weak countries that it had influence over.
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So China turned to weak countries that it had influence over.
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The weak country leaders saw this as an opportunity to quickly show case some “flashy projects”.
There was no due process. For example, Chinese State-owned enterprises (SOEs) were both lenders and contractors - a situation rife for over-invoicing to boost Chinese returns.
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There was no due process. For example, Chinese State-owned enterprises (SOEs) were both lenders and contractors - a situation rife for over-invoicing to boost Chinese returns.
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Investments were often in areas that largely serviced domestic consumption or non-tradable sectors.
With little productivity gain for export sector, payback was going to be extremely hard
Plus loans were denominated in dollars - world’s hardest currency in times of trouble.
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With little productivity gain for export sector, payback was going to be extremely hard
Plus loans were denominated in dollars - world’s hardest currency in times of trouble.
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There was little to no due diligence on the side of borrowing countries.
For example, no analysis of how external shocks might create a financial doom loop for indebted countries.
To make matters much worse, local currency was artificially appreciated while borrowing in $
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For example, no analysis of how external shocks might create a financial doom loop for indebted countries.
To make matters much worse, local currency was artificially appreciated while borrowing in $
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Meanwhile if someone asked a genuine question, they were labeled “non-patriotic”, or worse.
It is of no surprise then that these loans are creating massive trouble now.
The whole deal was almost designed to collapse- if it were not Covid, it would have been something else.
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It is of no surprise then that these loans are creating massive trouble now.
The whole deal was almost designed to collapse- if it were not Covid, it would have been something else.
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There was a win-win alternative.
Instead of just exporting capital and it’s SOEs, China could have engaged in technology transfer and strengthening domestic institutions in developing countries.
China could have helped others adopt the “Chinese model” of growth.
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Instead of just exporting capital and it’s SOEs, China could have engaged in technology transfer and strengthening domestic institutions in developing countries.
China could have helped others adopt the “Chinese model” of growth.
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For developing countries, the lesson is simple: you cannot import growth, and you cannot borrow your way out of poverty.
Invest in your own people and institutions, and develop your own capacities first.
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Invest in your own people and institutions, and develop your own capacities first.
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