BY SHEN SHIWEI
“Debt trap” diplomacy in Western media has become more of a political propaganda than economic analysis despite facts from recipient countries making it clear that China is a major economic contributor and not involved in laying out a debt trap. Kenyan President Uhuru Kenyatta asked in a recent CNN interview why critics of Kenya’s debt should only focus on money owed to China while there are other states like the US and Japan that have lent funds to the country.
When loans are offered by Western countries, they are seen by some as “debt pies,” but when it comes to Chinese loans, they are labeled “debt trap.” Isn’t this a glaring display of double standards?
It surely smacks of a propaganda strategy to demean China.
Chinese investment, humanitarian aid, concessional loans, preferential loans, donations and commercial loans are linked to some hidden strategy in their reports and could easily portray the country as a danger to other nations’ sovereignty. But the fact is that loans are categorized clearly on national debt sheet, namely loans from international organizations like the IMF and the World Bank, debt from foreign governments, sovereign bonds like the Eurobonds issued in financial market and commercial loans from foreign banks.
Ordinary people could easily figure out details of the money they borrowed, but why do some reports and analysis continue to create different interpretations of debt issues, especially when it comes from China?
“No political strings” has been one of the fundamental principles of Chinese loans and aid which is well-known around the world for decades. Like many multilateral financial organizations’ practices, Chinese finance certain projects via either soft loans or commercial loans which are in keeping with internationalized commercial procedures. The reasons are clear and sound. No bank would like to incur defaults and risk collapse.
On the contrary, Western multilateral financial institutions have a long history of “invisible debt intervention” in many lasting debt countries.
When we review the debt structural reforms in Africa and Latin America in the 1980s, the Paris Club of major developed countries was the dominant player. Some highly indebted countries had to adopt all conditions imposed by the Paris Club to get debt relief. Today, some countries’ mounting debt problems still linger even after structural reforms. Therefore, none of the so-called debt crises reported by the media was caused by China but occurred because of historical reasons.
Mounting external debt is not necessarily bad. Some countries’ economic miracles have close relations with utilizing external debt. From an economic perspective, the ceiling of a safe and sustainable external debt scale is dynamically adjusted. The level of external debt affordable in a certain period depends on the surplus of foreign trade and investment and the size of foreign exchange reserves. Therefore, the ability of managing debt level to allow for proper economic development is more essential.
After 40 years of reform and opening-up, China has gained experience of managing the sustainability of external debt as an important criterion for regulation and control. By March 2018, Chinese external debt was $1.84 trillion, according to reports from Chinese State Administration of Foreign Exchange. A balance between borrowing money and efficiently utilizing debt is important for economic development and risk tolerance.
China always understands and attaches great importance to debt sustainability of a recipient country. Besides, China allows experience sharing and capacity building to help recipient countries contain debt risks and reduce the pressure of repayment. More innovative financing solutions such as equity and convertible bonds which don’t increase debt burden have been adopted.
As for the people who fabricated the so-called “debt trap diplomacy,” if they are unable to offer tangible assistance to the developing countries, they can at least try to put the sincere cooperation between other countries in perspective. Moreover, it is better for them to have site visits and witness fruitful results because seeing is believing.
(The author is a research fellow of The Charhar Institute and former government relations and business consultant for Chinese enterprises overseas investment. [email protected])