China is trapping poor countries in debt. As a result, these countries are struggling to repay their debts. At one stage, China exerted pressure or influence on endangered countries. China has long been criticized for this allegation. But is it really so? China has denied the allegations. They allege that the West has resorted to such propaganda to tarnish China’s image. According to China, there is no country that has fallen into the so-called ‘debt trap’ as a result of borrowing from China. Kai Wang wrote a long report on the online BBC.
He added that China is one of the largest lenders in the world.
The country has tripled its debt to low- and middle-income countries over the past decade. By the end of 2020, that amount would be ৭ 16 billion. However, China has promised to lend much more than what is stated in the figures. A study by the Council on International Development at William and Mary University in the United States found that less than half of all public debt to developing countries is reflected in government debt statistics. It is not even shown in the balanced sheet of the government. These accounts are kept by state-owned companies and banks, joint ventures and private companies. As a result, these accounts are not kept directly from the government to the government.
According to Adidata, at least 40 low- and middle-income countries have borrowed from China. These countries account for more than 10 percent of the total annual economic growth of these countries. This is called ‘hidden debt’.
Djibouti, Laos, Zambia and Kyrgyzstan have borrowed at least 20 percent of their annual GDP from China. Most of this has been taken up in infrastructure projects like roads, railways, ports. Borrowings have been taken in the mining and fuel industries. The loans were provided under President Xi Jinping’s Belt and Road Initiative.
In an interview with the BBC, Richard Moore, the head of Britain’s foreign intelligence agency MI6, said China was using the debt trap to gain dominance over other countries. As a result, China is establishing control over its vital assets to the countries to which it is lending, if they cannot repay the loans. Beijing has long denied such allegations. Critics point to Sri Lanka as an example. There was a huge Chinese investment in the port of Hambantota. But the implementation of the project with a multibillion-dollar loan from China and its commissioning by a Chinese contractor has caused widespread controversy. In this case, Sri Lanka has been burdened with debt. As a result, Sri Lanka agreed to lease control of 70 percent of the port to Chinese state-owned China Merchants for 99 years in 2017 to attract more Chinese investment.
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An analysis of the port project by Chatham House, a British-based think tank, raises questions about whether the port is a debt trap. That being said, the deal is for local political purposes. And China has never officially taken ownership of the port. This means that a large portion of Sri Lanka’s total debt is not owned by Chinese government-level lenders. There is also no evidence that China has taken any military advantage from this port.
Nevertheless, there is no doubt that China’s economic activity in Sri Lanka has increased over the past decade. This has led to concerns that they could use the situation to further their political ambitions in the region. There are many more countries in the world that have borrowed from China and this has caused controversy. In this case, the contract has been given to China. As a result, China’s leverage on important assets could come. However, no such case has been found in the case of giving hundreds of loans in Eddata research or other research. It was not found that Chinese state-owned lenders actually confiscated any of the borrowers’ large assets.
China does not actually disclose its foreign debt record. In this case, they include many clauses in the contract, which are not disclosed, which also prevents the borrowers from disclosing information. This is seen as confidentiality in the International Credit Agreement and is a common practice. Lee Jones, a professor at Queen Mary University of London, said secrecy was a very important issue when it came to international trade loans. The development that China finances is fundamentally a business venture.
Most of the industrialized countries share their debt information through the Paris Club. China did not join the group. But using World Bank data, loans from China can be more clearly observed than others.
China has a tendency to lend at higher interest rates than Western governments. About 4 percent of these loans are given at commercial market rates, which is four times more than the conventional loans given by a single country like the World Bank or France or Germany. The time to repay the loan given by China is also short. Less than 10 years. In the case of developing countries, this period is about 28 years. The demand of Chinese state-owned lenders is that the borrower should have a minimum deposit in an offshore account. The borrower must have access to that account. Brad Parks, executive director of AdData, said that if the borrower fails to repay the loan, he can withdraw money directly from the account without going through the process of collecting bad debts through the judicial process. This is rare in the case of Western loans.
At present, the G20, an organization of large and fast growing economies, has taken an initiative. Under him, Corona is proposing loans to countries affected by the epidemic to deal with the problem. China has joined it. He said the countries that have joined the scheme have paid more than any other country. The World Bank says that since May 2020, G20 countries have disbursed at least ১০ 1.03 trillion in debt relief under the scheme.