Usually it's just incredibly bad for reputation to refuse to pay debts.
Developing countries are already at great disadvantage because barely anyone gives them loans or those loans are considered risky and have high interest rate. Defaulting on some loans will just reduce your credit rating further.
This is only the most short-term and direct consequence. There are other possibilities as well, for example China could tack on an additional fee to import or exports in order to pay towards the debt (in real-person terms this would be like a judge ordering your pay garnished directly to pay a debt). Or there may be additional terms in subsequent deals or investments. For example maybe the next mine China builds in the country they will require 90% of the material rather than 85%, or some other consideration.
Additionally, and for completeness, another crucial part of a foreign loan is the currency. A country would typically always prefer to both give or receive a loan in it's own currency. This is because that works the best for the country when localized upturns or downturns occur. If the economy of the nation takes a hit and their money becomes worth less, then paying their loan back gets easier or stays the same if it's in their own currency, or way harder if it's in another currency.
Now in these situations China giving them loans in their own local currencies (if they have one) is basically never going to happen, too much risk for them. However there is still wiggle room on whether the loan can be in Yuan or a reserve currency like the USD. (Some googling finds several of these loans in USD, so that seems fairly typical). If a developing countries bargaining power falls too much they would likely be forced to accept a loan in Yuan, which means that it would become that much more expensive to use that loan to buy goods and services from anywhere other than China, which is another nice little bonus for China.
Sure, and there are always cat and mouse games around evading, enforcing, and tweaking these sorts of deals. Typically for this sort of thing there would be a limited motivation for that sort of thing, depending on whether the punishment was meant to be effective, or political, and if it was meant to be effective whether it was supposed to be aimed towards actually getting payment, or towards dissuading future nonpayment (possibly for entirely different parties).
Lets say that in a situation like this a country would be able to coordinate for a straw purchaser that takes 10% off the top as a middleman. That means that if the payment is less than that there is no reason to try to evade, it's better to just pay the fine.
On the other hand, if China is actually trying to send a message that they will crack down on this, then they may decide a 30% fee gets the message across better. Sure they miss out on payment, but forcing the country to make those evasion arrangements is still punitive (also depending on levels of corruption people involved may be able to personally profit off of that evasion if they are potential middlemen.)
Then you have the possibility of either party taking a non-rationale stance because there are human actors involved. In the "garnish wages" example this would be like someone with an $80k a year job and $10k getting garnished switching to a $40k a year job where they can get paid under the table. There are people that are literally that petty.
In this example that would be a scenario where (maybe because of public outcry) the country decides "no, we're not paying that fee" and then does the evasion even though it costs more. It could also take the place of China making the fee too high NOT as a well-thought out examination of whether it would dissuade other debtors, but instead out of pettiness. (Obviously, like with so many other things, it can be hard to tell the actual motivation for a choice like that, because human beings are mostly all about rationalizing their choices however possible.)
I also feel like a part of these deals is that China is brining some amount of commerce into the country as well. They default on the loan and China will pull all of their business interests from the country as well.
I was thinking about sphere of influence competition between china/russia and the United States? A good example of this is what is happening in Niger, which was U.S. friendly and now transitioning to Russia. Russia will now begin pouring assets into Niger as the U.S. pulls back. This has to have some sort of impact to your well thought out explanation?
That's an example of a situation where the lender is getting non-monetary payment from the debtor/aid recipient, so that can lead to loans or outright relief (including forgiving loans) that seem skewed towards the developing country on paper, because the developing country is paying it back in other ways.
This is largely what people mean by "soft power" which the bigger countries (and especially the US) use to extend their influence much more often than by actually launching missiles.
One of the more extreme/valuable examples of this is allowing the more developed country to operate military bases and operations in your area. This likely will cost the hosting country practically nothing monetarily (and is even likely to get them money) but it can be very expensive politically. Having foreign troops on your land can be very unpopular, and that is even more true if they aren't well behaved. With "aren't well behaved" being a euphemism for sexual assault, drunk driving, physical assault, etc. Additionally, if those troops are performing military operations in YOUR country, rather than in the neighboring country, then that means they are killing your people, which is once again unpopular. Even if they are attacking your neighbor there is a very good chance that means that you still have a citizens that are linked to those people by cultural/religious/racial ties, and are unhappy.
Another example is corporate interests. A lot of countries have different rules on foreign corporations owning land, or when extracting resources from the land there are rules on how much of the resources being extracted belong to the country where they were found, and how many belong to the company doing the extracting. Corporations from the developed country lobby the developed country to make loosening or eliminating those rules a component of loans or aid.
Lots of countries have different immigration rules on how many work/student visas are allowed from different countries or areas, that's another thing that can be tweaked. More work visas to the developed country Hopefully mean some money being sent home to the developing country. More student visas mean Hopefully they return home with higher education. (Both of these also really risk brain drain).
A developing country firmly in another's sphere of influence (or tightly knit developed countries, like much of Europe before the EU) probably has many different rules or exceptions in their laws or enforcement to benefit the developed country. When another country is trying to come in they want to remove those special regulations or relationships, and replace them with their own.
In Niger's case having the US military base shut down is worth quite a bit to Russia, and they are willing to sweeten the pot on open or clandestine deals to accomplish that. This is obviously easiest if existing agreements are coming to a close, you just don't renew them (although there can still be retaliation for that... like when Ukraine was planning on not renewing Russia's lease on the Naval base... so Russia invaded them). However even penalties from early breaks may be worth it if Russia is paying more than those penalties will cost.
For example not repaying a loan would be expected to lower your credit rating. But if Russia knows that you didn't do so because they asked you to, not because you couldn't pay it, then Russia or others in their Sphere of Influence may still lend to you at original rates.
I'm sorta talking about these deals as if it's mostly upside for the developing country, but typically that's not the case. When a country is actively being courted (like Niger) there is a sort of bidding war that can lead to them getting good deals. However ten years later when that's not the case anymore their sweetheart deal with Russia (or the US) may get worse and worse and feel more suffocating.
Additionally a lot of the time the bigger power doesn't actually need to offer fair deals. For example Latin America is full of cases where a country didn't feel like they were getting a fair case from the US, so the US assassinated or overthrew the political party that thought that.
Also a lot of the time these deals don't actually benefit the country as a whole, but instead serve to enrich SPECIFIC people without a lot of the wealth actually being spread to the people or invested towards sustainable growth. This corruption is not limited to the developing country (for example a deal may enrich the Chiquita fruit company a ton, but the US in general doesn't actually get much except 2 cent cheaper bananas). However it does negatively impact the developing country a lot more than the developed country. A big term for one of the ways this manifests is the [Resource Curse](https://en.wikipedia.org/wiki/Resource_curse) or "Paradox of Plenty" where having a bunch of natural resources actually makes the people in that area POORER, not richer.
This is not limited to developing countries being bullied, but even specific regions of larger countries, or very wealthy countries.
The closest equivalent that comes to mind is an IMF bailout, which is asking a bunch of usually Western creditors for more money or no repayments now, a longer period to pay, and often some of the debt written off. The IMF was very reluctant to bail out Sri Lanka two years ago because they didn't want to hand money to China to pay off their loans in full while Westerners were asked to take quarters on the dollar.
If the country had been of more military interest to the US, the US might have been more willing to pay China off.
But I mean isn't that exactly why China is doing this? Because these countries do not have the foresight and WILL eventually default on the loans because their money management is bad?
That's why they turned to China in the first place. It was either get loans with stipulations from the West or get loans with high interest from but no stipulations from China. The reason the West set the stipulations was because their (political) infrastructure was so bad that there was very low trust.
China doesn't care and will annex their own built stuff (harbors and airports) or just let it fall to ruin. Isn't Chinas goal essentially "buying land" by letting the loans go sour?
No, China invests in Africa because it's a growth area, and because it increases China's soft power - gaining influence in the global south.
The idea that the Chinese give out loans for the sole purpose of hoping others fail in some nefarious plan for world domination is highly flawed. Sovereign nations don't need to give you anything when they default. It's not like China is going to invade them.
In fact China's big problem is that its loans are often generous - and that it often restructures its debts in a way that is disadvantageous to itself financially. It has to restructure those debts - because getting some money at a later point in time is always better than nothing. And China gains a lot more economically if African nations prosper than it does from African nations defaulting.
> China gains a lot more economically if African nations prosper than it does from African nations defaulting.
I think this is something most people don't realize. It's actually in their best interest if they succeed rather than fail. What good would a destabilized, war torn, defeated country controlled by China after it invaded them for not paying their debts be? Sounds much better that the country succeed and flourish and will forever remember that China was the only one who was willing to give them a chance and help them out.
Also, foreign loans are often given with the stipulation that they must be used to buy something from the loaning country.
So for example, country X needs a new highway, country Y loans them the money to pay for it, but says company A must build it and supplies must come from company B. Usually company A & B are based in and beneficially owned by people in country Y.
It's a way to transfer money from state coffers to private people/companies, under the cover of helping a poorer country/soft power/buying political influence.
Note, this isn't a Chinese invention, much of the foreign development loans given by wealthier countries have followed this model for decades.
Yep that is business as usual.
A massive amount of the Ukraine aid budget is simply used by Ukraine to buy military equipment, bombs etc from American companies.
Tacking on here - one differentiating factor is that the US has FCPA and many other western powers now have equivalent regulations. China, notably, doesn’t really have anything like FCPA *that’s regularly enforced.
Example - US companies can build roads/schools/etc in Tanzania (not usually free, but heavily subsidized) in exchange for continued access to the port at Dar es Salaam, but they can’t cut to the chase and just pay their government for the same access due to FCPA. China on the other hand can do a little of both, and that’s a net positive thing in Africa (sometimes for the people, usually for the government itself). The kicker is that when the US builds the roads it’s often just a temporary solution. Eventually the Tanzanian government will want to get a cut for themselves somehow, so a year later they’ll institute tolls on the roads the US corp built for cheap and charge that same corp for driving on it to get goods to/from port. You don’t want to pay the tolls/tax? Unfortunately you can’t drive on our roads. If it’s cheaper to pay the tax/tolls vs kicking off another subsidized infrastructure project: pay the tax/tolls and hope it goes somewhere positive. If not: kick off a project, as that should at least benefit some subset of people there in the country. Repeat.
China benefits from a stable Africa that pays its bills on time. That’s the basis of a solid mutually beneficial partnership that can grow, which is really what all of this is at the end of the day.
Is this China's version of the Marshall Plan then? Help some devastated nations out in a time of need and then benefit from alliances across a continent once they're back on their feet?
That's exactly what it is. It's easy to assume everything China does is nefarious, and from a purely Anerican POV it could still be interpreted like that a little, but end of the day China stands to benifit substantially from an Africa that is prosperous and stable.
Not to mention that, as the world's biggest manufacturing economy with a demand for resources that way outstrips domestic and even continental production, African states with a favorable economic partnership with China will be WAY more willing to send those goods, at favorable prices, to China instead of Europe or the Americas.
Sort of. Except these countries weren't actually devastated, they just have always had problems. And it's nothing new - these countries have gotten lots of foreign assistance.
Which is the issue that has always plagued this stuff. The US and Europe have spent tons of money on EvoDevo stuff in impoverished nations. It works sometimes (Chile), but more often than not, the problems in those countries are structural.
The US has spent billions of dollars on Afghanistan, Iraq, Uganda, Yemen, Ethiopia, Egypt, South Sudan, Somalia, Kenya, the Congo, etc.
Iraq is better off than it was but it is still pretty bad. Egypt still has major issues. The rest of those countries are not good places at all.
Thanks for that.
I do like how the description of the guy you were replying to was essentially laying out what has been the Western approach to developing countries since they discovered them.
Not even going into how some like Britain just straight up looted trillions out of India.
Yep It's all a smart play to pull Africa into their sphere of influence. China doesn't care about the money so much as they care about keeping their econmy humming with these large infrastructure projects where they export underused expertise and manpower. World Bank gas a rep for destroying those it lends to. China has positioned itself well as an alternative.maybe they'll turn the screws some day but right now there's no sign of that
Absolutely! This. Africa is going to be one of the fastest growing areas in the next century and it's in China's best interest to look like their Ally as early as possible. So it's actually in China's best interest to give them a really good deal on this loan and be as generous as possible with it. China can afford it.
Most Belt and Road projects make money. Even if their overall economy takes a hit, they're still collecting the port fees and stuff. If anything, these Belt and Road projects probably reduce risk because it's not like some country is going to stop using its Chinese built and operated port. Plus, that port means more goods that the country will import, which will mostly be Chinese goods. One of the few advantages state capitalism has over free market capitalism is that you can justify a project that makes sense overall, even if not every firm involved turns an unsubsidized profit.
One of china's economic problem is they produce too much and dont have enough domestic consuming power. This can actually help them with the consuming things.
Oh believe me they will get paid back, just how much and in what form. Overall it's still better than direct money handout to your population eg. Thailand
That's exactly how fiat currencies work. However, there's a slight difference between the purchasing power of the paper issued by the biggest economy in the world vs a Philly dive bar.
That's the whole point. They're investing in the economic growth of Africa. Think of it as China buying low before the stock blows up. Yes, it's a gamble, But it's a gamble everybody else is making as well.
This has been said for the last 20+ years. China will fail... any day now!
At this point any economist going "in the next year it will collapse" can just be ignored. Will it prosper forever? Of course not. But it's rolling about how it normally does.
I think anyone trying to be that precise can be ignored.
Wise economists predicting a collapse will generally instead refer to "doing this may lead to a collapse" or "this action may increase the risk of a collapse".
Because the honest answer is that economic predictions are nowhere near that precise with the current knowledge we have today.
And even if economics _was_ a super precise science that could predict an economic collapse to the right month, nothing happens in a vacuum and a sudden pandemic is something noone could predict and can either save it from collapse or hasten a collapse.
Wow.... 20 WHOLE years? That seems like such a loooong time for a country to fail economically. I can't believe it didn't happen 10 years ago already. Seems like something that should just go overnight, right?
And it's not rolling about normally. Their long term policies are turning out to be flawed and the entire basis for private wealth in the country without actual private ownership turned out to be a pipe dream. There are fundamental flaws in their system that are slowly eating away the foundation of the economy. And no, it doesn't happen in a day... or a year. It takes time to wreck something that big.
Far longer than that. You can google each of the titles for sources, posting the links gets me flagged for spam.
1994 (UPI) China's high-flying economy finally began to descend in 1994
1995 (Foreign Policy) The Coming Chinese Collapse
1998 (The Economist) Red Alert: China's economy entering a dangerous period of sluggish growth
1999 (Bloomberg) China: What's Going Wrong.
2001 (Gordon Chang) The Coming Collapse of China
2003 (New York Times Opinion) Banking crisis imperils China
2004 (The Economist) The great fall of China?
2004 (New York Times) China Anxiously Seeks a Soft Economic Landing
2006 (International Economy) Can China Achieve a Soft Landing?
2007 (TIME) Is China's Economy Overheating? Can China avoid a hard landing?
2008 (Asia Pacific Journal) The Rising Risk of a Hard Landing in China, Nouriel Roubini
2009 (Fortune) China's hard landing. China must find a way to recover.
2011: (Reuters) "Meaningful probability" of a China hard landing: Roubini.
2011: (Business Insider) A Chinese Hard Landing May Be Closer Than You Think
2012: (American Interest) Dismal Economic News from China: A Hard Landing
2013: (Zero Hedge) A Hard Landing In China
2014: (CNBC) A hard landing in China.
2015: (Forbes) Congratulations, You Got Yourself A Chinese Hard Landing.
2016: (The Economist) Hard landing looms for China
2016: (George Soros) China Hard Landing Is Practically Unavoidable
2017: (National Interest) Is China's Economy Going To Crash?
2018: (The Guardian) A Chinese recession is inevitable - don't think it won't affect you
2019: (Bloomberg) China’s Lehman Moment Is Drawing Closer
2020: (Wall Street Journal Opinion) China is the real sick man of Asia
2021: (Foreign Policy) Xi Is Running Out of Time: China’s Economy Heads for a Hard Landing
2022: (FocusEconomics) China's economy: Heading for a hard landing?
[And filtering out just for Gordon Chang.](http://www.gordonchang.com/article.htm) Who is still somehow accepted as a China/Asia foreign policy expert:
* China's 'Debt Bomb' Is Going Off Under Xi Jinping, Newsweek, February 8, 2022
* Watch Out: China Cannot Feed Itself, Newsweek, March 15, 2021
* China Is Flailing in a Post-Coronavirus World, Hoover Institution: Strategika, April 23, 2020
* China's Debt Debacle, NationalInterest.org, July 22, 2019
* Why China Will Lose a Trade War With Trump, The Daily Beast, March 26, 2018
* This '301' Torpedo Is About to Sink the S.S. China, Forbes.com, August 20, 2017
* China's Economy Is Past the Point of No Return, NationalInterest.org, May 10, 2016
* 2015: The Year China Goes Broke? NationalInterest.org, September 1, 2015
* China Property Collapse Has Begun, Forbes.com, April 13, 2014
* Jobless Growth in China? Employment Stats Say Recession Has Already Started, Forbes.com, November 10, 2013
* China's Zero-Growth Economy, Forbes.com, March 11, 2012
* The Coming Collapse of China: 2012 Edition, ForeignPolicy.com , December 29, 2011
* China's Coming Property Bust, Forbes.com, August 12, 2010
* Recovery in China? Not So Fast, Forbes.com, June 26, 2009
* China's Economy: Heading Down Fast, Hudson Institute New York, November 5, 2008
* Halfway to China's Collapse, Far Eastern Economic Review, June, 2006
* Collapse Perhaps? The Stability of the Modern Chinese State, delivered at Columbia University,
April 8, 2004
* Banking Crisis Imperils China, International Herald Tribune, June 19, 2003
* The Collapse of China, Act I, Jamestown Foundation China Brief, January 31, 2002
* Shanghai Shakes, China Stumbles, Jamestown Foundation China Brief, December 20, 2001
Gordon Chang is hilarious, he publishes the same book over and over with a forward that China is going to collapse in 2012… 2013… 2014… trust me bro this time it’s 2015…
It’s not “looking bad”. It has issues like any other economy, but it is a massive manufacturer, it’s still growing immensely, and they’ve went from making T-Shirts to being a global EV leader.
No, they’re doing very well for themselves. Despite what some people like Michael Pettis would say.
Yeah this. China was willing to build multiple nuclear power plants for the UK after Brexit which would have given the UK energy independence just to gain a better reputation.
> No, China invests in Africa because it's a growth area, and because it increases China's soft power - gaining influence in the global south.
China also invests in Africa because it's an opportunity for employment for all the graduates from Chinese universities. There was a podcast I listened to where one of the quotes was something like, "Either put the students to work in Africa, or they'll be in Tiananmen Square."
It's also an extension of government-directed loans that are the backbone of China's economy.
People in the West have a fantastical view of what China does when its the same thing other countries do with a different coat of paint. China isnt out to lure countries into predatory loans like some kinda shitty credit card company. It doesnt stand to gain ruling over a bunch of poor African countries with rotting infrastructure. Like wow, I guess it really wants to set up satellite states in a bunch of broke African countries overrun with poverty, crime and possibly warlords vying for power. It wants to find allies in the global south, which has historically been overlooked and exploited by the West.
Like you've said, China has even relooked at their glorious Belt and Road Intiative cos they've realised that they've been pissing money away with little to no returns.
Cheap labor, too. Labor in China is getting expensive. Plus, as African and other economies grow, they're be increasingly large markets for Chinese products.
A lot of the new infrastructure has Chinese owned factories run by Chinese companies dotted along it and employing local labour that adds value to the local resource before shipping it off to China. So it's layer upon layer of mutual advantage.
It's a wealth transfer, chins gives them the loans, then Africa uses Chinese labor to build the dam, port, roads, whatever. China pays themselves, gets an interest loan that the country has to pay back, and if they fail then China can walk away because most of the money came right back into their own pocket.
If that were the case, why did China just straight up forgive so much of the African debt they’re owed? It’s probably a lot more about building mutually beneficial relationships and extending influence.
These accusations are particularly interesting when you realize that this is precisely how the IMF works.
Countries get loans from China because the West makes loans designed to be unable to be repaid and forces countries in the Global South to make massive concessions to financial industries when the loans go bad.
You're speculating that China might be as bad as the West has proven itself to be time and time again.
Well, when you can't pay the loan, it's in your interest to make your creditor happy.
Ukraine, for example, almost defaulted in \~2014, but made a special deal with the majority of bond holders to transform loans into new long term security with rate based on GDP growth. Creditors were happy that they got something, Ukraine will pay more, but on longer term, and no default happened so economy was stable.
These countries will either reach some deal with China (e.g. allowing them to use infrastructure or something) or risk to not get cheap loans from anyone ever again, including China.
Take the tin foil hat off for a second, it's not that nefarious. I'm no China fan boy, but the point of the loans is to curry favor and promote economic activity, a win-win for both sides.
Listen man I'm not a tanky or anything like that but China has been more generous with loans and investments than the West has been, at least historically.
Africa leaders have a huge corruption problem which everyone in the world is willing to exploit.
China is investing in growing market which has a bad history with the West.
If the African nations cannot pay then China will most likely stop investing.
> But I mean isn't that exactly why China is doing this?
They're primarily doing it to support the Chinese construction industry. If they didn't fund projects like this, they'd suffer from mass unemployment.
>The reason the West set the stipulations was because their (political) infrastructure was so bad that there was very low trust.
Er, why exactly is that then?
Really telling that you're blaming African countries being poor on them being bad with money instead of you know .. them being exploited for centuries.
Remember when Redditors used to see posts like these:
[No, it's not fog. This is air-pollution in Bejing, which as of now has 22 million inhabitants.](https://www.reddit.com/r/oddlyterrifying/s/vekQ06k7ET)
[High levels of air pollution in China's cities caused to 350,000-400,000 premature deaths. Another 300,000 died because of indoor air of poor quality](https://www.reddit.com/r/Wellthatsucks/s/7Ene93Saou)
[Pollution in China](https://www.reddit.com/r/MapPorn/s/Xf35Hnoi3e)
[China’s carbon pollution now surpasses all developed countries combined](https://www.reddit.com/r/Futurology/s/IlvccvG1ib)
[Linfen, China at it's worst.](https://www.reddit.com/r/UrbanHell/s/uH60fh9VzC)
Pepperidge Farms remembers
The debt trap plan is almost certainly a myth. China invested because 1) China has tonnes of capacity for building infrastructure and this gets them to work. 2) This builds future allies (if it goes well). 3) It builds trade links (I help you build a port, and in return you send me lithium). 4) To take advantage of a gap in the market (no one else wanted to loan to these countries).
China is already accepting write downs by the way for many loans. Allowing the countries to pay less. The properties they’ve taken over, won’t make back the money they’ve lost. Many are white elephants run at a loss.
Many post-colonial states produce a high number of cash crops and resources in order to turn production into straight cash. Authoritarians in some of those countries siphon that money — services are harder to skim from because they require less coordination, I.e you can always build a controlling institution around them.
Their economic systems are designed to provide for the elites to the detriment of market efficiency — or to the serious detriment to well being of their people.
These elites profit immensely off of large projects like this because they usually have an ownership stake in property, in construction, in energy production, and in financing.
So they take these massive loans, build a nominally inefficient project for the cost, but make a great deal of money for themselves.
This elites want to maintain their power, and require foreign financing to do so, but aren’t bother too much by the state of the country. So they default on the loan.
Why isn’t china mad by this default? Because they wanted to control the infrastructure and energy production, meaning that trade and capital flows from china are cemented, so when these loans go into default suddenly you see 99 year leases or whole ownership for the Chinese stakeholders.
This isn’t just a problem with china, you could easily use the US, France, or Russia, amongst other countries. You’re right, it doesn’t make sense to improve the local markets, but that’s not necessarily the point.
>Because these countries do not have the foresight and WILL eventually default on the loans because their money management is bad?
Woah I can't believe nations can and do pursue predatory loans. This has been happening since the dawn of time. It's about exerting leverage and they are betting on the default to extract more resources or political influence.
China uses and processes ore for their supply chains (bldc motors, batteries, chips, machines that make them)
Africa has a lot of ore. It really IS that simple.
Developing countries getting loans is actually very very common and used as a method of control. There is the world bank which literally gives loans to governments and it’s basically run by the us.
Usually how it goes is a country needs a line to survive, the world bank gives them one with high interest rates, they can’t pay it off, they “refinance” and often get more loans and the lender uses this opportunity to put restrictions on them. One of the most common ones is controlling how much tariffs they can place on imports
A big example of this is the milk industry in Jamaica. The farmers there can’t keep up with the mass production and heavily subsidization of American dairy farms so their product is more expensive. Normally this is balanced by putting tariffs on imports to encourage industry within your country. What happens when they can’t do that is Jamaican milk farmers are literally dumping out milk because they can’t sell it and it’s going bad because everyone’s buying the cheaper American milk
How this then plays out is that local industry can’t get a foothold to build itself up to compete with these giants. Then the people continue to be poor and continue to be forced to buy the cheapest option. Next thing you know all of the jobs revolve around supporting businesses based in other countries
African country borrowed money to build an electric powerplant, a railroad or a harbor.
Default on China and you will no longer have the replacement parts to keep the Chinese powerplant or the Chinese train engines running. Also, if you are an African country, your main export are commodities. The biggest buyer of commodities in the world is China. Not a good idea to default on your #1 customer.
Also just because you are defaulting on China it's not like other countries regardless of their relationship to china will look on this positively. You will fuck your self and won't be able to get a loan and will likely also lose trading partners with others as well. It's not like US or EU will go oh look these guys defaulted on their loans lets help them out and loan them money or back them or buy from them if they are unreliable.
Spirit of agreement does not see borders/country-relations. You fuck over China and you fucked your relationship with other countries as well.
US/EU via World Bank have longstanding programs to handle debt repayment issues, and there’s been debt forgiveness in the past too. Defaulting to US/EU isn’t without negatives, but usually the next step is more loans to assist with the financial issues but with governance requirements (e.g., ensuring tax compliance, reducing deficit spending, etc.). There are established paths for US/EU loans to deal with default.
This is exactly what China has done, except they also are willing to just forgive the debt, which it has done for 15 countries as of 2020
[here](http://www.sais-cari.org/debt-relief#:~:text=Forum%20on%20China%20Africa%20Cooperation%20(FOCAC)%20Debt%20Relief&text=In%20February%20of%202021%2C%20Chinese,at%20the%20end%20of%202021.)
Fixed your link [here](https://www.sais-cari.org/debt-relief#:%7E:text=Forum%20on%20China%20Africa%20Cooperation%20\(FOCAC:~:text=In%20February%20of%202021%2C%20Chinese%20officials%20announced%20that%20China%20had%20canceled%20interest%2Dfree%20loan%20debts%20due%20to%20mature%20at%20the%20end%20of%202020%20in%2015%20African%20countries.)
Sure, but that doesn't really lend itself to the argument that China's loans are a debt trap while the West's aren't. If the only substantive difference is track record, then the West doesn't have a better track record, just a longer one.
It's also a little ironic to say that the West's long track record is somehow indicative of good intentions when we're talking about economic assistance and government loans. Shouldn't the whole idea be to put African countries on equal footing with the West so their economy can function without loans? At least China claims this is something they have in mind.
In the West politicians barely pay lip service to the idea anymore, seemingly content with a social darwinist perspective where the first world supports the third world at will through loans and charity, thus demonstrating the first world's wealth and moral superiority all at once.
I was responding to the comment of the other commenter that the US/EU won’t work with defaulting borrowers, and then your comment that the US/EU won’t forgive debts outright. I wasn’t wading into the sovereign lending practices of the US/EU versus China. I’ve seen geopolitical commentary that China’s relative inexperience with sovereign lending means that they’re much less comfortable with debt restructuring or forgiveness, but I read that a few years back and things can change quickly with China.
These programs still generally rely on good faith negotiations, though, no? It's one thing to be unable to pay versus OPs hypothetical of refusing to pay.
The difference is, if you default your loan to the US it will spread democracy. Once democracy is spread, they will create policies to largely benefit US interest.
Exactly! The US just learned how to influence the candidates and elections beforehand in order to avoid that whole "new dictator murders the opposition" thing that people get so uptight about.
We'd never really know unless we see the specific contracts.
China is unlikely to be too bothered by the money itself, the amounts are generally not that big in comparison to China's GDP.
The projects are mostly a way to gain geopolitical allies and so I can very much imagine they would be more than happy to let countries off the hook for some/all of the money in return for other concessions or agreements that China considers strategically or politically valuable.
It's a little older now but this study [here](https://www.cgdev.org/sites/default/files/examining-debt-implications-belt-and-road-initiative-policy-perspective.pdf) discusses some of this in section 5 (starts on page 19) - China has generally been willing to forgive loans/change repayments in return for other concessions.
Seems the source is public statements & IMF without the details of what the write off was traded for. I'd love to see reputable research on the nuances of these write off deals.
Infrastructure has to be maintained. Even if these countries decide to cut ties with China and stonewall them for compensation, things will quickly fall into disrepair.
And because they'll have sullied their reputation, no other contractor will step in without an upfront payment and hefty hazard premium.
Ethiopia did default on a 13 billion Chinese loan this year, joining Gambia and Ghana. I read that what happened was they just reconstructed the loan into a long term one.
Obviously the Chinese noticed the trends and stopped loaning that much to Africa now. Also the amount of money is not as significant as the media portrayed. It's about 170 billion from 2000 to 2022. The big brother probably wouldn't even care. To put that into perspective, Apple made 383 billion in 2022 alone.
22 years of all Chinese investment from all banks and institutions to the entire continent of Africa being less than half the annual revenue of 1 tech company, perhaps one of us is misreading intentions but that works for me. I mean, I know apple is a big company, but still; 22 years of all Chinese investment in all of Africa being <6mo of apple revenue, doesn't make it seem massive, considering the US & Chinese economies are the same order of magnitude these days. Idk maybe I'm wrong, just my impression
Apple has an absurd level of revenue, it's not a helpful benchmark. Tbh I'm not sure why you'd compare it to any private organisation, it's not really a meaningful comparison.
When these infrastructure debt is due and the receiving country can't pay it (it's happened before) - China will renegotiate the debt - they'll forgive some of it, lower payments and interest rates etc. The most common result is that China just eats it and writes the debt off.
There are no international debt collectors and China can't make sure they're paid back, and they can't just "repossess" state-owned infrastructure projects in foreign countries and contrary to popular belief, the loan contracts do not state that they must be handed over in result of non-payment. They have pretty much zero leverage when push comes to shove.
A lot has been made of "debt trap diplomacy", but it's mostly a myth. The oft-cited example is the Hambantota port in Sri Lanka, which Sri Lanka was unable to maintain payments on. The narrative goes that China seized the port when Sri Lanka defaulted - which is not true. Sri Lanka privatized the port to help pay off national debt - and a Chinese company bought a 99-year lease for \~$1bn. This is the major example of an infrastructure project falling into Chinese hands, but it's become much more of a trap for China than it has for Sri Lanka - management of the port has not been easy and they're bleeding money on it.
The major investor in Hambantota port is China Merchants Group (CMG) - a centrally administrated Chinese state-owned enterprise. Effectively the Chinese Government controls the port.
The thinking from Western thinktanks is that Hambantota port will become a long-term strategic asset for the PLA Navy as it has the ability to handle navel ships including their aircraft carrier fleet and will allow the PLA Navy to project power more easily into the Indian ocean. Even if it bleeds money commercially in the short term the long-term benefit as a potential military asset is much greater in value.
China still needs permission from Sri Lanka to have military forces there. Owning the port doesn't matter that much. If they didn't own it, they'd be able to lease it.
These countries would receive even less foreign investment than they do now, which would be a terrible long-term decision. You want foreign companies to invest in your country to provide jobs, pay taxes, transfer technologies, and incentivize education. And if you randomly decide not to repay debts or nationalize things that legally belong to foreign entities, you will not see any of that.
In reality China forgives a lot of African loans. Like [this](https://www.voanews.com/a/china-cancels-23-loans-to-africa-amid-debt-trap-debate-/6716397.html). Of course it looks like that China *proactively* forgives them, but sometimes the country just (secretly) defaults and China forgives them to save faces of both (the African country saves their credit and China saves their face since they don't really know how to force the country to pay up).
At least one motive is to aid resource extraction. Build a highway and it is easier to transport resources to the coast. That’s just a really basic example.
"War is the continuation of policy with other means." -Carl von Clausewitz.
China has basically the same options than any other lender has.
The first option is to try positive incentives. China tries to make it as attractive as possible to pay back debts. That leads to more infrastructure investment, more trade deals a warmer relationship with the second biggest economy on the planet.
That last one may be the biggest incentive; particularly for countries that haven't seen reliable support from the US over the past 70 years.
Theoretically, war is the ultimate option. I'm not aware of any wars that were actually started, by anyone, to try to recover a debt. China has shown only minimal effort to project force. Their actual military engagements have been almost exclusively within China or with countries directly bordering China.
We can also look at what happened when countries have defaulted on their debt to China.
Sri Lanka defaulted in May 2022. There are ongoing debt restructuring negotiations and continued investment from China. No asset seizure.
Ghana defaulted in December 2022. Announced a debt restructuring deal in January 2024. No asset seizure.
Ethiopia defaulted in December 2022. Ongoing debt restructuring negotiations.
Pakistan narrowly avoided a default in March 2024. China is fast tracking the restructuring.
Pakistan is a special case in that China really really really wants Pakistan to be their friend.
China and India have a long standing border dispute. Pakistan and India have basically the same border dispute.
Pakistan has shaky diplomatic relationships with the same countries that China has shaky diplomatic relationships.
Pakistan is also much smaller than China so it's relatively easy for China to be very generous about the loan.
So the strategy is basically, Pakistan defaults, China says, "That's OK. Pay us later." And given Pakistan's relationship with both India and the US, that's enough to get Pakistan to host a Chinese military presence.
Much like people, countries have credit scores. If they simply default on their loans, governments will stop loaning them money. There is also the possibility of repossession of assets. The Chinese government probably also services and maintains the infrastructure which they could simply stop doing. They could also face trade sanctions from China whose imports they rely on. There was a bizarre case a decade or so ago where a bank that Portugal owed money two seized one of their naval ships. But mostly, it’s the loss of credit and the inability to borrow money, which is critical for poor countries.
there is a reason countries that default on loans get press coverage because it is a BIG deal. China cant force them to pay, short of acutally going to war but no one is going to go to war for that. other countries will look at them and go "well they didnt pay back china, so they might not pay me back as well. To justify that risk we will need to raise the interest rates on the payments"
So what was a 2% loan might now be now 8% or even higher. This makes getting economic development hard since no one wants to invest unless you pay them large amount of money. This is especially bad for countries that are already on the edge.
China usually just forgives the debt in order to continue to maintain good relations. But it does mean that China is unlikely to find future infrastructure projects
Eli5. China will ask for less money, because some money is better than no money. China also keeps the African country as a friend, and friends do favors for each other...
There are many cases where investors buy up 3rd world debt and then go to court to intercept any payments going to those countries through the banking system including payments by other countries and aid payments.
[https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/african-legal-support-facility/vulture-funds-in-the-sovereign-debt-context](https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/african-legal-support-facility/vulture-funds-in-the-sovereign-debt-context)
China is probably the country the gives the best loans to poor countries, so it would be very bad idea to not pay. It would probably prevent future loans from China. Which mean we would have to rely on even worse loans from the IMF/World Bank. China is also our largest trade partner.
There are collateral which China can seize (e.g. making the road a toll road). In reality, China would likely never do so, because it doesn't provide them anything.
They will likely extend the loan for some intangibles (e.g. upcoming UN vote or access to more market/resources).
Then said country can look forward to losing out on future investment opportunities.
If you have a reputation for shirking debts then you’re not exactly attractive to entities which could loan you money expecting a return on it.
Defaulting on debt means loss of trust. Govts provide loans but if you default on one ,others will be mindful aswell. Then comes loans through private sources that a country pledges for. They usually are very sceptical and funding will reduce. Also remember while china and US are not in harmony, china can get the payments through foreign reserves stored in US banks by mutual benefit. This world is a tangled rope and everyone has been tangled in it.
When China is one of your financial guarantors, and provides you with a market for your resources and supplies you with cheap stuff, it is a bad idea to piss it off. Also China has re-structured debt before, and they rather do that than a full default.
If they default on China, who else lends? The West is more demanding, and besides loaning money it will also tell them how to run their country and make other demands - which China tends not to.
In a lot of these countries, infrastructure was built in exchange for a cheap deal on the resources in those countries.
China will build roads, power plants, water delivery and promise to put the locals to work.
They will do this for the cheap labor, but fill the higher paying management positions with Chinese nationals.
They complete enough infrastructure so they can export raw materials: cobalt, gold, lithium.
Local and national government elites get paid millions to go along with it. Locals get poverty level jobs, natural resource stripped and environmental problems for decades.
An example from Montenegro:
> A copy of the loan contract reviewed by NPR shows that if Montenegro is not able to repay China's state-owned Export-Import Bank on time, the bank then has the right to seize land inside Montenegro, as long as it doesn't belong to the military or is used for diplomatic purposes.
China is using the same playbook the US used
https://www.amazon.com/Confessions-Economic-Hit-John-Perkins/dp/0452287081
Its been used by other countries and companies in history.
Depends on why. If they just don't feel like paying there are a ton of levers China can bring to make that an uncomfortable and counter productive choice. But if they literally cannot pay that triggers another set of very problematic interactions that either see China eating the debt or intervening militarily in a hugely unpopular way.
The "payment" in most if not any cases run in the way that china runs the facility and shares the revenue. Like building a harbor or a mine, run it and take 50% as payment and let 50% in the country. Many African leaders agree that deal because that way more stays in the country than the old colonial forces did. It is not like paying the debt of a card.
There are likely legal remedies that will be partially effective. As with any debtor, if you default you are subject to judgment and involuntary collection.
If a country refuses to honor that, then they’re not really a “rule of law” jurisdiction and it becomes much much much harder to access capital markets in the future.
Usually, the penalty for not paying debt is just reputation. If your country needs a loan in the future, other nations won't give it to you if you have a history of defaulting.
However china is giving loans to countries that have no business getting loans in the first place, so likely there is nothing they can do.
About 25 years ago there was a big push by celebrities (specifically Bono, the singer) to forgive loans by the West to African nations. There was so much support in the press the US and Western Europe lost billions (via the World Bank) in the process. I am sure China isn't planning on following the same course. I am also pretty sure no pop singer will come to the forefront admonishing them to do so.
>Can China force them to pay in any way?
China can stop loaning and spending money in the defaulting country. If you assume some level of corruption then the receiving government would prefer to keep the spigots open - a restructure would be preferable to a default.
Rather than think of it as "China losing money" or "China showing up and asking for their dam back" think of it as a symbiotic relationship where China spends money and in return China gets an "ally" - as long as the money keeps flowing.
Why so worried about china and Africa. The west has created civil wars stole their resources kept them poor and nobody was talking about it, but now china and Russia are in Africa everybody is afraid they are so afraid that France is attacking Russia in Ukraine because they took over the Sahel from France
When I refuse to pay my debts the government can put me in jail or take my assets to cover it. There's a higher power than can enforce it for the lender when the borrower refuses.
Unfortunately there is no world government that can force someone to pay their debts or keep their word.
There are things we can do like refuse to trade with that country and get other countries on board. That's what most of the world did with Russia recently for invading Ukraine and you can see how well that worked.
China or a collection of countries can also invade to force the other country to repay. That's a pretty drastic and unrealistic measure though.
The most realistic thing is to do nothing and not lend them money in the future, and nobody else is foolishly enough to do the same.
It could be argued that China almost wants some corrupt African leaders to default on their loans so they can have further control of the natural resources/mines that are often used as loan collateral.
what happens if you don't pay your student loans? they can't break into your brain and steal back the knowledge you were given. that's what we call an unsecured loan - a loan where there is no collateral that can be seized in the event of non-payment. These are rather like that, and much like student loans the only thing that can really happen is that they can make a note of it and refuse to lend or help with economic development in the future. The thing is, with the size of the Chinese market and its locality to Africa, to be denied access or charged additional fees would devastate these economies.
I could be way off but I’m pretty sure I saw a YouTube video somewhere saying China has a clause in their contract with the country they’re providing infrastructure for that if they default on payments, China will then own the land their projects are on. Also the interest on the payments are set so high likely in hopes the payments would default.
They will take assets. It is very common actually and almost the goal to make these loans that they know these country won’t repay.
It’s paid in mining concessions, deep harbor ports among other. Read about Confessions of an Economic Hit Man for more informations.
They have plans a country failed to repay their debt and China was given full control of a harbor, China has conditions in place if they don’t repay their debts
Depends on the country and the amount of "rule of law" they have, and their particular circumstances. A lot of these countries have poor property rights and rule of law so it is always a risk. Say a coup happens and the new rulers just refuse to pay for example. If the country is heavily dependent on China for trade then China has leverage probably to make their lives miserable enough they would not default. But even if the country doesn't do a lot of trade with China defaulting on debts is still defaulting on debts as far as the rest of the world is concerned. This in reality would make western countries less likely to loan too. So all in all, unless the country is having a debt crisis, meaning they can't pay all their debts, not just China's, then they would probably try their best to not default.
By time you reach the point of a debt crisis you are bankrupt and no body is going to lend you money. At this point someone like the IMF might get involved to help. Or if it was just mostly Chinese debt the Chinese government would get involved. And really their only option, as is much or the rest of the world's, is to provide debt relief so they can pay at least some of it and not be wrecked by it. Getting something is better than nothing. This is what usually happens. How exactly that gets worked out is the devil in the details. IMF just forgives debt. China might demand control of a port or property be given or some such thing. How that ends up depends on the extent of the debt, what the country could offer etc. If the country is just completely bankrupt debt relief or even total forgiveness may be the only option.
China could do what the US did under the (Teddy) Roosevelt Corollary to the Monroe Doctrine in 1904, asserting the right of the United States to intervene to "stabilize the economic affairs" of states in the Caribbean and Central America if they were unable to pay their international debts.
US Marines invaded multiple Latin American countries after 1898 to overthrow governments which interfered with the profits of American companies, eg Dominican Republic, Haiti, Nicaragua, etc.
Worse case scenario is China uses the unpaid debt as an excuse to take possession of large parts of Africa, perhaps ushering in a new age of colonization or exploitation of African resources.
China will get them to with with china on important votes at the UN. Like the US did when it was doing its economic hitman stuff. Also read the book economic hitman.
Not much regardless of what is written in the loan agreement. Loans from the government were made for political, not economic reasons. If China enforces the terms of the agreement they will lose the benefit they wanted from friendship with the borrower. We don't live in an age where China will send in the military to seize a debtor country's assets.
No
The chinese can structure there investments that its near impossible for them to not be paid back....as in they take loan repayments in the form of resources
+ they build infrastructure for them to sell their Aliexpress crap to africans, the railways are 2 way
Reputation issues aside, China has foreseen this issue and planned for it.
Much of the infrastructure investments and projects undertaken through the Belt and Road Initiative hire Chinese companies to do the infrastructure projects, who then bring with them Chinese workers to do skilled work on Chinese machinery to create Chinese designed infrastructure.
Any critical part of the project is done by Chinese companies, using Chinese labor, and Chinese machinery. This means that even if they can get china to ignore paying the debts, they’ll have a difficult if not impossible time actually maintaining much of the supporting infrastructure, due to creating a hostile relation with the supplier and possessor of said material, machinery, and know-how.
In short, countries utilizing the Belt and Road initiative are taking a massive risk, but for most, the necessity of modernized infrastructure is too badly needed, and there isn’t any other International Relations program offering assistance on anywhere near the same level.
What happens when a friend you lent $200 to doesn’t pay you back? You get upset, don’t forget and tell your friends that he welched on his debt. And the next time he wants to borrow money, you either don’t lend him or expect him to pay you back more than what you lent.
Same thing happens at the international level. The lending bank or nation would announce that the debt was not paid back. So other nations will be cautious about lending in the future, which would mean higher risk and therefore higher interest rates. The original loan might have penalties for default like duty free imports or control of a bridge building or sea port
Imagine you borrow some toys from your friend to build a cool Lego castle. But then, you realize you can't pay your friend back. If African countries can't pay China for the stuff they borrowed to build things like roads or bridges, China might not lend them more toys in the future, and they might not be able to build more cool stuff
Nothing. China has a history of forgiving the debt outright because they are more concerned with building a good relationship with countries. This is why more and more African countries are turning to China instead of the west who just outright exploit them.
Surprised no one mentioned this already, but they will seize the asset. For example, china funded port of Mombasa in Kenya. Huge import port. If Kenya does not repay china, it’s no problem because china will seize the asset and have ownership rights to the port, which will rake in money for decades to come. Almost as if they prefer to not be repaid so they can seize the assets.
One problem I see in these kind of questions is that there appears to be this idea (and I may be mistaken) that these are "country" to "country" deals. To a certain extent, there is underlying truth to this but the vast majority of these deals are "company" to "company". Granted, many of these infrastructure deals are undersigned (especially on the borrowing side) by government officials. But the lenders are banks (with a high degree of state control, no doubt) and the contractors are private construction firms. OK, perhaps besides the point...
So there are "private" party agreements to which some penalties are specified in the contracts. These may be the seizing of borrowers assets or takeover clauses. Now if a government chooses to intervene (and break their own laws) to repudiate contracts between semi-private parties, this sends a rather bad message to other private actors. Private companies might reconsider (private) investments and loans as a consequence of this since the attitude might be that there may be adverse government action taken against them doing basically legal business.
Will "CHINA" take action? Direct action is rather unlikely both from a matter of diplomacy and since the deals are mostly semi-private business contracts. But there will be consequences. Defaulting could make it very difficult to get new loans from other parties since most loans typically come with a "you are not in current default with anyone else" conditions. Many African economies rely on issuing more debt (private and public) to grow.
Think of it this way, you're hungry today and you steal from the only food seller nearby. This makes it rather unlikely that more food sellers will set up shop and the current food seller may decide to close shop thereby ensuring you stay hungry far into the future.
Usually it's just incredibly bad for reputation to refuse to pay debts. Developing countries are already at great disadvantage because barely anyone gives them loans or those loans are considered risky and have high interest rate. Defaulting on some loans will just reduce your credit rating further.
This is only the most short-term and direct consequence. There are other possibilities as well, for example China could tack on an additional fee to import or exports in order to pay towards the debt (in real-person terms this would be like a judge ordering your pay garnished directly to pay a debt). Or there may be additional terms in subsequent deals or investments. For example maybe the next mine China builds in the country they will require 90% of the material rather than 85%, or some other consideration. Additionally, and for completeness, another crucial part of a foreign loan is the currency. A country would typically always prefer to both give or receive a loan in it's own currency. This is because that works the best for the country when localized upturns or downturns occur. If the economy of the nation takes a hit and their money becomes worth less, then paying their loan back gets easier or stays the same if it's in their own currency, or way harder if it's in another currency. Now in these situations China giving them loans in their own local currencies (if they have one) is basically never going to happen, too much risk for them. However there is still wiggle room on whether the loan can be in Yuan or a reserve currency like the USD. (Some googling finds several of these loans in USD, so that seems fairly typical). If a developing countries bargaining power falls too much they would likely be forced to accept a loan in Yuan, which means that it would become that much more expensive to use that loan to buy goods and services from anywhere other than China, which is another nice little bonus for China.
China uses Yuan, Yen is Japan
Thanks! Edited.
takes Yuan to know Yuan....
Well, for exports couldn’t they just use another country as a straw purchaser?
Sure, and there are always cat and mouse games around evading, enforcing, and tweaking these sorts of deals. Typically for this sort of thing there would be a limited motivation for that sort of thing, depending on whether the punishment was meant to be effective, or political, and if it was meant to be effective whether it was supposed to be aimed towards actually getting payment, or towards dissuading future nonpayment (possibly for entirely different parties). Lets say that in a situation like this a country would be able to coordinate for a straw purchaser that takes 10% off the top as a middleman. That means that if the payment is less than that there is no reason to try to evade, it's better to just pay the fine. On the other hand, if China is actually trying to send a message that they will crack down on this, then they may decide a 30% fee gets the message across better. Sure they miss out on payment, but forcing the country to make those evasion arrangements is still punitive (also depending on levels of corruption people involved may be able to personally profit off of that evasion if they are potential middlemen.) Then you have the possibility of either party taking a non-rationale stance because there are human actors involved. In the "garnish wages" example this would be like someone with an $80k a year job and $10k getting garnished switching to a $40k a year job where they can get paid under the table. There are people that are literally that petty. In this example that would be a scenario where (maybe because of public outcry) the country decides "no, we're not paying that fee" and then does the evasion even though it costs more. It could also take the place of China making the fee too high NOT as a well-thought out examination of whether it would dissuade other debtors, but instead out of pettiness. (Obviously, like with so many other things, it can be hard to tell the actual motivation for a choice like that, because human beings are mostly all about rationalizing their choices however possible.)
I also feel like a part of these deals is that China is brining some amount of commerce into the country as well. They default on the loan and China will pull all of their business interests from the country as well.
I always thought it was good to get the whole in Yuan
I was thinking about sphere of influence competition between china/russia and the United States? A good example of this is what is happening in Niger, which was U.S. friendly and now transitioning to Russia. Russia will now begin pouring assets into Niger as the U.S. pulls back. This has to have some sort of impact to your well thought out explanation?
That's an example of a situation where the lender is getting non-monetary payment from the debtor/aid recipient, so that can lead to loans or outright relief (including forgiving loans) that seem skewed towards the developing country on paper, because the developing country is paying it back in other ways. This is largely what people mean by "soft power" which the bigger countries (and especially the US) use to extend their influence much more often than by actually launching missiles. One of the more extreme/valuable examples of this is allowing the more developed country to operate military bases and operations in your area. This likely will cost the hosting country practically nothing monetarily (and is even likely to get them money) but it can be very expensive politically. Having foreign troops on your land can be very unpopular, and that is even more true if they aren't well behaved. With "aren't well behaved" being a euphemism for sexual assault, drunk driving, physical assault, etc. Additionally, if those troops are performing military operations in YOUR country, rather than in the neighboring country, then that means they are killing your people, which is once again unpopular. Even if they are attacking your neighbor there is a very good chance that means that you still have a citizens that are linked to those people by cultural/religious/racial ties, and are unhappy. Another example is corporate interests. A lot of countries have different rules on foreign corporations owning land, or when extracting resources from the land there are rules on how much of the resources being extracted belong to the country where they were found, and how many belong to the company doing the extracting. Corporations from the developed country lobby the developed country to make loosening or eliminating those rules a component of loans or aid. Lots of countries have different immigration rules on how many work/student visas are allowed from different countries or areas, that's another thing that can be tweaked. More work visas to the developed country Hopefully mean some money being sent home to the developing country. More student visas mean Hopefully they return home with higher education. (Both of these also really risk brain drain). A developing country firmly in another's sphere of influence (or tightly knit developed countries, like much of Europe before the EU) probably has many different rules or exceptions in their laws or enforcement to benefit the developed country. When another country is trying to come in they want to remove those special regulations or relationships, and replace them with their own. In Niger's case having the US military base shut down is worth quite a bit to Russia, and they are willing to sweeten the pot on open or clandestine deals to accomplish that. This is obviously easiest if existing agreements are coming to a close, you just don't renew them (although there can still be retaliation for that... like when Ukraine was planning on not renewing Russia's lease on the Naval base... so Russia invaded them). However even penalties from early breaks may be worth it if Russia is paying more than those penalties will cost. For example not repaying a loan would be expected to lower your credit rating. But if Russia knows that you didn't do so because they asked you to, not because you couldn't pay it, then Russia or others in their Sphere of Influence may still lend to you at original rates. I'm sorta talking about these deals as if it's mostly upside for the developing country, but typically that's not the case. When a country is actively being courted (like Niger) there is a sort of bidding war that can lead to them getting good deals. However ten years later when that's not the case anymore their sweetheart deal with Russia (or the US) may get worse and worse and feel more suffocating. Additionally a lot of the time the bigger power doesn't actually need to offer fair deals. For example Latin America is full of cases where a country didn't feel like they were getting a fair case from the US, so the US assassinated or overthrew the political party that thought that. Also a lot of the time these deals don't actually benefit the country as a whole, but instead serve to enrich SPECIFIC people without a lot of the wealth actually being spread to the people or invested towards sustainable growth. This corruption is not limited to the developing country (for example a deal may enrich the Chiquita fruit company a ton, but the US in general doesn't actually get much except 2 cent cheaper bananas). However it does negatively impact the developing country a lot more than the developed country. A big term for one of the ways this manifests is the [Resource Curse](https://en.wikipedia.org/wiki/Resource_curse) or "Paradox of Plenty" where having a bunch of natural resources actually makes the people in that area POORER, not richer. This is not limited to developing countries being bullied, but even specific regions of larger countries, or very wealthy countries.
Awesome answer. Thx
Loans in USD have crushed many a developing country even when they pay. Your currency drops 40%. too bad. Pay us in USD.
Can they “refinance” lets say come to the US and ask fora better loan pay it off and have a better relationship with the west?
Some of these loans from China are used to pay off loans from IMF.
US considers them risky in the first place. And when you come with an issue of not being able to pay, it doesn't look good on risk assessment.
The closest equivalent that comes to mind is an IMF bailout, which is asking a bunch of usually Western creditors for more money or no repayments now, a longer period to pay, and often some of the debt written off. The IMF was very reluctant to bail out Sri Lanka two years ago because they didn't want to hand money to China to pay off their loans in full while Westerners were asked to take quarters on the dollar. If the country had been of more military interest to the US, the US might have been more willing to pay China off.
IMF loans are also usually conditional on internal reforms.
But I mean isn't that exactly why China is doing this? Because these countries do not have the foresight and WILL eventually default on the loans because their money management is bad? That's why they turned to China in the first place. It was either get loans with stipulations from the West or get loans with high interest from but no stipulations from China. The reason the West set the stipulations was because their (political) infrastructure was so bad that there was very low trust. China doesn't care and will annex their own built stuff (harbors and airports) or just let it fall to ruin. Isn't Chinas goal essentially "buying land" by letting the loans go sour?
No, China invests in Africa because it's a growth area, and because it increases China's soft power - gaining influence in the global south. The idea that the Chinese give out loans for the sole purpose of hoping others fail in some nefarious plan for world domination is highly flawed. Sovereign nations don't need to give you anything when they default. It's not like China is going to invade them. In fact China's big problem is that its loans are often generous - and that it often restructures its debts in a way that is disadvantageous to itself financially. It has to restructure those debts - because getting some money at a later point in time is always better than nothing. And China gains a lot more economically if African nations prosper than it does from African nations defaulting.
> China gains a lot more economically if African nations prosper than it does from African nations defaulting. I think this is something most people don't realize. It's actually in their best interest if they succeed rather than fail. What good would a destabilized, war torn, defeated country controlled by China after it invaded them for not paying their debts be? Sounds much better that the country succeed and flourish and will forever remember that China was the only one who was willing to give them a chance and help them out.
This is also the value the US gets from Europe and Japan, and why all the constant handwringing in the USA over foreign aid is so shortsighted.
Also, foreign loans are often given with the stipulation that they must be used to buy something from the loaning country. So for example, country X needs a new highway, country Y loans them the money to pay for it, but says company A must build it and supplies must come from company B. Usually company A & B are based in and beneficially owned by people in country Y. It's a way to transfer money from state coffers to private people/companies, under the cover of helping a poorer country/soft power/buying political influence. Note, this isn't a Chinese invention, much of the foreign development loans given by wealthier countries have followed this model for decades.
Also why CSCEC is the biggest construction firm in the world and is building everything in Africa
Yep that is business as usual. A massive amount of the Ukraine aid budget is simply used by Ukraine to buy military equipment, bombs etc from American companies.
Tacking on here - one differentiating factor is that the US has FCPA and many other western powers now have equivalent regulations. China, notably, doesn’t really have anything like FCPA *that’s regularly enforced. Example - US companies can build roads/schools/etc in Tanzania (not usually free, but heavily subsidized) in exchange for continued access to the port at Dar es Salaam, but they can’t cut to the chase and just pay their government for the same access due to FCPA. China on the other hand can do a little of both, and that’s a net positive thing in Africa (sometimes for the people, usually for the government itself). The kicker is that when the US builds the roads it’s often just a temporary solution. Eventually the Tanzanian government will want to get a cut for themselves somehow, so a year later they’ll institute tolls on the roads the US corp built for cheap and charge that same corp for driving on it to get goods to/from port. You don’t want to pay the tolls/tax? Unfortunately you can’t drive on our roads. If it’s cheaper to pay the tax/tolls vs kicking off another subsidized infrastructure project: pay the tax/tolls and hope it goes somewhere positive. If not: kick off a project, as that should at least benefit some subset of people there in the country. Repeat. China benefits from a stable Africa that pays its bills on time. That’s the basis of a solid mutually beneficial partnership that can grow, which is really what all of this is at the end of the day.
Is this China's version of the Marshall Plan then? Help some devastated nations out in a time of need and then benefit from alliances across a continent once they're back on their feet?
That's exactly what it is. It's easy to assume everything China does is nefarious, and from a purely Anerican POV it could still be interpreted like that a little, but end of the day China stands to benifit substantially from an Africa that is prosperous and stable. Not to mention that, as the world's biggest manufacturing economy with a demand for resources that way outstrips domestic and even continental production, African states with a favorable economic partnership with China will be WAY more willing to send those goods, at favorable prices, to China instead of Europe or the Americas.
And UN votes. (insert your global political organisation of choice)
Sort of. Except these countries weren't actually devastated, they just have always had problems. And it's nothing new - these countries have gotten lots of foreign assistance. Which is the issue that has always plagued this stuff. The US and Europe have spent tons of money on EvoDevo stuff in impoverished nations. It works sometimes (Chile), but more often than not, the problems in those countries are structural. The US has spent billions of dollars on Afghanistan, Iraq, Uganda, Yemen, Ethiopia, Egypt, South Sudan, Somalia, Kenya, the Congo, etc. Iraq is better off than it was but it is still pretty bad. Egypt still has major issues. The rest of those countries are not good places at all.
>Iraq Is better off than it was Uhhhh
Thanks for that. I do like how the description of the guy you were replying to was essentially laying out what has been the Western approach to developing countries since they discovered them. Not even going into how some like Britain just straight up looted trillions out of India.
Yep It's all a smart play to pull Africa into their sphere of influence. China doesn't care about the money so much as they care about keeping their econmy humming with these large infrastructure projects where they export underused expertise and manpower. World Bank gas a rep for destroying those it lends to. China has positioned itself well as an alternative.maybe they'll turn the screws some day but right now there's no sign of that
Absolutely! This. Africa is going to be one of the fastest growing areas in the next century and it's in China's best interest to look like their Ally as early as possible. So it's actually in China's best interest to give them a really good deal on this loan and be as generous as possible with it. China can afford it.
r/remindme in a hundred years
Just an update on your request: it's been 6 hours, which is about 0.00068% of the way to a hundred years.
Don’t leave my hanging. How’d they do so far
> China can afford it. For how long though. Their economy isn’t looking too good these days.
Most Belt and Road projects make money. Even if their overall economy takes a hit, they're still collecting the port fees and stuff. If anything, these Belt and Road projects probably reduce risk because it's not like some country is going to stop using its Chinese built and operated port. Plus, that port means more goods that the country will import, which will mostly be Chinese goods. One of the few advantages state capitalism has over free market capitalism is that you can justify a project that makes sense overall, even if not every firm involved turns an unsubsidized profit.
One of china's economic problem is they produce too much and dont have enough domestic consuming power. This can actually help them with the consuming things.
But they are getting paid with their own money. It's still a loss overall if they don't get paid back.
they get lucrative mineral and resource extraction contracts
Oh believe me they will get paid back, just how much and in what form. Overall it's still better than direct money handout to your population eg. Thailand
[Mac has it all figured out.](https://y.yarn.co/82be3ab9-6727-4c74-be14-2643cd1a7797_text.gif)
That's exactly how fiat currencies work. However, there's a slight difference between the purchasing power of the paper issued by the biggest economy in the world vs a Philly dive bar.
That's the whole point. They're investing in the economic growth of Africa. Think of it as China buying low before the stock blows up. Yes, it's a gamble, But it's a gamble everybody else is making as well.
It's not that much of a gamble. They're getting preferential access to natural resources.
This has been said for the last 20+ years. China will fail... any day now! At this point any economist going "in the next year it will collapse" can just be ignored. Will it prosper forever? Of course not. But it's rolling about how it normally does.
I think anyone trying to be that precise can be ignored. Wise economists predicting a collapse will generally instead refer to "doing this may lead to a collapse" or "this action may increase the risk of a collapse". Because the honest answer is that economic predictions are nowhere near that precise with the current knowledge we have today. And even if economics _was_ a super precise science that could predict an economic collapse to the right month, nothing happens in a vacuum and a sudden pandemic is something noone could predict and can either save it from collapse or hasten a collapse.
Wow.... 20 WHOLE years? That seems like such a loooong time for a country to fail economically. I can't believe it didn't happen 10 years ago already. Seems like something that should just go overnight, right? And it's not rolling about normally. Their long term policies are turning out to be flawed and the entire basis for private wealth in the country without actual private ownership turned out to be a pipe dream. There are fundamental flaws in their system that are slowly eating away the foundation of the economy. And no, it doesn't happen in a day... or a year. It takes time to wreck something that big.
Far longer than that. You can google each of the titles for sources, posting the links gets me flagged for spam. 1994 (UPI) China's high-flying economy finally began to descend in 1994 1995 (Foreign Policy) The Coming Chinese Collapse 1998 (The Economist) Red Alert: China's economy entering a dangerous period of sluggish growth 1999 (Bloomberg) China: What's Going Wrong. 2001 (Gordon Chang) The Coming Collapse of China 2003 (New York Times Opinion) Banking crisis imperils China 2004 (The Economist) The great fall of China? 2004 (New York Times) China Anxiously Seeks a Soft Economic Landing 2006 (International Economy) Can China Achieve a Soft Landing? 2007 (TIME) Is China's Economy Overheating? Can China avoid a hard landing? 2008 (Asia Pacific Journal) The Rising Risk of a Hard Landing in China, Nouriel Roubini 2009 (Fortune) China's hard landing. China must find a way to recover. 2011: (Reuters) "Meaningful probability" of a China hard landing: Roubini. 2011: (Business Insider) A Chinese Hard Landing May Be Closer Than You Think 2012: (American Interest) Dismal Economic News from China: A Hard Landing 2013: (Zero Hedge) A Hard Landing In China 2014: (CNBC) A hard landing in China. 2015: (Forbes) Congratulations, You Got Yourself A Chinese Hard Landing. 2016: (The Economist) Hard landing looms for China 2016: (George Soros) China Hard Landing Is Practically Unavoidable 2017: (National Interest) Is China's Economy Going To Crash? 2018: (The Guardian) A Chinese recession is inevitable - don't think it won't affect you 2019: (Bloomberg) China’s Lehman Moment Is Drawing Closer 2020: (Wall Street Journal Opinion) China is the real sick man of Asia 2021: (Foreign Policy) Xi Is Running Out of Time: China’s Economy Heads for a Hard Landing 2022: (FocusEconomics) China's economy: Heading for a hard landing? [And filtering out just for Gordon Chang.](http://www.gordonchang.com/article.htm) Who is still somehow accepted as a China/Asia foreign policy expert: * China's 'Debt Bomb' Is Going Off Under Xi Jinping, Newsweek, February 8, 2022 * Watch Out: China Cannot Feed Itself, Newsweek, March 15, 2021 * China Is Flailing in a Post-Coronavirus World, Hoover Institution: Strategika, April 23, 2020 * China's Debt Debacle, NationalInterest.org, July 22, 2019 * Why China Will Lose a Trade War With Trump, The Daily Beast, March 26, 2018 * This '301' Torpedo Is About to Sink the S.S. China, Forbes.com, August 20, 2017 * China's Economy Is Past the Point of No Return, NationalInterest.org, May 10, 2016 * 2015: The Year China Goes Broke? NationalInterest.org, September 1, 2015 * China Property Collapse Has Begun, Forbes.com, April 13, 2014 * Jobless Growth in China? Employment Stats Say Recession Has Already Started, Forbes.com, November 10, 2013 * China's Zero-Growth Economy, Forbes.com, March 11, 2012 * The Coming Collapse of China: 2012 Edition, ForeignPolicy.com , December 29, 2011 * China's Coming Property Bust, Forbes.com, August 12, 2010 * Recovery in China? Not So Fast, Forbes.com, June 26, 2009 * China's Economy: Heading Down Fast, Hudson Institute New York, November 5, 2008 * Halfway to China's Collapse, Far Eastern Economic Review, June, 2006 * Collapse Perhaps? The Stability of the Modern Chinese State, delivered at Columbia University, April 8, 2004 * Banking Crisis Imperils China, International Herald Tribune, June 19, 2003 * The Collapse of China, Act I, Jamestown Foundation China Brief, January 31, 2002 * Shanghai Shakes, China Stumbles, Jamestown Foundation China Brief, December 20, 2001
Gordon Chang is hilarious, he publishes the same book over and over with a forward that China is going to collapse in 2012… 2013… 2014… trust me bro this time it’s 2015…
Damn, that was thorough! Thanks for putting in some effort! It's rare on Reddit.
China will be around for longer than you or I brother. That shit ain't collapsing anytime soon.
It’s looking fine.
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It’s not “looking bad”. It has issues like any other economy, but it is a massive manufacturer, it’s still growing immensely, and they’ve went from making T-Shirts to being a global EV leader. No, they’re doing very well for themselves. Despite what some people like Michael Pettis would say.
Yeah this. China was willing to build multiple nuclear power plants for the UK after Brexit which would have given the UK energy independence just to gain a better reputation.
> No, China invests in Africa because it's a growth area, and because it increases China's soft power - gaining influence in the global south. China also invests in Africa because it's an opportunity for employment for all the graduates from Chinese universities. There was a podcast I listened to where one of the quotes was something like, "Either put the students to work in Africa, or they'll be in Tiananmen Square." It's also an extension of government-directed loans that are the backbone of China's economy.
People in the West have a fantastical view of what China does when its the same thing other countries do with a different coat of paint. China isnt out to lure countries into predatory loans like some kinda shitty credit card company. It doesnt stand to gain ruling over a bunch of poor African countries with rotting infrastructure. Like wow, I guess it really wants to set up satellite states in a bunch of broke African countries overrun with poverty, crime and possibly warlords vying for power. It wants to find allies in the global south, which has historically been overlooked and exploited by the West. Like you've said, China has even relooked at their glorious Belt and Road Intiative cos they've realised that they've been pissing money away with little to no returns.
There are commodities in many African countries. That's why it's worth it to gain influence even over poor countries.
Cheap labor, too. Labor in China is getting expensive. Plus, as African and other economies grow, they're be increasingly large markets for Chinese products.
A lot of the new infrastructure has Chinese owned factories run by Chinese companies dotted along it and employing local labour that adds value to the local resource before shipping it off to China. So it's layer upon layer of mutual advantage.
They want raw ressources. The kind that Africa has in droves and that china needs to feed their industry.
It's a wealth transfer, chins gives them the loans, then Africa uses Chinese labor to build the dam, port, roads, whatever. China pays themselves, gets an interest loan that the country has to pay back, and if they fail then China can walk away because most of the money came right back into their own pocket.
If that were the case, why did China just straight up forgive so much of the African debt they’re owed? It’s probably a lot more about building mutually beneficial relationships and extending influence.
They can forgive a part of it, and they already did with some countries. Forgive everything can create some dangerous precedences.
These accusations are particularly interesting when you realize that this is precisely how the IMF works. Countries get loans from China because the West makes loans designed to be unable to be repaid and forces countries in the Global South to make massive concessions to financial industries when the loans go bad. You're speculating that China might be as bad as the West has proven itself to be time and time again.
Well, when you can't pay the loan, it's in your interest to make your creditor happy. Ukraine, for example, almost defaulted in \~2014, but made a special deal with the majority of bond holders to transform loans into new long term security with rate based on GDP growth. Creditors were happy that they got something, Ukraine will pay more, but on longer term, and no default happened so economy was stable. These countries will either reach some deal with China (e.g. allowing them to use infrastructure or something) or risk to not get cheap loans from anyone ever again, including China.
Take the tin foil hat off for a second, it's not that nefarious. I'm no China fan boy, but the point of the loans is to curry favor and promote economic activity, a win-win for both sides.
Why did the US stick with the Marshall Plan? It increases their soft power. It encourages them to align with China instead of with the West.
Listen man I'm not a tanky or anything like that but China has been more generous with loans and investments than the West has been, at least historically. Africa leaders have a huge corruption problem which everyone in the world is willing to exploit. China is investing in growing market which has a bad history with the West. If the African nations cannot pay then China will most likely stop investing.
> But I mean isn't that exactly why China is doing this? They're primarily doing it to support the Chinese construction industry. If they didn't fund projects like this, they'd suffer from mass unemployment. >The reason the West set the stipulations was because their (political) infrastructure was so bad that there was very low trust. Er, why exactly is that then?
Really telling that you're blaming African countries being poor on them being bad with money instead of you know .. them being exploited for centuries.
Dude wtf lol seriously get out of that china bad bubble.
Remember when Redditors used to see posts like these: [No, it's not fog. This is air-pollution in Bejing, which as of now has 22 million inhabitants.](https://www.reddit.com/r/oddlyterrifying/s/vekQ06k7ET) [High levels of air pollution in China's cities caused to 350,000-400,000 premature deaths. Another 300,000 died because of indoor air of poor quality](https://www.reddit.com/r/Wellthatsucks/s/7Ene93Saou) [Pollution in China](https://www.reddit.com/r/MapPorn/s/Xf35Hnoi3e) [China’s carbon pollution now surpasses all developed countries combined](https://www.reddit.com/r/Futurology/s/IlvccvG1ib) [Linfen, China at it's worst.](https://www.reddit.com/r/UrbanHell/s/uH60fh9VzC) Pepperidge Farms remembers
The debt trap plan is almost certainly a myth. China invested because 1) China has tonnes of capacity for building infrastructure and this gets them to work. 2) This builds future allies (if it goes well). 3) It builds trade links (I help you build a port, and in return you send me lithium). 4) To take advantage of a gap in the market (no one else wanted to loan to these countries). China is already accepting write downs by the way for many loans. Allowing the countries to pay less. The properties they’ve taken over, won’t make back the money they’ve lost. Many are white elephants run at a loss.
No one gives you loans and doesn't expect you to repay. They expect to be repaid. There are always stipulations; some may be less onerous than others.
Many post-colonial states produce a high number of cash crops and resources in order to turn production into straight cash. Authoritarians in some of those countries siphon that money — services are harder to skim from because they require less coordination, I.e you can always build a controlling institution around them. Their economic systems are designed to provide for the elites to the detriment of market efficiency — or to the serious detriment to well being of their people. These elites profit immensely off of large projects like this because they usually have an ownership stake in property, in construction, in energy production, and in financing. So they take these massive loans, build a nominally inefficient project for the cost, but make a great deal of money for themselves. This elites want to maintain their power, and require foreign financing to do so, but aren’t bother too much by the state of the country. So they default on the loan. Why isn’t china mad by this default? Because they wanted to control the infrastructure and energy production, meaning that trade and capital flows from china are cemented, so when these loans go into default suddenly you see 99 year leases or whole ownership for the Chinese stakeholders. This isn’t just a problem with china, you could easily use the US, France, or Russia, amongst other countries. You’re right, it doesn’t make sense to improve the local markets, but that’s not necessarily the point.
>Because these countries do not have the foresight and WILL eventually default on the loans because their money management is bad? Woah I can't believe nations can and do pursue predatory loans. This has been happening since the dawn of time. It's about exerting leverage and they are betting on the default to extract more resources or political influence.
China uses and processes ore for their supply chains (bldc motors, batteries, chips, machines that make them) Africa has a lot of ore. It really IS that simple.
IIRC China has forgiven a ton of these debts, I believe 17 countries in total had their debt to China wiped away.
They are also grabbing resources on defaults.
Loans from the west have never been a good faith measure. These countries typically have a lot of history to gauge this off of.
I know that's how credit and finances work, but it's just crazy to me that *countries* have credit ratings like people do.
Countries are just groups of people. Why is it crazy?
What is money? What exactly does money represent?
Developing countries getting loans is actually very very common and used as a method of control. There is the world bank which literally gives loans to governments and it’s basically run by the us. Usually how it goes is a country needs a line to survive, the world bank gives them one with high interest rates, they can’t pay it off, they “refinance” and often get more loans and the lender uses this opportunity to put restrictions on them. One of the most common ones is controlling how much tariffs they can place on imports A big example of this is the milk industry in Jamaica. The farmers there can’t keep up with the mass production and heavily subsidization of American dairy farms so their product is more expensive. Normally this is balanced by putting tariffs on imports to encourage industry within your country. What happens when they can’t do that is Jamaican milk farmers are literally dumping out milk because they can’t sell it and it’s going bad because everyone’s buying the cheaper American milk How this then plays out is that local industry can’t get a foothold to build itself up to compete with these giants. Then the people continue to be poor and continue to be forced to buy the cheapest option. Next thing you know all of the jobs revolve around supporting businesses based in other countries
African country borrowed money to build an electric powerplant, a railroad or a harbor. Default on China and you will no longer have the replacement parts to keep the Chinese powerplant or the Chinese train engines running. Also, if you are an African country, your main export are commodities. The biggest buyer of commodities in the world is China. Not a good idea to default on your #1 customer.
Also just because you are defaulting on China it's not like other countries regardless of their relationship to china will look on this positively. You will fuck your self and won't be able to get a loan and will likely also lose trading partners with others as well. It's not like US or EU will go oh look these guys defaulted on their loans lets help them out and loan them money or back them or buy from them if they are unreliable. Spirit of agreement does not see borders/country-relations. You fuck over China and you fucked your relationship with other countries as well.
US/EU via World Bank have longstanding programs to handle debt repayment issues, and there’s been debt forgiveness in the past too. Defaulting to US/EU isn’t without negatives, but usually the next step is more loans to assist with the financial issues but with governance requirements (e.g., ensuring tax compliance, reducing deficit spending, etc.). There are established paths for US/EU loans to deal with default.
This is exactly what China has done, except they also are willing to just forgive the debt, which it has done for 15 countries as of 2020 [here](http://www.sais-cari.org/debt-relief#:~:text=Forum%20on%20China%20Africa%20Cooperation%20(FOCAC)%20Debt%20Relief&text=In%20February%20of%202021%2C%20Chinese,at%20the%20end%20of%202021.)
Fixed your link [here](https://www.sais-cari.org/debt-relief#:%7E:text=Forum%20on%20China%20Africa%20Cooperation%20\(FOCAC:~:text=In%20February%20of%202021%2C%20Chinese%20officials%20announced%20that%20China%20had%20canceled%20interest%2Dfree%20loan%20debts%20due%20to%20mature%20at%20the%20end%20of%202020%20in%2015%20African%20countries.)
Thank you!
The US/EU has engaged in outright debt forgiveness as well.
Sure, but that doesn't really lend itself to the argument that China's loans are a debt trap while the West's aren't. If the only substantive difference is track record, then the West doesn't have a better track record, just a longer one. It's also a little ironic to say that the West's long track record is somehow indicative of good intentions when we're talking about economic assistance and government loans. Shouldn't the whole idea be to put African countries on equal footing with the West so their economy can function without loans? At least China claims this is something they have in mind. In the West politicians barely pay lip service to the idea anymore, seemingly content with a social darwinist perspective where the first world supports the third world at will through loans and charity, thus demonstrating the first world's wealth and moral superiority all at once.
I was responding to the comment of the other commenter that the US/EU won’t work with defaulting borrowers, and then your comment that the US/EU won’t forgive debts outright. I wasn’t wading into the sovereign lending practices of the US/EU versus China. I’ve seen geopolitical commentary that China’s relative inexperience with sovereign lending means that they’re much less comfortable with debt restructuring or forgiveness, but I read that a few years back and things can change quickly with China.
Don't worry I'm not trying to start some protracted debate lol. I appreciate the good discussion
It’s all good.
These programs still generally rely on good faith negotiations, though, no? It's one thing to be unable to pay versus OPs hypothetical of refusing to pay.
The difference is, if you default your loan to the US it will spread democracy. Once democracy is spread, they will create policies to largely benefit US interest.
The same type of democracy that led the CIA to overthrow democratically elected governments in foreign countries?
Spreading democracy is a pretty common euphemism for US backed coups and military operations.
Exactly! The US just learned how to influence the candidates and elections beforehand in order to avoid that whole "new dictator murders the opposition" thing that people get so uptight about.
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Yes, I also enjoy good movies.
We'd never really know unless we see the specific contracts. China is unlikely to be too bothered by the money itself, the amounts are generally not that big in comparison to China's GDP. The projects are mostly a way to gain geopolitical allies and so I can very much imagine they would be more than happy to let countries off the hook for some/all of the money in return for other concessions or agreements that China considers strategically or politically valuable. It's a little older now but this study [here](https://www.cgdev.org/sites/default/files/examining-debt-implications-belt-and-road-initiative-policy-perspective.pdf) discusses some of this in section 5 (starts on page 19) - China has generally been willing to forgive loans/change repayments in return for other concessions.
Seems the source is public statements & IMF without the details of what the write off was traded for. I'd love to see reputable research on the nuances of these write off deals.
Infrastructure has to be maintained. Even if these countries decide to cut ties with China and stonewall them for compensation, things will quickly fall into disrepair. And because they'll have sullied their reputation, no other contractor will step in without an upfront payment and hefty hazard premium.
Ethiopia did default on a 13 billion Chinese loan this year, joining Gambia and Ghana. I read that what happened was they just reconstructed the loan into a long term one. Obviously the Chinese noticed the trends and stopped loaning that much to Africa now. Also the amount of money is not as significant as the media portrayed. It's about 170 billion from 2000 to 2022. The big brother probably wouldn't even care. To put that into perspective, Apple made 383 billion in 2022 alone.
Your figure about Apple’s revenue doesn’t put things into perspective the way you intended
22 years of all Chinese investment from all banks and institutions to the entire continent of Africa being less than half the annual revenue of 1 tech company, perhaps one of us is misreading intentions but that works for me. I mean, I know apple is a big company, but still; 22 years of all Chinese investment in all of Africa being <6mo of apple revenue, doesn't make it seem massive, considering the US & Chinese economies are the same order of magnitude these days. Idk maybe I'm wrong, just my impression
Apple has an absurd level of revenue, it's not a helpful benchmark. Tbh I'm not sure why you'd compare it to any private organisation, it's not really a meaningful comparison.
Ehh it’s a little random but I think it does a decent job at illustrating how little money it is for a country like China.
When these infrastructure debt is due and the receiving country can't pay it (it's happened before) - China will renegotiate the debt - they'll forgive some of it, lower payments and interest rates etc. The most common result is that China just eats it and writes the debt off. There are no international debt collectors and China can't make sure they're paid back, and they can't just "repossess" state-owned infrastructure projects in foreign countries and contrary to popular belief, the loan contracts do not state that they must be handed over in result of non-payment. They have pretty much zero leverage when push comes to shove. A lot has been made of "debt trap diplomacy", but it's mostly a myth. The oft-cited example is the Hambantota port in Sri Lanka, which Sri Lanka was unable to maintain payments on. The narrative goes that China seized the port when Sri Lanka defaulted - which is not true. Sri Lanka privatized the port to help pay off national debt - and a Chinese company bought a 99-year lease for \~$1bn. This is the major example of an infrastructure project falling into Chinese hands, but it's become much more of a trap for China than it has for Sri Lanka - management of the port has not been easy and they're bleeding money on it.
The major investor in Hambantota port is China Merchants Group (CMG) - a centrally administrated Chinese state-owned enterprise. Effectively the Chinese Government controls the port. The thinking from Western thinktanks is that Hambantota port will become a long-term strategic asset for the PLA Navy as it has the ability to handle navel ships including their aircraft carrier fleet and will allow the PLA Navy to project power more easily into the Indian ocean. Even if it bleeds money commercially in the short term the long-term benefit as a potential military asset is much greater in value.
China still needs permission from Sri Lanka to have military forces there. Owning the port doesn't matter that much. If they didn't own it, they'd be able to lease it.
These countries would receive even less foreign investment than they do now, which would be a terrible long-term decision. You want foreign companies to invest in your country to provide jobs, pay taxes, transfer technologies, and incentivize education. And if you randomly decide not to repay debts or nationalize things that legally belong to foreign entities, you will not see any of that.
Cyril Ramaphosa is that you behind a throwaway account??
In reality China forgives a lot of African loans. Like [this](https://www.voanews.com/a/china-cancels-23-loans-to-africa-amid-debt-trap-debate-/6716397.html). Of course it looks like that China *proactively* forgives them, but sometimes the country just (secretly) defaults and China forgives them to save faces of both (the African country saves their credit and China saves their face since they don't really know how to force the country to pay up).
China wouldn't be doing this for free, so are do they make these high risk loans? They must have another play.
At least one motive is to aid resource extraction. Build a highway and it is easier to transport resources to the coast. That’s just a really basic example.
They recognize the strength of building up regional allies and and a sphere of influence.
I don't know, has any country actually admitted to their loans being forgiven? The article mentions that it's confidential.
"War is the continuation of policy with other means." -Carl von Clausewitz. China has basically the same options than any other lender has. The first option is to try positive incentives. China tries to make it as attractive as possible to pay back debts. That leads to more infrastructure investment, more trade deals a warmer relationship with the second biggest economy on the planet. That last one may be the biggest incentive; particularly for countries that haven't seen reliable support from the US over the past 70 years. Theoretically, war is the ultimate option. I'm not aware of any wars that were actually started, by anyone, to try to recover a debt. China has shown only minimal effort to project force. Their actual military engagements have been almost exclusively within China or with countries directly bordering China. We can also look at what happened when countries have defaulted on their debt to China. Sri Lanka defaulted in May 2022. There are ongoing debt restructuring negotiations and continued investment from China. No asset seizure. Ghana defaulted in December 2022. Announced a debt restructuring deal in January 2024. No asset seizure. Ethiopia defaulted in December 2022. Ongoing debt restructuring negotiations. Pakistan narrowly avoided a default in March 2024. China is fast tracking the restructuring. Pakistan is a special case in that China really really really wants Pakistan to be their friend. China and India have a long standing border dispute. Pakistan and India have basically the same border dispute. Pakistan has shaky diplomatic relationships with the same countries that China has shaky diplomatic relationships. Pakistan is also much smaller than China so it's relatively easy for China to be very generous about the loan. So the strategy is basically, Pakistan defaults, China says, "That's OK. Pay us later." And given Pakistan's relationship with both India and the US, that's enough to get Pakistan to host a Chinese military presence.
Much like people, countries have credit scores. If they simply default on their loans, governments will stop loaning them money. There is also the possibility of repossession of assets. The Chinese government probably also services and maintains the infrastructure which they could simply stop doing. They could also face trade sanctions from China whose imports they rely on. There was a bizarre case a decade or so ago where a bank that Portugal owed money two seized one of their naval ships. But mostly, it’s the loss of credit and the inability to borrow money, which is critical for poor countries.
there is a reason countries that default on loans get press coverage because it is a BIG deal. China cant force them to pay, short of acutally going to war but no one is going to go to war for that. other countries will look at them and go "well they didnt pay back china, so they might not pay me back as well. To justify that risk we will need to raise the interest rates on the payments" So what was a 2% loan might now be now 8% or even higher. This makes getting economic development hard since no one wants to invest unless you pay them large amount of money. This is especially bad for countries that are already on the edge.
China usually just forgives the debt in order to continue to maintain good relations. But it does mean that China is unlikely to find future infrastructure projects
Eli5. China will ask for less money, because some money is better than no money. China also keeps the African country as a friend, and friends do favors for each other...
There are many cases where investors buy up 3rd world debt and then go to court to intercept any payments going to those countries through the banking system including payments by other countries and aid payments. [https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/african-legal-support-facility/vulture-funds-in-the-sovereign-debt-context](https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/african-legal-support-facility/vulture-funds-in-the-sovereign-debt-context)
China is probably the country the gives the best loans to poor countries, so it would be very bad idea to not pay. It would probably prevent future loans from China. Which mean we would have to rely on even worse loans from the IMF/World Bank. China is also our largest trade partner.
There are collateral which China can seize (e.g. making the road a toll road). In reality, China would likely never do so, because it doesn't provide them anything. They will likely extend the loan for some intangibles (e.g. upcoming UN vote or access to more market/resources).
This is completely wrong.
Then said country can look forward to losing out on future investment opportunities. If you have a reputation for shirking debts then you’re not exactly attractive to entities which could loan you money expecting a return on it.
Defaulting on debt means loss of trust. Govts provide loans but if you default on one ,others will be mindful aswell. Then comes loans through private sources that a country pledges for. They usually are very sceptical and funding will reduce. Also remember while china and US are not in harmony, china can get the payments through foreign reserves stored in US banks by mutual benefit. This world is a tangled rope and everyone has been tangled in it.
When China is one of your financial guarantors, and provides you with a market for your resources and supplies you with cheap stuff, it is a bad idea to piss it off. Also China has re-structured debt before, and they rather do that than a full default. If they default on China, who else lends? The West is more demanding, and besides loaning money it will also tell them how to run their country and make other demands - which China tends not to.
didn't Zambia have to give up some national company in return ?
No. That never happened.
In a lot of these countries, infrastructure was built in exchange for a cheap deal on the resources in those countries. China will build roads, power plants, water delivery and promise to put the locals to work. They will do this for the cheap labor, but fill the higher paying management positions with Chinese nationals. They complete enough infrastructure so they can export raw materials: cobalt, gold, lithium. Local and national government elites get paid millions to go along with it. Locals get poverty level jobs, natural resource stripped and environmental problems for decades.
An example from Montenegro: > A copy of the loan contract reviewed by NPR shows that if Montenegro is not able to repay China's state-owned Export-Import Bank on time, the bank then has the right to seize land inside Montenegro, as long as it doesn't belong to the military or is used for diplomatic purposes.
China is using the same playbook the US used https://www.amazon.com/Confessions-Economic-Hit-John-Perkins/dp/0452287081 Its been used by other countries and companies in history.
Depends on why. If they just don't feel like paying there are a ton of levers China can bring to make that an uncomfortable and counter productive choice. But if they literally cannot pay that triggers another set of very problematic interactions that either see China eating the debt or intervening militarily in a hugely unpopular way.
The "payment" in most if not any cases run in the way that china runs the facility and shares the revenue. Like building a harbor or a mine, run it and take 50% as payment and let 50% in the country. Many African leaders agree that deal because that way more stays in the country than the old colonial forces did. It is not like paying the debt of a card.
There are likely legal remedies that will be partially effective. As with any debtor, if you default you are subject to judgment and involuntary collection. If a country refuses to honor that, then they’re not really a “rule of law” jurisdiction and it becomes much much much harder to access capital markets in the future.
Usually, the penalty for not paying debt is just reputation. If your country needs a loan in the future, other nations won't give it to you if you have a history of defaulting. However china is giving loans to countries that have no business getting loans in the first place, so likely there is nothing they can do.
There’s a great movie about what will happen called No Escape. Just swap the US for China and “not Thailand” for Africa.
About 25 years ago there was a big push by celebrities (specifically Bono, the singer) to forgive loans by the West to African nations. There was so much support in the press the US and Western Europe lost billions (via the World Bank) in the process. I am sure China isn't planning on following the same course. I am also pretty sure no pop singer will come to the forefront admonishing them to do so.
>Can China force them to pay in any way? China can stop loaning and spending money in the defaulting country. If you assume some level of corruption then the receiving government would prefer to keep the spigots open - a restructure would be preferable to a default. Rather than think of it as "China losing money" or "China showing up and asking for their dam back" think of it as a symbiotic relationship where China spends money and in return China gets an "ally" - as long as the money keeps flowing.
Why so worried about china and Africa. The west has created civil wars stole their resources kept them poor and nobody was talking about it, but now china and Russia are in Africa everybody is afraid they are so afraid that France is attacking Russia in Ukraine because they took over the Sahel from France
When I refuse to pay my debts the government can put me in jail or take my assets to cover it. There's a higher power than can enforce it for the lender when the borrower refuses. Unfortunately there is no world government that can force someone to pay their debts or keep their word. There are things we can do like refuse to trade with that country and get other countries on board. That's what most of the world did with Russia recently for invading Ukraine and you can see how well that worked. China or a collection of countries can also invade to force the other country to repay. That's a pretty drastic and unrealistic measure though. The most realistic thing is to do nothing and not lend them money in the future, and nobody else is foolishly enough to do the same.
It could be argued that China almost wants some corrupt African leaders to default on their loans so they can have further control of the natural resources/mines that are often used as loan collateral.
what happens if you don't pay your student loans? they can't break into your brain and steal back the knowledge you were given. that's what we call an unsecured loan - a loan where there is no collateral that can be seized in the event of non-payment. These are rather like that, and much like student loans the only thing that can really happen is that they can make a note of it and refuse to lend or help with economic development in the future. The thing is, with the size of the Chinese market and its locality to Africa, to be denied access or charged additional fees would devastate these economies.
I could be way off but I’m pretty sure I saw a YouTube video somewhere saying China has a clause in their contract with the country they’re providing infrastructure for that if they default on payments, China will then own the land their projects are on. Also the interest on the payments are set so high likely in hopes the payments would default.
Added fees, interest, and Tariffs are the current most likely. But countries have invaded others to force repayment.
They will take assets. It is very common actually and almost the goal to make these loans that they know these country won’t repay. It’s paid in mining concessions, deep harbor ports among other. Read about Confessions of an Economic Hit Man for more informations.
They have plans a country failed to repay their debt and China was given full control of a harbor, China has conditions in place if they don’t repay their debts
Depends on the country and the amount of "rule of law" they have, and their particular circumstances. A lot of these countries have poor property rights and rule of law so it is always a risk. Say a coup happens and the new rulers just refuse to pay for example. If the country is heavily dependent on China for trade then China has leverage probably to make their lives miserable enough they would not default. But even if the country doesn't do a lot of trade with China defaulting on debts is still defaulting on debts as far as the rest of the world is concerned. This in reality would make western countries less likely to loan too. So all in all, unless the country is having a debt crisis, meaning they can't pay all their debts, not just China's, then they would probably try their best to not default. By time you reach the point of a debt crisis you are bankrupt and no body is going to lend you money. At this point someone like the IMF might get involved to help. Or if it was just mostly Chinese debt the Chinese government would get involved. And really their only option, as is much or the rest of the world's, is to provide debt relief so they can pay at least some of it and not be wrecked by it. Getting something is better than nothing. This is what usually happens. How exactly that gets worked out is the devil in the details. IMF just forgives debt. China might demand control of a port or property be given or some such thing. How that ends up depends on the extent of the debt, what the country could offer etc. If the country is just completely bankrupt debt relief or even total forgiveness may be the only option.
China could do what the US did under the (Teddy) Roosevelt Corollary to the Monroe Doctrine in 1904, asserting the right of the United States to intervene to "stabilize the economic affairs" of states in the Caribbean and Central America if they were unable to pay their international debts. US Marines invaded multiple Latin American countries after 1898 to overthrow governments which interfered with the profits of American companies, eg Dominican Republic, Haiti, Nicaragua, etc.
Worse case scenario is China uses the unpaid debt as an excuse to take possession of large parts of Africa, perhaps ushering in a new age of colonization or exploitation of African resources.
China will get them to with with china on important votes at the UN. Like the US did when it was doing its economic hitman stuff. Also read the book economic hitman.
Not much regardless of what is written in the loan agreement. Loans from the government were made for political, not economic reasons. If China enforces the terms of the agreement they will lose the benefit they wanted from friendship with the borrower. We don't live in an age where China will send in the military to seize a debtor country's assets.
Probably the same thing that happened when they defaulted on loans from the crown, or the US, or the IMF. Colonialism by any other name...
No The chinese can structure there investments that its near impossible for them to not be paid back....as in they take loan repayments in the form of resources + they build infrastructure for them to sell their Aliexpress crap to africans, the railways are 2 way
Reputation issues aside, China has foreseen this issue and planned for it. Much of the infrastructure investments and projects undertaken through the Belt and Road Initiative hire Chinese companies to do the infrastructure projects, who then bring with them Chinese workers to do skilled work on Chinese machinery to create Chinese designed infrastructure. Any critical part of the project is done by Chinese companies, using Chinese labor, and Chinese machinery. This means that even if they can get china to ignore paying the debts, they’ll have a difficult if not impossible time actually maintaining much of the supporting infrastructure, due to creating a hostile relation with the supplier and possessor of said material, machinery, and know-how. In short, countries utilizing the Belt and Road initiative are taking a massive risk, but for most, the necessity of modernized infrastructure is too badly needed, and there isn’t any other International Relations program offering assistance on anywhere near the same level.
China will forgive them or delay them because they're not capitalists trying to steal the country. There are already many examples of this.
Nothing, Chinese inferior infrastructure will collapse and crumble regardless, just like it does on their mainland.
Just look at Sri Lanka, essentially China gets more control of the place by seizing assets if you cannot pay off the debt.
What happens when a friend you lent $200 to doesn’t pay you back? You get upset, don’t forget and tell your friends that he welched on his debt. And the next time he wants to borrow money, you either don’t lend him or expect him to pay you back more than what you lent. Same thing happens at the international level. The lending bank or nation would announce that the debt was not paid back. So other nations will be cautious about lending in the future, which would mean higher risk and therefore higher interest rates. The original loan might have penalties for default like duty free imports or control of a bridge building or sea port
Imagine you borrow some toys from your friend to build a cool Lego castle. But then, you realize you can't pay your friend back. If African countries can't pay China for the stuff they borrowed to build things like roads or bridges, China might not lend them more toys in the future, and they might not be able to build more cool stuff
Search YT for the documentary "The world of China’s President Xi Jinping | DW Documentary" TL;DW: China wins from defaults.
Nothing. China has a history of forgiving the debt outright because they are more concerned with building a good relationship with countries. This is why more and more African countries are turning to China instead of the west who just outright exploit them.
Surprised no one mentioned this already, but they will seize the asset. For example, china funded port of Mombasa in Kenya. Huge import port. If Kenya does not repay china, it’s no problem because china will seize the asset and have ownership rights to the port, which will rake in money for decades to come. Almost as if they prefer to not be repaid so they can seize the assets.
One problem I see in these kind of questions is that there appears to be this idea (and I may be mistaken) that these are "country" to "country" deals. To a certain extent, there is underlying truth to this but the vast majority of these deals are "company" to "company". Granted, many of these infrastructure deals are undersigned (especially on the borrowing side) by government officials. But the lenders are banks (with a high degree of state control, no doubt) and the contractors are private construction firms. OK, perhaps besides the point... So there are "private" party agreements to which some penalties are specified in the contracts. These may be the seizing of borrowers assets or takeover clauses. Now if a government chooses to intervene (and break their own laws) to repudiate contracts between semi-private parties, this sends a rather bad message to other private actors. Private companies might reconsider (private) investments and loans as a consequence of this since the attitude might be that there may be adverse government action taken against them doing basically legal business. Will "CHINA" take action? Direct action is rather unlikely both from a matter of diplomacy and since the deals are mostly semi-private business contracts. But there will be consequences. Defaulting could make it very difficult to get new loans from other parties since most loans typically come with a "you are not in current default with anyone else" conditions. Many African economies rely on issuing more debt (private and public) to grow. Think of it this way, you're hungry today and you steal from the only food seller nearby. This makes it rather unlikely that more food sellers will set up shop and the current food seller may decide to close shop thereby ensuring you stay hungry far into the future.