In Global Slowdown, China Holds Sway Over Countries’ Fates

“Western commercial creditors and multilateral institutions, who hold the biggest share of debts, refused to be part of the effort,” Wang Wenbin, a foreign ministry spokesman, said at a ministry briefing a month ago.

China’s foreign minister, Wang Yi, has insisted repeatedly that his country is making an earnest attempt to help borrowers. He has also continued to lash out at the Trump administration’s past accusations that China engaged in “debt-trap diplomacy,” that is, lending so much money to poor countries that they would become financially dependent on Beijing.

“These are not ‘debt traps,’ but monuments of cooperation,” Mr. Wang said this year.

China and the United States have favored different approaches to debt troubles. In the past, Beijing has tended to lend more money to some countries, including Argentina, Ecuador and Pakistan, so that they can continue to make payments on existing loans. China’s approach helps these countries afford imports of food and fuel, but leaves them with ever more debt.

The United States prefers requiring government agencies and banks to forgive part of their loans. This was done during the Latin American debt crisis in the 1980s, so that borrowers could afford to repay the interest on the remaining debt.

But this approach requires banks to immediately accept heavy losses, a tough sell in China given its economic slowdown and housing crisis. Weakening home prices and stalled real estate transactions have already left Chinese banks with bad loans to developers and home buyers.

Article source: https://www.nytimes.com/2022/10/06/business/china-debt-economy-global-slowdown.html