Tag Archives: Beltl and Road China

How to Make Friends: Load Them Up with Debt

“It’s no secret…China is by far the largest bilateral creditor to African governments,” said Mike Pompeo, America’s secretary of state, in June 2020, blaming it for creating an unsustainable debt burden. The World Bank disclosed ib July 2020, how much governments owe to China (and other lenders). The World Bank report revealed that developing countries owed $104 billion to China at the end of 2018. The total includes soft loans from China’s government, semi-soft loans from “policy banks”, such as China Development Bank, and profit-seeking loans from state-owned commercial lenders. The same countries owed $106bn to the World Bank and $60bn to bondholders…

The new figures confirm Mr Pompeo’s observation that China is by far the biggest bilateral creditor to Africa, and in many poor countries elsewhere. It accounts for about 20% of the total foreign debt owed by the 73 governments eligible for the G-20 moratorium on debt payments due to the COVID-19 pandemic (the Debt Service Suspension Initiative (DSSI)). That is more than all of the Paris Club lenders, including America, Britain and Japan, combined.

Excerpts from Public Finance: The Debt Toll, Economist, July 4, 2020

Strangling China with Hong Kong: the Politics of Fear

The U.S. determination  that Hong Kong is no longer autonomous from mainland China, under the Hong Kong Policy Act of 1992, will have significant implications for the city’s exporters and businesses.  Sensitive U.S. technologies could no longer be imported into Hong Kong, and the city’s exports might be hit with the same tariffs levied on Chinese trade.

But the act doesn’t cover the far more extensive role Hong Kong plays as China’s main point of access to global finance.  As of 2019, mainland Chinese banks held 8,816 trillion Hong Kong dollars ($1.137 trillion) in assets in the semiautonomous city, an amount that has risen 373% in the last decade…. China’s banks do much of their international business, mostly conducted in U.S. dollars, from Hong Kong. With Shanghai inside China’s walled garden of capital controls, there is no obvious replacement.

While the U.S. doesn’t directly control Hong Kong’s status as a financial center, Washington has demonstrated its extensive reach over the dollar system, with penalties against Korean, French and Lebanese financiers for dealing with sanctioned parties. The U.S. recently threatened Iraq’s access to the New York Federal Reserve, demonstrating a growing willingness to use financial infrastructure as a tool of foreign policy.  Even though the U.S. can’t legislate Hong Kong’s ability to support Chinese banks out of existence, the role of an international funding hub is greatly reduced if your counterparties are too fearful to do business with you.

Putting the ability of Chinese banks to conduct dollar-denominated activities at risk would be deleterious to China’s ability to operate financially overseas, posing a challenge for the largely dollar-denominated Belt and Road global infrastructure initiative. It would also put the more financially fragile parts of the country, like its debt-laden property developers, under strain.  China’s hope to develop yuan into an influential currency also centers on Hong Kong’s remaining a viable global financial center—more than 70% of international trade in the yuan is done in the city.

Excerpts from Mike Bird, How the US Could Really Hurt China, WSJ, May 290, 2020