China’s debt trap rises amid fiscal deficit and BRI roadblock
China’s boom was fueled by debt as the Communist Party began to seek superpower status with a credit card and the world knows that when you buy anything with a credit card you spend money money that you don’t really have and one day you will have to give it back.
The Communist Party has set itself ambitious goals. She wants to dominate this century and wants to be the ultimate superpower by dethroning America. It is a mission that requires money and a lot of money.
There are three telltale signs that the Dragon is running out of money. First, China’s tax revenue growth has fallen. In 2018, tax revenue increased by 6.2%. In 2019, it was below 4%. Second, China’s budget deficit is growing. He hit nearly five percent last year, but the world knows those numbers are falsified.
The International Monetary Fund (IMF) says the shortfall is not 5% but more than 12% and finally the Belt and Road is full of obstacles Even before the pandemic it was widely believed that it was too ambitious a plan.
In 2016, China provided 46 loans worth over $1 billion, all of which were for overseas investment projects. In 2018 China only funded 28 projects and now due to the coronavirus the projects have been delayed.
There are also demands for debt relief, with some countries even abandoning projects. The BRI project is Xi Jinping’s dream but it could now become the reason for his downfall. The reason is simple – it costs too much.
A 2017 report estimated that China needs $5 trillion over the next five years to sustain the BRI project, which basically means that the BRI’s five-year budget from 2017 to 2022 is $5 trillion.
The Chinese state and its affiliates have lent around $1.5 trillion to 150 countries in the form of direct loans, making China the largest lender in the world, bigger than the World Bank or the IMF.
China-backed international institutions also participated, including the China Silk Road Infrastructure Fund, the Asian Infrastructure Investment Bank and the Shanghai-based New Development Bank.
According to 2017 figures, their contribution is around 190 billion dollars.
However, there is no answer on how China gets the rest of the money, but Beijing has a bigger headache right now which is the demand for debt relief from countries that don’t. can’t afford to pay right now.
At home, China is struggling with ailing banks and overseas, Chinese cash has gone to high-risk countries. The Organization for Economic Co-operation and Development (OECD) ranks countries according to their risk profile.
In the list of 20 names, 17 can be considered high risk which have low credit ratings. The default risk is very high since the beginning of the Belt and Road Initiative, China has lent up to 350 billion dollars to member countries. about half of them are high-risk debtors.
Several of them have called for debt relief over the past two decades, even as China has embarked on a lending spree. He has become the biggest banker in the developing world, but he is now in danger of collapsing.