The chaos of the coronavirus could reinforce the debt of China on the countries in difficulty | China
As the coronavirus pandemic causes global economic devastation, China could take control of the assets of indebted countries at an accelerated pace, or it could strengthen its soft diplomacy by canceling the debt.
The choice was put forward by the authors of a Harvard report on a Chinese tactic dubbed ‘book debt diplomacy’, and comes amid calls for G20 countries to endorse a one-year debt moratorium for the poorest countries.
China’s state-owned companies and banks have emerged as major international lenders, including through large-scale infrastructure investments under Xi Jinping’s Belt and Road Initiative.
China watchers have already warned of the “debt book diplomacy” scheme, where developing countries are unable to repay heavy loan repayments on Chinese infrastructure investments, forcing them to relinquish control of assets to China.
A report 2018 from the Harvard Kennedy School of Political Analysis for the US State Department identified countries like Pakistan and Sri Lanka as among those where governments had already ceded a key port or military base.
Now, as countries face unexpected economic damage from the pandemic, the authors said it could accelerate defaults.
“I think this is just the start,” report co-author Sam Parker said last week. “But whatever leverage China has on countries, it’s going to increase. Whatever bad consequences were going to happen because of China’s inability to repay, I think the timeline could be dramatically accelerated.
Amid the global response to the coronavirus pandemic, attention has grown on China’s influence strategies, particularly its move towards soft diplomacy. As China reports success in overcoming the outbreak, it has started offering assistance to other countries struggling with the virus.
Co-author Gabrielle Chefitz said the country was left with two choices.
“Debt is a very flexible instrument. As we see China making big soft power efforts, looking down…there are opportunities for China to demand payment of debt, perhaps with strategic assets in return, or cancel that debt that drives this soft power narrative forward as a world leader.
Chinese officials have hinted they may be open to debt relief.
On Tuesday, Chinese Foreign Ministry spokesman Zhao Lijian said, “For countries that are facing debt difficulties, China will never force them, but will solve them through consultation through bilateral channels. “.
Zhao’s statement was followed by an anonymous official who told Reuters that China agreed that “some countries should not be forced to make payments during the crisis”.
“Developing countries, especially low-income countries, face greater challenges. We are willing to maintain communication with relevant countries through bilateral channels,” the official said.
The IMF and the World Bank have urged G20 governments on March 25 to endorse a call for a debt moratorium for the world’s poorest countries battling the coronavirus pandemic. It has been supported by over 140 major NGOs and charities.
“It is imperative at this time to provide an overall sense of relief to developing countries as well as a strong signal to financial markets,” the IMF and World Bank said.
On Tuesday, Ghana’s finance minister called on China to review the debt of African nations.
“My feeling is that China needs to get stronger,” Ken Ofori-Atta told the Washington-based Center for Global Development. “African debt to China is around $145 billion, more than $8 billion in payments are needed this year… So you have to look at that.”
A G20 task force was due to meet this week before finance officials meet again on April 15. They last met on March 31 but failed to reach any agreement on the matter.