China’s much-hyped debt trap diplomacy could turn catastrophic for the country as the world stares at one of the worst recessions in history owing to the coronavirus pandemic. China—with its Belt and Road Initiative (BRI), referred to as One Belt-One Road (Obor) earlier—has spread its wings across Africa and many countries in Asia. However, most of the debtor economies, including Pakistan, may have to renegotiate the terms of repayment due to the imminent recession this year.
Apart from Pakistan, countries like Zambia, Djibouti, Republic of Congo, Maldives, Tonga, Laos and Kyrgyzstan may be running out of steam, hit by the economic uncertainty as they are. Repayment of debt could pose a serious challenge to China. Some of China’s investments outside its territory have already gone wrong and the dragon nation could be falling in its own debt diplomacy trap.
The pandemic has impacted over 210 countries crippling their economic activities.
Sample this. Pakistan will have to pay up a sum of $6.7 billion to China in the next three years, but with the former’s economy going through a tailspin the two nations may have to re-charter the terms of the transaction. According to China Africa Research Initiative (CARI) at Johns Hopkins University, Zambia’s total loans from China amounted to almost $6.4 billion at end-2017. “If this figure is correct, Zambia may have a total debt of $14.7 billion (including state guaranteed loans), of which Chinese loans account for some 44%,” the CHR Michelsen Institute (CMI) said in a report.
“China has become a major global lender, with outstanding claims now exceeding more than 5 per cent of global GDP,” Harvard Business Review said. The lending is done both directly by the government and the state-controlled entities.
The HBR said that in total the Chinese state and its subsidiaries have lent about $1.5 trillion in direct loans and trade credits to more than 150 countries around the globe. “This has turned China into the world’s largest official creditor—surpassing traditional, official lenders such as the World Bank, the IMF, or all OECD creditor governments combined,” it said in its report.
China earmarked a huge sum of money running into billions of dollar to build the BRI, seen to be one of the most ambitious projects connecting Asia with Europe and Africa. It is ostensibly aimed at boosting trade and connectivity. The project included development of infrastructure for ports, roads, railways and airports besides power plants..