Nepal signed the BRI agreement back in 2017. Back then it was regarded as a watershed moment in Nepal and China bilateral ties. However, no project took off….reports Asian Lite News
Chinese Foreign Minister Wang Yi is set to visit Nepal this month to push for the implementation of China’s infrastructure development strategy Belt and Road Initiative (BRI).
During his visit, Wang Yi will look to sign at least two projects, The Kathmandu Post reported.
“We have already received the text of the project implementation plan of the BRI from China,” a senior Nepali government official told the Post, adding, “During the visit, both sides are expected to agree on the text of the project implementation plan, which will pave the way for the execution of BRI projects.”
Nepal signed the BRI agreement back in 2017. Back then it was regarded as a watershed moment in Nepal and China bilateral ties. However, no project took off over concerns regarding the Chinese infrastructure programme.
Last December, internal consultations were held with regard to BRI projects in Nepal during which it was recommended that both countries should set up a joint mechanism for the selection of projects.
According to a Nepali government official, the recommendations also include avoiding commercial loans for the implementation of BRI projects because “they are too expensive.”
“In our recommendation, we have clearly stated that we should seek preferably a grant from China or concessional loans at less than 2 per cent annual interest to fund the projects under the BRI. Our economy is too small to be able to afford commercial loans, so we should avoid such loans,” a senior Nepali Finance Ministry official told the Post.
Since its launch in 2013, the BRI has been well received across the globe due to its easy loan parameters. However, these concessions facilitated economic and military expansion for the Chinese, allowing them to build infrastructure, establish military bases in BRI- recipient countries.
Several of these sovereign loans are in fact extended to developing countries and are negotiated in secret. A few of these loans use resources as collateral. This dept trap diplomacy, the lack of transparency and unreasonable loan conditions have made these schemes extremely unpopular and have earned the BRI a lot of bad press.
BRI has left scores of lower- and middle-income countries (LMIC) saddled with “hidden debts” totalling USD 385 billion, according to new research released last September.
The findings are part of a report published by AidData, an international development research lab based at the College of William and Mary in Virginia. According to this report, China has used debt rather than aid to establish a dominant position in the international development finance market.
The report has analyzed more than 13,000 aid and debt-financed projects worth more than USD 843 billion across 165 countries. According to AidData, over 40 LMIC now have levels of debt exposure to China higher than 10 per cent of their national gross domestic product. (ANI)
The EU is looking at how it can leverage billions of euros, drawn from member states, financial institutions and the private sector to counter China’s influence….reports Asian Lite News
The EU is to reveal details of a global investment plan that’s widely seen as a rival to China’s Belt and Road initiative, BBC reported.
It’s regarded as part of the West’s efforts to counter Chinese influence in Africa and elsewhere.
European Commission President Ursula von der Leyen will present the “Global Gateway” initiative on Wednesday.
The EU is looking at how it can leverage billions of euros, drawn from member states, financial institutions and the private sector, the report said.
Von der Leyen said in her State of the Union speech in September: “We want investments in quality infrastructure, connecting goods, people and services around the world.”
Wednesday’s 14-page document isn’t likely to explicitly pitch itself as a rival to China’s strategy. The Commission also studiously avoided mentioning China when pressed about the plans on Tuesday, the report said.
But Andrew Small, a Senior Transatlantic Fellow at the German Marshall Fund, says the backdrop is inescapable: “Global Gateway wouldn’t exist if you didn’t have Belt and Road.”
Chinese-President Xi Jinping (Source twitter@ChinaAmbUN)
For him it marks “the first serious effort from the European side to put packages together and figure out financing mechanisms, so countries considering taking loans from China have an alternative option”, the report said.
Belt and Road has been a centre-piece of Chinese foreign policy; developing trade links by ploughing money into new roads, ports, railways and bridges.
The strategy has reached into Asia, the Indo-Pacific, Africa and even into the EU’s nearer neighbours in the Western Balkans.
The Bangladesh Bhutan India Nepal (BBIN) initiative will be critical for India at a time when China is expanding its military and economic might through the multi-billion infrastructure BRI, a report by Mahua Venkatesh
As the world gears up for a post Covid-19 phase, clamour for regional economic cooperation and integration among South Asian countries especially the Bangladesh Bhutan India Nepal (BBIN) region is growing. In fact, South Asia is one of the least integrated regions in the world, causing mammoth economic losses to the countries including India and Bangladesh.
A recent study by the Netherlands based European Foundation for South Asian Studies (EFSAS) said that apart from decreasing the collective economic bargaining power of the region, the lack of regionalization has led to geopolitical implications “as it allows for the enhanced entry of extra-regional actors and extra-regional initiatives, most notably in the context of China’s Belt and Road Initiative (BRI).”
The study added that the Chinese infrastructure investment through the BRI and China Pakistan Economic Corridor (CPEC) responds to this lack of integration and the associated lack in regional connectivity.
“The BBIN project is a game changer but what is required now is a time-bound implementation of the same,” an insider told India Narrative.
The infrastructure initiative will be critical for India at a time when China is expanding its military and economic might through the multi-billion infrastructure BRI.
According to the World Bank, which started a One South Asia campaign just a few months ago, the impact of the “long term scars” emanating from the pandemic could be felt even after economic recovery.
Recently, in a meeting, Bangladesh Foreign Minister AK Abdul Momen even raised the issue with the outgoing Nepalese Ambassador to Dhaka Banshidhar Mishra.
“South Asia, as a region, needs to be looked at holistically if the true growth potential is to be achieved,” Bipul Chatterjee, Executive Director, CUTS International told India Narrative.
The World Bank also said that intraregional trade now stands at just one-third of its potential with an estimated gap of $23 billion annually. It also said that an electricity market of the BBIN countries would save an estimated $17 billion in capital costs. And improvements in transport and logistics can reduce the 50 per cent higher cost for container shipments in South Asia compared to OECD nations.
“We need to move fast on the BBIN initiative to build better connectivity especially in the post Covid world, which will be a different era with a shift in geopolitics,” Nazneen Ahmed Senior Research Fellow, Bangladesh Institute of Development Studies (BIDS) said earlier.
China’s overall rising debt problem
Rising debt�public as well as private�has become a cause for serious concern for China. Reports have suggested that about $1.3 trillion is the estimated Chinese corporate debt that would be due in 12 months.
The Washington-based Institute of International Finance (IIF) in 2019 said that China’s debt topped 300 per cent of GDP. This included debt across all sectors such as household, government, financial and non-financial corporate.
The country’s overall level of debt is driven primarily by real estate, corporates and shadow banking. China’s overall debt is difficult to assess as a large part of it is borne by the local governments and state owned enterprises. “The central government is not overleveraged and benefits from ample foreign currency reserves. But regional governments have expanded unsafe financial operations since 2007, and often resort to off-the-counter loans or shadow banking.
To add to the problem, China’s ambitious Belt and Road Initiative (BRI), is mostly funded by its local governments and SOEs.
Several countries which received loans from China either for the BRI projects or other infrastructure initiatives have been unable to repay their debts due to the Covid 19 pandemic. Large part of such debt had to be restructured, analysts pointed out.
“The problem with China is lack of transparency in the lending amount or pattern. Therefore, it is difficult to come to any clear assessment but logically speaking, it would be a problem for Beijing to address the debt situation, which in turn would impact lending towards BRI,” an analyst told India Narrative.
Though China has turned into a major global lender, it is not a member of the Paris Club– an informal group of creditor nations with the aim to strike workable repayment solutions. Not just that. The country is also not part of the Organisation for Economic Co-operation and Development (OECD). Both Paris Club and OECD maintain loan records of official creditors.
“Debt, whether public or private, does seem to be an Achilles heel for China, and accounting practices and reporting are murky,” Voice of America quoted Doug Barry, a spokesperson for the U.S.-China Business Council as saying.
China’s FDI into Pakistan slows down
Inflow of foreign direct investments (FDI) into Pakistan has shown signs of picking up in the last couple of months. But there is a caveat. Inflow from China, Pakistan’s all weather friend, has slowed down. Also, the cumulative FDI inflows in the first three months (July-Sept) of the current fiscal year 2021-22 were recorded at $439.1 million, which was 4 per cent or $18.5 million, lower compared to $457.6 million in the same period of last year, the Express Tribune said.
According to reports, in September FDI inflow into Pakistan jumped 16 per cent to touch $236 million against $202.8 million in the corresponding month previous year. The chunk of the FDI inflow has come from the US despite fraying relations between Washington and Islamabad.
In the July to September period this year, FDI from the US stood at $100.9 million while it was only $76.9 million from China.
The Pakistani daily Dawn in a report said that the five-time higher FDI inflows from the US in 1QFY22 are encouraging for the country while at the same time a significant decline of FDI from China is worrisome.
Analysts India Narrative spoke to, said that investments towards the much talked about China Pakistan Economic Corridor (CPEC), the fulcrum of the Belt and Road Initiative are thinning down. Not only has the multi-billion project been hit by corruption and delays, the recent spate of attacks in Pakistan that were essentially targeted at the Chinese nationals have also had an impact, they opined.
“Pakistan will be worried as it has typically been relying on China for assistance and going by data, Chinese investments are slowing down. This shows that investments into the much talked about CPEC (China Pakistan Economic Corridor) is now thinning and there is a possibility that China which is also battling several economic challenges will be choosy in investing money,” an analyst with an industry chamber told India Narrative.
The road ahead for Islamabad may not be easy as the Paris based anti money laundering watchdog Financial Action Task Force (FATF) retained Pakistan on its grey list. FATF in a recent report also warned that terror outfits “continue to pose a serious threat to international stability, security and peace”. Earlier, an independent think tank Tabadlab estimated an economic loss of a whopping $38 billion for Pakistan on account of the FATF grey list. The country has been placed thrice on its grey list since 2008. More recently, from June 2018, it has continuously been on the FATF grey list.
(The content is being carried under an arrangement with indianarrative.com)
The Middle East region, although considered remote and non-core by a section of Chinese policy makers, has witnessed a noticeable rise in Chinese engagements over the past decade….reports Sumit Kumar Singh
The Chinese pursuit of its rightful place on the global stage and emergence from a century of humiliation at foreign hands has an intricate design. Sun Tzu’s golden nuggets of winning without firing a shot and winning through cunning seem to be at the core of its approach.
For its neighbours, the Chinese gambits at territory grab reveal its hegemonic ambition, both on land and in the maritime domain. On the other hand, for its distant targets, there is debt trap diplomacy at play, fuelling its economically imperialistic desire.
Chinese approach for its neighbours has followed a coax and coerce design. To the vulnerable and strained economies, China has been offering sugar-coated deals in return of long-term projects, strategic leverage and economic dependency facilitation.
As a result, many susceptible states are becoming ensnared in a debt trap that leaves them exposed to China’s assertive influence. Sri Lanka, Maldives, Nepal and Cambodia have joined its long list of victims.
For those who resist the Chinese overtures, there has been cunning military coercion, both on the land front as well as in the maritime domain.
Harassment of vessels belonging to its maritime neighbours in the South China Sea, to the extent of endangering life through intentional collision, has been a regular affair in these waters.
The dastardly act of using improvised tools to kill Indian soldiers on their land borders was yet another viciously cunning act on the part of the Chinese People’s Liberation Army (PLA) in its continuum of cunning.
All claimed to be within the agreed terms and without firing a shot, yet lives were lost. Such actions by the Chinese forces seem to suggest employment of vicious tactics to undercut the benign spirit of agreements signed in good faith, while claiming to operate within its textual content.
Trust China to honour its commitment, but watch out for its surreptitious approach to undermine the same.
Beyond its borders, the Chinese leadership has truly excelled in the use of economic tools to advance its interests. The Belt and Road Initiative (BRI) is conveniently bejeweled with grandiose infrastructure projects and lucrative loans.
However, in the overall scheme, the BRI behemoth is ultimately aimed at facilitating Chinese access to resources and markets. Contribution of BRI to local economic development and other advertised benefits, if any, are at best consequential.
Loans offered towards infrastructural developments are not without riders. Interestingly, the sheer size of Chinese economy offers it a cushion to absorb minor debt. The heavy loans thrust by China, if paid, are welcome, and if not, there’s always opportunity for economic and strategic entrapment.
Either ways, it’s a win-win situation for China. Several projects are already bleeding money and the initially enthusiastic host states are finding themselves under burgeoning debt, spiraling towards an increasingly helpless situation at the mercy of the Dragon.
Flag of Oman Pic credits: Wikipedia
Liberal democracies might stand a chance at course correction due to inherent dynamism in the governing processes. However, states with a weaker democratic setup and monarchies would be most vulnerable to this economic onslaught.
Countries in the Gulf being absolute monarchies are relatively easy game for China. The region, although considered remote and non-core by a section of Chinese policy makers, has witnessed a noticeable rise in Chinese engagements over the past decade.
Heavy dependency of the Gulf states on Chinese energy imports for generating state revenue contributes substantially to Chinese economic clout in the region.
However, it is equally true that GCC countries remain weary and expect no hand holding from China in times of crisis. Consequentially, GCC countries tend to balance between China and the US for their economic and security needs.
For the time being, most of the oil rich members of GCC are expected to remain economically stable despite severe impact of the Covid-19 pandemic.
However, it may be interesting to note that the state of Oman seems to suggest otherwise. Oman remains precariously over-exposed to Chinese dependency for its economic needs. Vulnerability of this debt-ridden country has only amplified over years.
Despite measures at diversification away from its oil-based economy, Oman has managed only modest progress on this count.
With a promised $10.2 billion investment in its ambitious Duqm project, Oman sees a friend in China for its diversification plans. Oman has embraced the BRI under this grandiose promise, but on ground realisation is far from envisaged.
For Oman, more than 80 per cent of its oil is also exported to China, making the latter its essential source of revenue.
Oman’s borrowings from Chinese banks exceed $3.55 billion, the highest among GCC states. A substantial part of this would be due for payment in the coming year.
In December 2019, the Oman Electricity Transmission Company sold off 49 per cent of its stake to the China National Electricity Grid Corporation for $1 billion.
Huawei, the ICT giant, is also making rapid inroads into Oman’s 5G setup. As it stands, China is slowly but steadily spreading its tentacles in Oman.
With large stakes in power sector, dominant presence in ICT and associated infrastructure, fiscal influence due to loans and promise for future investments, the Dragon is clearly inching towards a greater influence on Oman.
Its recent gift of Covid vaccines to Oman, which came with a rider of prioritising Chinese citizens over others, clearly highlights the glitch in its generosity.
Limited oil reserves, fluctuating oil prices and demand, slowdown due to Covid-19, increasing pressure on the social schemes and job creation programmes in country, and rising budget deficit makes Oman most vulnerable to economic opportunism by China.
Oman this year has already received some financial assistance from its neighbours, but remains on the lookout for more. As its fiscal fate hangs in balance, who would bail out Oman remains to be seen.
Chinese hawks could very well jump at the opportunity of bagging yet another strategically located and economically vulnerable prey in its treacherous trap. As the dragon makes inroads in the Middle East, there would be more to swallow.
Beijing is much concerned about the CPEC, which is the centrepiece of the BRI which was slowed down by sluggish pace of work, frequent terror attacks, and incidences of corruption…reports Asian Lite News
After the initial fanfare about Chinese projects in South-Asian countries, the much-touted infrastructure deals in nations like Bangladesh, Pakistan and Nepal are reportedly stuck in limbo by delays, complications and increased costs.
China’s highly-touted Belt and Road Initiative (BRI) seems to be losing its sheen everywhere, as various issues including work at slow pace and terror attacks slow down the China-Pakistan Economic Corridor (CPEC) progress. Beijing is much concerned about the CPEC, which is the centrepiece of the BRI. The sluggish pace of work, frequent terror attacks, and incidences of corruption have slowed it down.
Last month, a Pakistan Senate panel had expressed concern over the slow pace of development on the CPEC and dissatisfaction being expressed by Chinese companies, Dawn reported. Besides Pakistan, Bangladesh authorities too have expressed concern over the slow progress of Chinese assisted infrastructure projects agreed under the bilateral MoUs in 2016.
A report by The Singapore Post stated that over two dozen MoUs/agreements which were signed during the October 2016 visit of Chinese President Xi Jinping to Dhaka, has not materialised.
The report said that China has been very slow in completing the financial modalities and pursuing the implementation of these projects despite Bangladesh’s repeated requests. “In Nepal too, Chinese involvement in hydro-power projects is reportedly mired in controversies,” the report added.
BRI promises to create opportunities for South Asia to facilitate a sustainable growth model but it also implies significant environmental risks, apart from economic, legal and sovereignty issues.
South Asia is amongst the main regions likely to be hit severely by the negative environmental impact of climate change. BRI announced by Beijing in 2013, will exacerbate these trends, reported European Foundation for South Asian Studies (EFSAS).
Furthermore, a research report has revealed that BRI has left scores of lower- and middle-income countries (LMIC) saddled with “hidden debts” totalling USD 385 billion.
The findings are part of a report published by AidData, an international development research lab based at the College of William and Mary in Virginia. According to this report, China has used debt rather than an aid to establish a dominant position in the international development finance market.
The report has analysed more than 13,000 aid and debt-financed projects worth more than USD 843 billion across 165 countries. According to AidData, over 40 LMIC now have levels of debt exposure to China higher than 10 per cent of their national gross domestic product.
The number of “mega-projects”–financed with loans worth USD 500 million or more–approved each year tripled during the first five years of BRI implementation. Despite larger loans and expanded loan portfolios, BRI has not led to any major changes in the sectoral or geographical composition of China’s overseas development finance program, the report said. (ANI)
A large number of these sovereign loans are in fact extended to developing countries and are negotiated in secret. A few of these loans use resources as collateral…reports Asian Lite News.
To compete with China’s Belt and Road Initiative (BRI), the European Union has recently launched the Global Gateway, a new infrastructure development scheme.
Sergio Restelli, writing in The Times of Israel has said that the European Union’s Global Gateway project has started becoming a major challenge to the BRI.
The BRI is a huge, geopolitically significant network of infrastructure and transport investments that Beijing uses to connect its exporters to western markets. The BRI was adopted by the Chinese government in 2013 and grew rapidly over the next few years. It intended to invest in nearly 70 countries and international organizations.
The US Government has announced a similar program, Build Back Better (at the world (B3W)) a few months ago also aimed at halting the BRI’s expansion. Now with Europe in the fray Chinese expansion is likely to be severely curtailed, said Restelli.
China would potentially face difficulties in maintaining current deals and bilateral agreements under the BRI as the US and EU-led schemes to endorse transparency in trading, partnership and value-driven infrastructure development are conspicuously absent in the BRI’s terms of reference.
Since its launch in 2013, the BRI has been well received across the globe due to its easy loan parameters. But, these concessions facilitated economic and military expansion for the Chinese, allowing them to build infrastructure, establish military bases in BRI- recipient countries clearing the way for Beijing’s expansion towards fulfilling its goal of becoming a global power, reported The Times of Israel.
A large number of these sovereign loans are in fact extended to developing countries and are negotiated in secret. A few of these loans use resources as collateral.
This dept trap diplomacy, the lack of transparency and unreasonable loan conditions have made these schemes extremely unpopular and as a result, have earned the BRI a lot of bad press eventually slowing down its pace, said Restelli.
Unsustainable loans and cases of debt traps in countries like Sri Lanka and Malaysia as well as the use of sovereign land for building China’s military installations have made the BRI a cause for concern.
One Belt One Road , CPEC (Wikipedia)
Moreover, COVID-19 had a direct impact on the reduction of fund flows and only added to china’s woes.
A few countries like Australia, Malaysia, Myanmar, Pakistan, Sierra Leone, Kyrgyzstan have cancelled, downsized or postponed the BRI projects.
At this point however the launch of the Global Gateway and subsequent announcement of the B3W further impact the Chinese plans of global domination.
India is also set to play a major role in the plans to counter the BRI. New Delhi has rejected the proposal to be a part of the BRI citing BRI’s participation in the construction of a project in Pakistan-occupied Kashmir. Strategically Chinese projects in Pakistan, Bangladesh and Sri Lanka have enabled China to build infrastructure and military bases that surround the Indian republic which makes it imperative for India to do its bit to weaken the BRI, reported The Times of Israel.
United in this goal, India and EU have announced a connectivity partnership in May this year and India would be more than content to join the Global Gateway and strengthen it against the BRI.
The B3W and this Indo-European cooperation can build an effective mechanism to halt the Chinese thirst for hegemony restoring stability and economic growth, said Restelli. (ANI)
These debts are systematically underreported to the World Bank’s Debtor Reporting System…reports Sanjeev Sharma
Forty-two countries now have levels of public debt exposure to China in excess of 10 per cent of GDP.
AidData, an international development research lab based at William & Mary’s Global Research Institute, today released a trove of new findings about China’s secretive overseas development finance program leveraging insights from a uniquely granular data that captures 13,427 projects across 165 countries worth $843 billion. These projects were financed by more than 300 Chinese government institutions and state-owned entities. This includes a special emphasis on Belt and Road Initiative (BRI).
These debts are systematically underreported to the World Bank’s Debtor Reporting System (DRS) because, in many cases, central government institutions in low-income and middle-income countries are simply not the primary borrowers responsible for repayment, says a research by AidData.
According to Brad Parks, AidData’s Executive Director and a co-author of the report, “these unreported debts are worth approximately $385 billion and the hidden debt problem is getting worse over time”.
He and his co-authors find that average annual underreporting of repayment liabilities to China was $13 billion during the pre-BRI era, but $40 billion during the BRI era. The average government, they estimate, is underreporting its actual and potential repayment obligations to China by an amount that is equivalent to 5.8 per cent of its GDP.
Parks explained that “the challenge of managing these hidden debts is less about governments knowing that they will need to service undisclosed debts to China with known monetary values than it is about governments not knowing the monetary value of debts to China that they may or may not have to service in the future.”
35 per cent of the BRI infrastructure project portfolio has encountered major implementation problems—such as corruption scandals, labor violations, environmental hazards, and public protests—but only 21 per cent of the Chinese government’s infrastructure project portfolio outside of the BRI has encountered similar problems. BRI infrastructure projects are also taking substantially longer to implement than Chinese government-financed infrastructure projects undertaken outside of the BRI, and Beijing has witnessed more project suspensions and cancellations during the BRI era than it did during the pre-BRI era.
“Host country policymakers are mothballing high-profile BRI projects because of corruption and overpricing concerns, as well as major changes in public sentiment that make it difficult to maintain close relations with China. It remains to be seen if ‘buyer’s remorse’ among BRI participant countries will undermine the long-run sustainability of China’s global infrastructure initiative, but clearly Beijing needs to address the concerns of host countries in order to sustain support for the BRI,” said Brooke Russel, an Associate Director at AidData and one of the other co-authors of the report.
“China has quickly established itself as the financier of first resort for many low-income and middle-income countries, but its international lending and grant-giving activities remain shrouded in secrecy,” said Ammar A Malik, a Senior Research Scientist at AidData. Beijing’s reluctance to disclose detailed information about its overseas development finance portfolio has made it difficult for low-income and middle-income countries to objectively weigh the costs and benefits of participating in the BRI.
Malik and his colleagues found that, during the pre-BRI era, China and the U.S. were overseas spending rivals. However, China is now outspending the U.S. and other major powers on a more than 2-to-1 basis. In an average year during the BRI era, China spent $85 billion on their overseas development program as compared to the U.S.’s $37 billion. Banking on the Belt and Road demonstrates that Beijing has used debt rather than aid to establish a dominant position in the international development finance market. Since the BRI was introduced in 2013, China has maintained a 31-to-1 ratio of loans to grants.
The country’s “policy banks”—China Eximbank and China Development Bank—led a major expansion in overseas lending in the run-up to the BRI. However, since 2013, state-owned commercial banks—including Bank of China, the Industrial and Commercial Bank of China, and China Construction Bank—have played an increasingly important role, with their overseas lending activities increasing five-fold during the first five years of BRI implementation. The number of “mega-projects”—financed with loans worth $500 million or more—approved each year also tripled during the BRI era.
The report finds that as China has financed bigger projects and taken on higher levels of credit risk, it has also put in place stronger repayment safeguards. 31 per cent of the country’s overseas lending portfolio benefited from credit insurance, a pledge of collateral, or a third-party repayment guarantee during the early 2000s, but this figure now stands at nearly 60 per cent.
The country’s overall level of debt is driven primarily by real estate, corporates and shadow banking. China’s overall debt is difficult to assess as a large part of it is borne by the local governments and state owned enterprises…reports Mahua Venkatesh
Will Beijing come to the rescue of Chinas real estate behemoth Evergrande Group?
The problem has arisen amidst rising debt levels in the Chinese economy at a time when Beijing has been pushing ahead with its ambitious BRI objects to gain geopolitical clout.
While the Chinese government bailed out the state-owned Huarong Asset Management with total liabilities estimated at $238 billion it has not disclosed its cards on the Evergrande Group.
Huarong had announced its annual financial statements after a four-month delay, showing a 90 per cent drop in profits year on year.
“Effectively, the firm was on the chopping block for default and Beijing had a Lehman-sized issue on its hands,” the Diplomat, in an article, said. Beijing after much deliberation, stepped in to save the company with fresh capital of $7.7 billion from Citic Group — formerly the China International Trust Investment Corporation — and other state owned enterprises.
Forbes noted that for American observers, the Huarong rescue might compare to the March 2008 U.S. government-orchestrated salvage of Bear Stearns (the distressed investment bank).
Within a month, Evergrande Group, which owes over $300 billion, hit headlines. As investors and the global business community keenly watch the developments, Beijing has not indicated whether it would be willing to help the real estate major.
“By bailing out its most bloated property developer right now, Beijing would shoot itself in one foot to save the other. A $300 billion bailout would just transfer the liability to the government and worsen the government’s pre-existing debt hangover,” the Diplomat noted.
China’s overall rising debt problem
Rising debt public as well as private has become a cause for serious concern for China. Reports have suggested that about $1.3 trillion is the estimated Chinese corporate debt that would be due in 12 months.
The Washington-based Institute of International Finance (IIF) in 2019 said that China’s debt topped 300 per cent of GDP. This included debt across all sectors such as household, government, financial and non-financial corporate.
The country’s overall level of debt is driven primarily by real estate, corporates and shadow banking. China’s overall debt is difficult to assess as a large part of it is borne by the local governments and state owned enterprises. “The central government is not overleveraged and benefits from ample foreign currency reserves. But regional governments have expanded unsafe financial operations since 2007, and often resort to off-the-counter loans or shadow banking.
To add to the problem, China’s ambitious Belt and Road Initiative (BRI), is mostly funded by its local governments and SOEs.
https://www.youtube.com/watch?v=NSAdHzsAcJQ
Several countries which received loans from China either for the BRI projects or other infrastructure initiatives have been unable to repay their debts due to the Covid 19 pandemic. Large part of such debt had to be restructured, analysts pointed out.
“The problem with China is lack of transparency in the lending amount or pattern. Therefore, it is difficult to come to any clear assessment but logically speaking, it would be a problem for Beijing to address the debt situation, which in turn would impact lending towards BRI,” an analyst told India Narrative.
Though China has turned into a major global lender, it is not a member of the Paris Club– an informal group of creditor nations with the aim to strike workable repayment solutions. Not just that. The country is also not part of the Organisation for Economic Co-operation and Development (OECD). Both Paris Club and OECD maintain loan records of official creditors.
“Debt, whether public or private, does seem to be an Achilles heel for China, and accounting practices and reporting are murky,” Voice of America quoted Doug Barry, a spokesperson for the U.S.-China Business Council as saying.
(The content is being carried under an arrangement with indianarrative.com)
Media reports suggest that China has refused to budge on Islamabad’s request to renegotiate the power purchase agreements, reports Asian Lite News
Bankrupt Pakistan’s debt problems seem to be escalating as it is all weather-ally China has declined to restructure USD 3 billion in liabilities.
Islamabad has requested Beijing to forgive debt liabilities owed to China-funded energy projects established under the China-Pakistan Economic Corridor (CPEC).
The debt load, owed largely for the building of independent power producers (IPPs) on take-or-pay power generation contracts, is substantially more than the USD 19 billion in total invested in the plants, Asia Times reported citing reports and industry analysts.
Media reports suggest that China has refused to budge on Islamabad’s request to renegotiate the power purchase agreements, saying that any debt relief would require Chinese banks to amend the terms and conditions under which the credits were extended.
The banks, including China Development Bank and the Export-Import Bank of China, were not prepared to revise any of the clauses of the agreement reached earlier with the government, Beijing said in response to the request to renegotiate terms.
China Pakistan foreign ministers
Pakistan Tehrik-e-Insaf (PTI) Senator and industrialist Nauman Wazir told Asia Times, “First, the tariff determined by National Electric Power Regulatory Authority (NEPRA) at the time of allowing power generation in the private sector was on the very high side.”
“Then, the IPPs submitted erroneous declarations concerning capital, financial assets and operational cost of the company, which became obvious when the balance sheets of the IPPs were made public,” he claimed citing evidence that came to light when an inquiry committee on Pakistan’s power sector revealed its findings last year.
Pakistan has already entered a sovereign debt “danger zone” with total liabilities and debts of USD 294 billion representing 109 per cent as a percentage of GDP as of 30 December 2020.
The Pakistan government reportedly owes about USD 158.9 billion to domestic creditors, of which public sector enterprises owe about USD 15.1 billion. According to The News International, the foreign commercial loans of USD 3.11 billion and USD 1 billion from Chinese deposits helped the government to achieve the net transfer of dollar inflows in the current fiscal year.
With the combination of foreign commercial loans and safe deposits, Pakistan received over USD 4.1 billion that was over 50 per cent out of the total received foreign dollar inflows from creditors.
The news outlet reported that according to official data of the Economic Affairs Division (EAD), during July-February of the fiscal year 2020-21, the Imran Khan government has received USD 7.208 billion total external inflows from multiple financing sources, which are 59 per cent of annual budget estimates of USD 12.233 billion for the entire fiscal year 2020-21.
The News International further reported; disbursement from multilateral and bilateral development partners also maintained a strong trend and is USD 3.098 billion during the period under review against the budgetary allocation of USD 5.811 billion for the fiscal year 2020-21 on concessional terms with longer maturity. These healthy inflows also helped to improve foreign exchange reserves and exchange rate stability.
The Pakistan outlet claims in its official report that increased level of external inflows from multilateral and bilateral development partners is indicative of their confidence in development priorities and policies of the government, including implementation of reforms in the priority areas of fiscal and debt management, energy sector and ease of doing business.
Vaccine and BRI
The Economist Intelligence Unit (EIU), in a report on vaccine diplomacy, said that Pakistan may be getting Chinese Covid vaccine shots in return for its approval of projects linked to China’s Belt and Road Initiative (BRI).
The EIU said that China may also seek to reward Cambodia and Laos with vaccines for their support on territorial disputes in the South China Sea.
EIU said when it comes to donations, which are led by state-owned Sinopharm, the Chinese government has prioritised participants of its Belt and Road Initiative (BRI).
The Chinese authorities have not released complete data as to where vaccines have been sent, probably in an attempt to prevent comparisons among countries. News reports indicate particularly large donations have been pledged to Cambodia (1.7 mn doses) and the Philippines (1 mn). China will also provide loans for recipient countries to purchase vaccines; the Chinese government has pledged to extend a $1bn loan to Latin American and Caribbean countries for this purpose.
Such donations serve several purposes. They aim to create a positive environment for future bilateral economic and political co-operation, facilitate the economic recovery of BRI countries (which are in some cases suppliers of commodities for China), and expand China’s soft power through positive local media coverage, the report said.
The Chinese authorities are able to pursue domestic and overseas vaccination drives in parallel because they face less urgency to vaccinate their own residents; China has consistently kept new daily cases under 200 since April 2020.
China has shipped or plans to export or donate Covid-19 vaccines to a total of around 90 countries as of April 22. The number of countries that China supplies will expand if a Chinese vaccine candidate is approved by the WHO and can therefore become part of the COVAX programme. (ANI/IANS)
Pakistan may be getting Chinese Covid vaccine shots in return for its approval of projects linked to China’s Belt and Road Initiative (BRI),…reports Asian Lite News
Economist Intelligence Unit (EIU) said when it comes to donations, which are led by state-owned Sinopharm, the Chinese government has prioritised participants of its Belt and Road Initiative (BRI).
Pakistan may be getting Chinese Covid vaccine shots in return for its approval of projects linked to China’s Belt and Road Initiative (BRI), according to the Economist Intelligence Unit (EIU).
In a report on vaccine diplomacy, thee EIU said that China may also seek to reward Cambodia and Laos with vaccines for their support on territorial disputes in the South China Sea.
EIU said when it comes to donations, which are led by state-owned Sinopharm, the Chinese government has prioritised participants of its Belt and Road Initiative (BRI).
The Chinese authorities have not released complete data as to where vaccines have been sent, probably in an attempt to prevent comparisons among countries. News reports indicate particularly large donations have been pledged to Cambodia (1.7 mn doses) and the Philippines (1 mn). China will also provide loans for recipient countries to purchase vaccines; the Chinese government has pledged to extend a $1bn loan to Latin American and Caribbean countries for this purpose.
Such donations serve several purposes. They aim to create a positive environment for future bilateral economic and political co-operation, facilitate the economic recovery of BRI countries (which are in some cases suppliers of commodities for China), and expand China’s soft power through positive local media coverage, the report said.
The Chinese authorities are able to pursue domestic and overseas vaccination drives in parallel because they face less urgency to vaccinate their own residents; China has consistently kept new daily cases under 200 since April 2020.
China has shipped or plans to export or donate Covid-19 vaccines to a total of around 90 countries as of April 22. The number of countries that China supplies will expand if a Chinese vaccine candidate is approved by the WHO and can therefore become part of the COVAX programme.
EIU said Russia and China are aiming to take advantage of a “vaccine vacuum” – a perceived failure of Western states to help in the provision of vaccines. They are also seeking to leverage resentment against Western countries, which have secured access to more than half of the global supply of vaccines this year and are prioritising immunising their own populations. China and Russia are using this situation to their own advantage by presenting themselves as the “saviours” of emerging countries, providing vaccines on an often (although not always) affordable basis to countries that would otherwise struggle to vaccinate their populations.
However, China and Russia are not sending vaccines in equal numbers to all emerging countries. Some, such as Brazil, Chile, Indonesia and Mexico, will get millions of doses. Others, especially in sub-Saharan Africa, will get only a few thousand vaccines, suggesting that this is more of a public relations exercise than a genuine attempt to fill an urgent need.
China and Russia are focusing their efforts on regions where they are courting favours from emerging countries (for instance, Asia for China), directly competing with Western powers for influence (such as eastern Europe, and in particular the western Balkans, for both China and Russia), or where they have only a limited presence so far (as is the case for Latin America, which is traditionally within America’s sphere of influence), the report said.
China and Russia have been sending millions of doses of coronavirus vaccines to (mostly) developing states in recent months. Through this “vaccine diplomacy” operation, Russia and China aim to establish themselves as reliable suppliers of vaccines, strengthen their global presence, and boost their bilateral relations with the many emerging countries where Western influence is declining. China is also trying to restore its global reputation, which took a hit in the early stages of the pandemic, the report said.
“Russia and China are playing a long game with vaccine diplomacy. Their intention is not only to win plaudits for fulfilling a short-term need, but to cement their influence over the long term. Both countries are establishing vaccine facilities across the world and training local workers from emerging countries, betting that such a strategy will boost their presence on the ground for decades to come,” the EIU report said.
In doing so, Russia and China are gaining leverage on the cheap while fulfilling commercial goals. In most cases, they are not donating vaccines, but selling them; in China’s case, state-owned firms are competing with private ones for the supply of shots.
Assistance in the form of vaccines will often come with economic or political strings attached. For instance, Russia started discussions with Bolivia about access to mines producing rare earth minerals and nuclear projects shortly after delivering a consignment of its Sputnik V vaccine. Vaccines may also prove to be a reward for countries that have proved to be reliable partners in the past, EIU said.
