A Spotlight on Chinese Debt Bondage
The details of China’s loan contracts with developing countries are only beginning to come to light. But it is already clear that China’s creditor imperialism holds far-reaching risks, both for the debtors themselves and for the future of the international order.
NEW DELHI – Recently released details of Kenya’s 2014 loan agreement with China to finance a controversial railway project have once again highlighted the predatory nature of Chinese lending in developing countries. The contract not only imposed virtually all risk on the borrower (including requiring binding arbitration in China to settle any dispute), but also raised those risks to unmanageable levels (such as by setting an unusually high interest rate). With terms like that, it is no wonder that multiple countries around the world have become ensnared in sovereignty-eroding Chinese debt traps.
Over the last decade, China has become the world’s largest single creditor, with loans to lower- and middle-income countries tripling in this period, to $170 billion at the end of 2020. Its outstanding foreign loans now exceed 6% of global GDP, making China competitive with the International Monetary Fund as a global creditor. And through loans extended under its $838-billion Belt and Road Initiative (BRI), China has overtaken the World Bank as the world’s largest funder of infrastructure projects.
To be sure, since the start of the made-in-China COVID-19 pandemic, China’s overseas lending for infrastructure projects has been on the decline (until 2019, it was rising sharply). This is partly because the pandemic left partner countries in dire economic straits, though growing international criticism of China’s predatory lending has likely also contributed.
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