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China’s Debt Tyranny: How Loans Push the Poorest Nations to the Edge of Collapse

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China’s loans to some of the world’s poorest countries are pushing them to the brink of economic collapse, according to an analysis by the Associated Press. The study examined a dozen countries heavily indebted to China, including Pakistan, Kenya, Zambia, Laos, and Mongolia, and found that the debt burden is increasingly consuming tax revenue needed for essential services such as education, electricity, and food and fuel subsidies. Furthermore, these countries’ foreign currency reserves, used to pay interest on the loans, are being drained rapidly, leaving them with just a few months before the funds run out.

One of the key issues contributing to this crisis is China’s reluctance to forgive debt and its lack of transparency regarding loan amounts and terms. China’s secrecy has discouraged other major lenders from stepping in to assist these countries. Additionally, it has been discovered that borrowers were required to deposit cash in hidden escrow accounts that prioritize China as the first creditor to be paid.

The impact of China’s loans is already evident in several countries. Zambia and Sri Lanka have already defaulted on their loans, resulting in job losses, skyrocketing inflation, and increased poverty rates. In Pakistan, the country’s foreign debt burden has led to millions of textile workers being laid off, as the government struggles to keep electricity running and maintain industrial operations.

Economists warn that if China doesn’t soften its stance on these loans, more countries could default, leading to political upheaval and long-lasting geopolitical instability. Many of these countries are devoting a significant portion of their government revenue, sometimes over a third, to servicing their foreign debt. With China unwilling to absorb significant losses, these countries are stuck in a cycle of paying interest without the economic growth necessary to repay the principal.

China’s lending practices have also raised concerns about its influence in these countries. Critics accuse China of engaging in debt trap diplomacy, whereby it burdens countries with loans they can’t afford and gains strategic assets in return. While experts argue that Chinese lending lacks a coordinated master plan, they agree that the haphazard and sloppy lending practices pose significant risks.

The international community, including institutions like the International Monetary Fund (IMF) and World Bank, has called for debt forgiveness and relief to prevent a catastrophic outcome. However, China has resisted such demands, emphasizing that other lenders should also forgive their debts. Talks between China, the IMF, and the World Bank have been ongoing, but no agreement has been reached so far.

As time runs out for these heavily indebted countries, some officials are urging concessions from all stakeholders, including China and private investment funds. Without assistance, these countries will face further economic contraction, spiraling inflation, and a growing inability to afford essential imports like food and fuel. The consequences of China’s loans are not only economic but also political, as they disrupt alliances and spark domestic turmoil in debtor countries.

Debate over China’s role in emerging-market debt has intensified as countries grapple with the depletion of foreign-exchange reserves and the need for debt relief. Chinese loans, often associated with the Belt and Road Initiative, have financed infrastructure projects that have faced challenges in generating profits and delivering expected outcomes.

China’s true motives in lending to poor countries remain largely unchallenged and shrouded in speculation. It raises valid concerns as to whether China’s lending practices are deliberately orchestrated to secure a coercive foothold in these nations. It is evident that China’s loans are not driven by altruism or a genuine desire to assist struggling economies. The notion that China is lending money solely for benevolent reasons is virtually nil, in this author’s opinion.

https://apnews.com/article/china-debt-banking-loans-financial-developing-countries-collapse-8df6f9fac3e1e758d0e6d8d5dfbd3ed6

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