Xi’s China can’t replace the US as a financial superpower | CPT PPP Coverage

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It’s true that IMF loans also impose conditions designed to prevent countries from over-borrowing and encourage them to get their financial house in order. Some would call these conditions “draconian”, others might label them “prudent”.

Second, the borrowers Beijing is choosing to bailout indicate it may be more worried about protecting Chinese banks that are exposed to foreign infrastructure loans rather than the debt sustainability of other countries, according to Carmen Reinhart, a professor at the Harvard Kennedy School and a former chief executive at the World Bank. 

And, third, China is refusing to take part in international debt renegotiations making it much harder for countries to resolve their issues and leaving them in financial limbo. Last month, Ranil Wickremesinghe, Sri Lanka’s relatively new president, called on China to agree to compromise on the country’s debt restructuring after the IMF approved a $3bn four-year lending programme.  

Beijing has typically refused to participate in such talks, despite being a member of the IMF, which is hugely complicating the process. China’s intransigence has “made it more difficult to coordinate the activities of all emergency lenders”, according to Brad Parks, the executive director of AidData. 

Might this all lead to emerging market governments becoming more circumspect about taking loans from China? Could it even undermine Beijing’s hopes that the yuan might eventually challenge the dollar as a global reserve currency? 

China is correct in saying that local politicians entered into these deals with their eyes open. But, of course, the benefits for them of taking Chinese money to pay for projects that might boost employment and turbocharge their economies was immediate; any downsides would likely not materialise until much later – potentially when they were no longer in power.

There have also been clear indications that China is protesting a little too much about the terms of their loans. For one thing, they have often been shrouded in secrecy, meaning the taxpayers in the debtor countries are often ignorant of what their government has signed up to. Why all the mystery if there was nothing to hide? 

We got a glimpse of the answer when the Kenyan railway boondoggle, which was blamed for rising unemployment and civil unrest, caused so much political controversy that it became a key issue in last year’s presidential election. 

This eventually resulted in the new administration revealing the details of the contract after taking power.