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World’s poorest countries pushed to brink of collapse under China debt

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(Last Updated On: May 25, 2023)

At least a dozen poor countries are buckling under the weight of hundreds of billions of dollars in debt, most of which is owed to China. 

A recent analysis, carried out by the Associated Press, found that for a dozen countries, paying back their debt is consuming a growing amount of their tax revenue needed to keep basic services going.

Among the countries analyzed was Pakistan, Kenya, Zambia, Laos and Mongolia and it was found that paying back their debt is also draining foreign currency reserves that these countries use to pay interest on the loans – leaving some with just months before that money is gone.

AP reported that behind the scenes is China’s reluctance to forgive debt and its extreme secrecy about how much money it has loaned and on what terms, which has kept other major lenders from stepping in to help. 

According to World Bank data analyzed by Statista recently, countries heavily in debt to China are mostly located in Africa, but can also be found in Central Asia, Southeast Asia and the Pacific. 

And, Statista reports that the new Belt and Road Initiative, which finances the construction of port, rail and land infrastructure, has created much debt to China for participating countries, specifically poor countries.

As of March last year, 215 cooperation documents had been signed with 149 countries on the initiative.

Countries in AP’s analysis meanwhile had as much as 50% of their foreign loans from China and most were devoting more than a third of government revenue to paying off foreign debt. 

Two of them, Zambia and Sri Lanka, have already gone into default, unable to make even interest payments on loans financing the construction of ports, mines and power plants.

In Pakistan, millions of textile workers have been laid off because the country has too much foreign debt and can’t afford to keep the electricity on and machines running, AP stated.

In Kenya, the government has held back paychecks to thousands of civil service workers to save cash to pay foreign loans. The president’s chief economic adviser tweeted last month, “Salaries or default? Take your pick.”

The study also found that since Sri Lanka defaulted a year ago, a half-million industrial jobs have vanished, inflation has risen by 50% and more than half the population in many parts of the country has fallen into poverty.

The study found that experts predict that unless China begins to soften its stance on its loans to poor countries, there could be a wave of more defaults and political upheavals.

AP’s report stated that a case study of how it has played out is in Zambia, a landlocked country of 20 million people in southern Africa that over the past two decades has borrowed billions of dollars from Chinese state-owned banks to build dams, railways and roads.

While the loans boosted Zambia’s economy, they also raised foreign interest payments so high that there was little left for the government, forcing it to cut spending on healthcare, social services and subsidies to farmers for seed and fertilizer.

In the past under such circumstances, big government lenders such as the U.S., Japan and France would work out deals to forgive some debt, with each lender disclosing clearly what they were owed and on what terms so no one would feel cheated.

But China didn’t play by those rules, AP reported. It refused at first to even join in multinational talks, negotiating separately with Zambia and insisting on confidentiality that barred the country from telling non-Chinese lenders the terms of the loans.

By late 2020, Zambia was unable to pay the interest and defaulted, setting off a cycle of spending cuts and deepening poverty. 

Since then, inflation in Zambia has increased by 50%, unemployment has hit a 17-year high and the nation’s currency, the kwacha, has lost 30% of its value in just seven months. AP also found that 3.5 million Zambians are now not getting enough food. 

AP reported that a few months after Zambia defaulted, researchers found that the country owed $6.6 billion to Chinese state-owned banks, double what many thought at the time and about a third of the country’s total debt.

China’s unwillingness however to take big losses on the hundreds of billions of dollars it is owed, as the International Monetary Fund and World Bank have urged, has left many countries on a treadmill of paying back interest, which stifles the economic growth that would help them pay off the debt.

For Pakistan, its foreign cash reserves have plunged more than 50%, according to AP’s analysis, while in nine of the 12 countries analyzed, foreign cash reserves have dropped on average of 25% in just one year. 

Based on this, Pakistan for example has only two months left of foreign cash to pay for food, fuel and other essential imports if it does not get a bailout. Other countries, such as Mongolia, have eight months left. 

AP found that last month, Pakistan was so desperate to prevent more blackouts that it struck a deal to buy discounted oil from Russia, breaking ranks with the US-led effort to shut off Vladimir Putin’s funds.

In Sri Lanka, rioters poured into the streets last July, setting homes of government ministers aflame and storming the presidential palace, sending the leader tied to onerous deals with China fleeing the country.

China has however disputed the idea that Beijing is an unforgiving lender and said in a statement that the Federal Reserve was to blame. 

It said that if it is to accede to IMF and World Bank demands to forgive a portion of its loans, so should multilateral lenders, which it views as US proxies.

“We call on these institutions to actively participate in relevant actions in accordance with the principle of ‘joint action, fair burden’ and make greater contributions to help developing countries tide over the difficulties,” the statement said.

But China’s approach to lending is widely considered more transactional and criticized as “opaque” and analysts see Beijing’s desire to access oil, minerals and other commodities as the driving force behind Chinese lenders being less prone to applying strict conditions in helping governments finance roads, bridges and railroads – so as to unlock those resources.

Just last month, US Treasury Secretary Janet Yellen told lawmakers: “I’m very, very concerned about some of the activities that China engages in globally, investing in countries in ways that leave them trapped in debt and don’t promote economic development.”

“We are working very hard to counter that influence in all of the international institutions that we participate in,” she said. 

Since 2017, China has become the world’s largest official creditor, surpassing the World Bank, IMF and 22-member Paris Club combined, Brent Neiman, a counselor to Yellen, said late last year. 

Politico meanwhile reported earlier this month that China’s financing of projects in other countries between 2000 and 2017 totaled more than $800 billion, most of that in the form of loans.

But for some poor countries struggling to repay China, they now find themselves stuck in a kind of loan limbo: China won’t budge in taking losses, and the IMF won’t offer low-interest loans if the money is just going to pay interest on Chinese debt.

 

World

In Beijing, Blinken meets Xi and raises US concerns about China’s support for Russia

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(Last Updated On: April 26, 2024)

U.S. Secretary of State Antony Blinken raised concerns on Friday about China’s support for Russia’s military, one of the many issues threatening to sour the recent improvement in relations between the world’s biggest economies.

Blinken raised the matter during five-and-a-half hours of talks with China’s top diplomat Wang Yi in Beijing, the latest high-level contact between the countries that have reduced the acrimony that pushed ties to historic lows last year.

The U.S. diplomat is due to wrap up his visit on Friday with little progress on a raft of contentious issues including U.S. complaints about cheap Chinese exports. Instead, both sides are focusing on pragmatic issues like people-to-people exchanges.

“The Secretary discussed concerns about PRC support to the Russian defense industrial base,” U.S. State Department spokesperson Matthew Miller said, adding the two sides also discussed Taiwan, the South China Sea and other flashpoints.

The PRC is short for China’s official name, the People’s Republic of China.

Despite its “no limits” partnership with Moscow, China has steered clear of providing arms for Russia’s war in Ukraine.

But U.S. officials warn its companies are helping the weapons industry with an unprecedented build up that has helped to turn the tide of the war. For example, bigger machine tool imports from China have helped Russia increase its ballistic missile production, they say.

The U.S. officials say such assistance risks hurting the broader bilateral relationship, even as ties stabilise after being hit by then-House Speaker Nancy Pelosi’s visit to Taiwan in 2022 and the U.S. downing of a suspected Chinese surveillance balloon in February 2023.

China has said it has not provided weaponry to any party, adding that it is “not a producer of or party involved in the Ukraine crisis”. However, it says that normal trade between China and Russia should not be interrupted or restricted.

STEADYING THE SHIP

In addition to his talks with Wang, Blinken met Chinese President Xi Jinping, who reiterated Beijing’s concerns that the United States was suppressing its economic development.

“This is a fundamental issue that must be addressed, just like the first button of a shirt that must be put right, in order for the China-U.S. relationship to truly stabilise, improve and move forward,” Xi said.

Earlier, Wang told Blinken that the “giant ship” of the China-U.S. ties had stabilised, “but negative factors in the relationship are still increasing and building.”

Wang also said the U.S. had taken “endless” measures to suppress China’s economy, trade, science and technology, equating such steps to containment.

“And the relationship is facing all kinds of disruptions. China’s legitimate development rights have been unreasonably suppressed and our core interests are facing challenges,” Wang told Blinken.

The agenda for the talks had been set during the November summit between Biden and Xi in San Francisco and a follow-up call in April.

Underscoring the growing discord between the two sides, hours before Blinken landed in China on Wednesday, U.S. President Joe Biden signed a bipartisan bill that included $8 billion to counter China’s military might, as well as billions in defence aid for Taiwan and $61 billion for Ukraine.

Wang said the U.S. must not step on “red lines” covering sovereignty, security and development interests – an apparent reference to Taiwan, the democratically governed island that China claims as its own, and the disputed South China Sea.

Other issues on the table include artificial intelligence and the U.S. push for progress on the curbing of China’s supply of the chemicals used to make fentanyl.

Blinken, along with senior U.S. officials focused on anti-narcotics collaboration with China, met China’s minister of public security, Wang Xiaohong, to discuss the fentanyl issue.

Ahead of Friday’s talks, U.S. Treasury Secretary Janet Yellen signalled that Biden was not taking any options off the table to respond to China’s excess industrial capacity.

Wang said that the U.S. should stop “hyping up” the “false narrative” of China’s overcapacity.

 

(Reuters)

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World

US student protests over Gaza intensify despite arrests

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(Last Updated On: April 25, 2024)

Students at a growing number of U.S. colleges continue to gather in pro-Palestinian encampments with a unified demand that Israel end its war on Gaza and that universities to divest from companies with ties to Israel.

So far, police have arrested hundreds of student protesters at numerous colleges, including the University of Southern California, University of Texas at Austin, and Columbia University in New York, among others.

The growing unrest on college campuses is also accompanied by a rise in antisemitism.

CNN reports that antisemitic acts have surged across America and particularly on campuses since October 7.

Islamophobia has also run rampant.

The recent surge in protests have in turn inflamed tensions, forcing leadership to decide when free speech on campus crosses a line and becomes threatening, CNN reports.

Several colleges have called the police on protesters, leading to the arrests of hundreds across multiple campuses.

On Wednesday, at the University of Texas at Austin, state troopers in riot gear, including some on horseback, began breaking up a group of protesters shortly after a demonstration.

The arrests on Wednesday in cities of Austin and Los Angeles came as students at Harvard University and Brown University on the east coast also defied threats of action and set up encampments in solidarity with Palestinians in Gaza.

Al Jazeera reported that protesters at Columbia University, the epicenter of demonstrations that began last week, said they won’t disperse until the school agrees to cut ties with Israeli universities and commits to divesting funds from Israel-linked entities, among other demands.

Tensions on multiple US campuses were sparked after Hamas’ October 7 attack, where militants killed about 1,200 people and took over 200 hostages. Israel retaliated on Gaza and has over the past six months killed more than 34,000 people.

When did the current conflict start?

CNN reports that the situation escalated last week at Columbia University when the university’s president, Nemat “Minouche” Shafik, testified before a House committee about the school’s response to charges of campus antisemitism. A pro-Palestinian protest kicked off on campus at the same time.

Following her testimony, Shafik requested in a letter released by the university that the New York City Police Department remove people who were encamped on the South Lawn of the campus who were “in violation of the University’s rules and policies” and trespassing.

More than 100 people were arrested.

The encampments were organized by Columbia University Apartheid Divest (CUAD), a student-led coalition of more than 100 organizations, to protest what they describe as the university’s “continued financial investment in corporations that profit from Israeli apartheid, genocide, and military occupation of Palestine.”

Since last Thursday, other college campuses have faced similar protests and encampments, as well as arrests.

Pro-Palestinian encampments have been set up at the Massachusetts Institute of Technology, Emerson College, the University of Texas at Austin, the University of Michigan and the University of California, Berkeley. On Wednesday, police arrested nearly 100 protesters at the University of Southern California after a dispersal order.

Yale University police arrested at least 45 protesters Monday while Harvard University closed Harvard Yard and officials at the school suspended a pro-Palestinian student organization for allegedly violating school policies, CNN reported.

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Israel says it is poised to move on Rafah

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(Last Updated On: April 25, 2024)

Israel’s military is poised to evacuate Palestinian civilians from Rafah and assault Hamas hold-outs in the southern Gaza Strip city, a senior Israeli defence official said on Wednesday, despite international warnings of a humanitarian catastrophe, Reuters reported.

A spokesperson for Prime Minister Benjamin Netanyahu’s government said Israel was “moving ahead” with a ground operation, but gave no timeline.

The defence official said Israel’s Defence Ministry had bought 40,000 tents, each with the capacity for 10 to 12 people, to house Palestinians relocated from Rafah in advance of an assault.

Video circulating online appeared to show rows of square white tents going up in Khan Younis, a city some 5 km (3 miles) from Rafah. Reuters could not verify the video but reviewed images from satellite company Maxar Technologies which showed tent camps on Khan Younis land that had been vacant weeks ago.

An Israeli government source said Netanyahu’s war cabinet planned to meet in the coming two weeks to authorise civilian evacuations, expected to take around a month, read the report.

The defence official, who requested anonymity, told Reuters that the military could go into action immediately but was awaiting a green light from Netanyahu.

Rafah, which abuts the Egyptian border, is sheltering more than a million Palestinians who fled the half-year-old Israeli offensive through the rest of Gaza and say the prospect of fleeing yet again is terrifying.

“I have to make a decision whether to leave Rafah because my mother and I are afraid an invasion could happen suddenly and we won’t get time to escape,” said Aya, 30, who has been living temporarily in the city with her family in a school.

She said that some families recently moved to a refugee camp in coastal Al-Mawasi, but their tents caught fire when tank shells landed nearby. “Where do we go?”

HITTING HARD

Israel, which launched its war to annihilate Hamas after the Islamist group’s Oct. 7 attacks on Israeli towns, says Rafah is home to four Hamas combat battalions reinforced by thousands of retreating fighters, and it must defeat them to achieve victory.

“Hamas was hit hard in the northern sector. It was also hit hard in the centre of the Strip. And soon it will be hit hard in Rafah, too,” Brigadier-General Itzik Cohen, commander of Israel’s 162nd Division operating in Gaza, told Kan public TV.

But Israel’s closest ally Washington has called on it to set aside plans for an assault, and says Israel can combat Hamas fighters there by other means.

“We could not support a Rafah ground operation without an appropriate, credible, executable humanitarian plan precisely because of the complications for delivery of assistance,” David Satterfield, U.S. special envoy for Middle East humanitarian issued, told reporters on Tuesday.

“We continue discussions with Israel on what we believe are alternate ways of addressing a challenge which we recognise, which is Hamas military present in Rafah.”

Egypt says it will not allow Gazans to be pushed across the border onto its territory. Cairo had warned Israel against moving on Rafah, which “would lead to massive human massacres, losses (and) widespread destruction”, its State Information Service said.

Three Egyptian security sources said that military and security coordination between Egypt and Israel over any Israeli incursion into Rafah did not mean approval of it, Reuters reported.

Egypt welcomed the return of Palestinians northwards from Rafah, believing it to be in the interest of the population despite also serving Israeli plans to besiege Hamas in Rafah, the sources added.

Israel has withdrawn most of its ground troops from southern Gaza this month but kept up air strikes and conducted raids into areas its troops abandoned. Efforts by the United States, Egypt and Qatar to broker an extended ceasefire in time to head off an assault on Rafah have so far failed.

Gaza medical officials say than 34,000 people have been killed in Israel’s military campaign, with thousands more bodies feared buried under rubble.

Hamas killed 1,200 people and abducted 253 on Oct 7, according to Israeli tallies. Of those hostages, 129 remain in Gaza, Israeli officials say. More than 260 Israeli troops have been killed in ground fighting since Oct 20, the military says.

H. A. Hellyer, a senior associate fellow in international security studies at the Royal United Services Institute, said he expected the assault on Rafah “sooner rather than later” because Netanyahu is under pressure to meet his stated objectives of rescuing hostages and killing all the Hamas leaders.

“The invasion of Rafah is unavoidable because of the way he has framed all of this,” he said. But it will not be possible for everyone to leave the city, so “if he sends the military into Rafah, there are going to be a lot of casualties”.

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