How coronavirus ruined China’s $1.5 trillion empire

China is being forced to decide whether it wants to maintain its global influence or feed its own people as the coronavirus throws a major spanner in the works of its $1.5 trillion plan to exert influence around the world.

As part of its ambitious Belt and Road Initiative to win friends and influence people, China has dished out hundreds of millions of dollars to over 126 countries in recent years in the form of cheap infrastructure loans.

The idea was to connect countries across continents on trade by creating a 6000km sea route connecting China to South East Asia, Oceania and North Africa, an element known as the “Road”.

It also wanted to create a “Belt” by building railway and road infrastructure to connect China with Central and West Asia, the Middle East and Europe.

However, the economies in many of these nations have collapsed under the strain of the global coronavirus pandemic.

And, while the leaders of those countries are increasingly worried about how they’re going to pay back their Belt and Road loans, China is suffering its own economic downturn.

Professor Jane Golley an economist and director of the ANU’s Australian Centre on China in the World (CIW) said this all means the superpower has been left “facing its own worst nightmare”.

She told China now has to balance providing financial relief for the suffering nations that signed up to the loans, and the needs of its own people — as its economy shrinks for the first time since the Mao era.

Ultimately she believes there will be a far more urgent need for China to spend the money fixing its own domestic issues leading to a significant slowdown in its ambitious global planning.

“As the friend-set for China diminishes, particularly with the rising tensions with the West, they’ve got a bigger incentive to back their own friends, but they’ve got the added incentive to stimulate domestic growth because they’re under such serious pressure,” she said.

“They’ll be under so much pressure that I think stimulating the domestic economy will ultimately become more important for them.”

Not only that, she says there are rumblings about China sending hundreds of millions of dollars abroad at a time when the nation’s people, many of them living in developing world conditions, are scraping by in the midst of an economic crisis.

The Kiel Institute, a German research group, has valued China’s lending to the developing world at more than $520 billion in recent years, meaning it has become a bigger lender than the World Bank or the International Monetary Fund.

“Imagine you’re living in the hills in rural China, where you don’t have electricity or a proper road into town,” she said. “You’d want to see the money spent there instead.”

China is also facing pressure over the Belt and Road on an international stage as the nations that signed up are asking for some form of relief on their debt repayments.

The Chinese Communist Party (CCP) has been accused of employing a “debt-trap strategy” by countries like the US and India who say the Belt and Road Initiative is saddling poorer countries with debts they will not be able to pay off. About half of the nations which have signed up are considered high-risk debtors.

Now the economies in those nations have gone belly up because of the global coronavirus pandemic, it is certain they won’t be able to pay off the debts they owe any time soon.

What’s more, many of them are so poor they had to put up their ports and mines as collateral to secure funding.

According to a report in the New York Times, Djibouti – a small country on the horn of Africa – has debts to China which jumped to more than 80 per cent of its annual economic output.

Meanwhile, Ethiopia’s debt to China totals 20 per cent of its annual output. In Kyrgyzstan, the amount is about 40 per cent.

However, Professor Golley said the idea that China poured money into nations that they knew would collapse makes “zero economic sense” and there’s no evidence that’s the case.

Now she says China is “facing its own worst nightmare” as it watches economies failing in the nations it invested in so heavily in, while it suffers its own downturn.

“I mean, what do they do? They’ve got their own economy crumbling and people in need of desperate need of financial support, but if they don’t come to the rescue of all the other countries they lose all that money as well,” she said. “So they’re going to have to strike a balance.”

Aside from the money involved, one of the key goals of the Belt and Road was for China to gain allies across the world — a strategy to make friends and influence nations as it were.

But now, in a COVID-19-affected world, it is seeing its reputation take a pummeling.

Western nations in particular are openly questioning its role in the coronavirus outbreak, after Chinese officials downplayed the severity and contagiousness of the disease at the beginning of the year.

The country also bowed to international pressure this week and said it would back a review into the source of the virus pandemic, but only once it’s “under control”.

In other words, China not only stands to lose money it invested globally but the trust and influence it wanted to gain through the Belt and Road Initiative in the first place.

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