Pakistan in danger of falling into China’s “debt trap”

[ziaulislam]


Foggy financing.
Last year, with more than $1 billion in debt to China, Sri Lanka handed over a port to companies owned by the Chinese government. Now Djibouti, home to the US military’s main base in Africa, looks about to cede control of another key port to a Beijing-linked company, and the US is not happy about it.

Beijing “encourages dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty, denying them their long-term, self-sustaining growth,” said US Secretary of State Rex Tillerson on March 6. “Chinese investment does have the potential to address Africa’s infrastructure gap, but its approach has led to mounting debt and few, if any, jobs in most countries,” he added.

Some call this “debt-trap diplomacy“: Offer the honey of cheap infrastructure loans, with the sting of default coming if smaller economies can’t generate enough free cash to pay their interest down. In Sri Lanka, acrimony remains around Hambatota and projects like “the world’s emptiest airport.”


China has characterized its “Belt and Road” initiative as a win-win for its aspirations to become a global trade leader and developing economies’ desire to fund transportation infrastructure. It has certainly filled the vacuum created by a shrinking American presence in global institutions. But as with Western internationalist projects, China is also facing accusations of imperialist behavior when its debt plans go wrong.

The Center for Global Development, a non-profit research organization, analyzed debt to China that will be incurred by nations participating in the current Belt and Road investment plan. Eight nations will find themselves vulnerable to above-average debt: Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan.


The researchers note that they did not estimate how this debt would effect growth, and that they needed to assemble much of their data from media reports. But they still say their evidence should raise concerns about economic distress stemming from debt that would undermine development efforts altogether. In the past, China has responded to the debtors inconsistently and hasn’t followed best practices adopted by international lenders working with poor countries. Sometimes, the debt has been forgiven; other times, disputed territory or control of infrastructure has been demanded as recompense.

They argue that China should work to bring other countries into their investment programs to spread debt more equally, and adopt stricter standards and more transparency about how sustainable its support for developing economies really is. Some countries aren’t waiting on China to take action: Pakistan and Nepal turned down Chinese infrastructure loans last year in favor of other sources of funding.

https://qz.com/1223768/china-debt-t...verloads-from-chinas-belt-and-road-plans/amp/

https://mobile.reuters.com/article/amp/idUSKCN1GK114

Fake news now in reputable Reuters...
It shows a graph where Pakistan debt was zero percent and now around 50% WTF?

 

[ramu]

Guys, remember there is no friend in politics or geopolitics affairs.

So we should stay very carefull with loans. But in the case of China and Pakistan, I think that we understand that China needs Pakistan and Pakistan needs China.

But at the end, it will be the ability of China to support Pakistan's debt "cost" in the time. And that will also depend on their economical situation. I read somewhere that most Chinese companies have big debt, and per western standard these companies would have been bankrupt long time ago. So we should stay very careful.

And It remind me that we don't know the real contracts signed with them and... knowing our politicians, I have some reservations and concerns about this point.

Anyway, water and debts will be the next starter for world war.

You start your post with a refreshing reality check that most Pak posters fail to see.
Then, you seek to downplay it with mutual dependence argument.
Let me break that down for you. If Pak defaults on loan payments then China can enforce control with long term lease, long enough to outstrech the lifetimes of children in Pakistsn. No dependency required but a simple enforcement to follow orders.

Check your CPEC contracts if your politicians are willing to make them public.

Fake news now in reputable Reuters...
It shows a graph where Pakistan debt was zero percent and now around 50% WTF?

Denial at best. Check.

Debt as a % of GDP has doubled every 7 years since 1990.

External debts

- We are not in the list of 76 countries with the most external debts !! May be this list is wrong, don't know..

Most of the EU countries are leading & still USA is on the top spot - 1st position..

Published - 2017.
https://www.gfmag.com/global-data/economic-data/xtegh9-external-debt-in-countries-around-the-world

Its not the quantum of debt. It is the ratio of external debt to GDP, ratio of debt % growth to GDP % growth. Both unfortunately paint a grim scene.

 

[beijingwalker]

This is a bet Pakistan cant lose.

What is the worst case scenario? Pak cant repay CPEC debt. What is the recourse? Pak sells its equity stake in Big G and a few other infra projects- , maybe a few thousand acres of barren land surrounding these assets. Big deal. What does Pak gain? Even in the worst case scenario, some world class infra assets.

Win-Win for Pak, if you ask me.

Regards

Exactly, China will try her best to make those investments profitable, if Pakistan comes to that point that she could not pay off the debt and the government goes bankrupt, China will be the one to lose the most, not Pakistan.

 

[PAKISTANFOREVER]

You start your post with a refreshing reality check that most Pak posters fail to see.
Then, you seek to downplay it with mutual dependence argument.
Let me break that down for you. If Pak defaults on loan payments then China can enforce control with long term lease, long enough to outstrech the lifetimes of children in Pakistsn. No dependency required but a simple enforcement to follow orders.

Check your CPEC contracts if your politicians are willing to make them public.


Denial at best. Check.

Debt as a % of GDP has doubled every 7 years since 1990.



Its not the quantum of debt. It is the ratio of external debt to GDP, ratio of debt % growth to GDP % growth. Both unfortunately paint a grim scene.

So now all of a sudden a person who is a member of the race that calls for the destruction of the Pakistani race and nation is all of a sudden concerned about Pakistan's economy and it's ability to pay off a loan???????????..............have I missed something here?......



PS indians like you were making exact arguments as the above pre-May 1998 as to why Pakistan would NEVER EVER become a nuclear weapons state due to economic reasons. We all know what happened with that indianism. Just as then so is now..........

 

[ramu]

So now all of a sudden a person who is a member of the race that calls for the destruction of the Pakistani race and nation is all of a sudden concerned about Pakistan's economy and it's ability to pay off a loan???????????..............have I missed something here?......

Keep your friends close but your enemies closer. But is that your best counter.

Talk on content and personal attacks wont stop me from posting. Race and religion are the pillars in the minds of the weak and logic or facts take a backseat.

PS indians like you were making exact arguments as the above pre-May 1998 as to why Pakistan would NEVER EVER become a nuclear weapons state due to economic reasons. We all know what happened with that indianism. Just as then so is now..........

Indians like me wanted peace with Pak when the hawks wanted war. Your ability to think of Indians as a race not knowing the ancestry of Pakistan tells me the schooling you have had.

 

[liall]

All of Pakistan should be given on lease to China for 25 years, so the desi-corruption and Political system from pre-Mughal upto British era upto now should end forever.

After 25 years, the old system will be dead, the new generation will lead the country through new policies and system.

Where is your sovereignty if you give away whole country - Pakistan to someone else?

Debt is modern day slavery.

Not if you manage it properly. Debt can be both good and bad.

 

[ramu]

Exactly, China will try her best to make those investments profitable, if Pakistan comes to that point that she could not pay off the debt and the government goes bankrupt, China will be the one to lose the most, not Pakistan.

What did China lose in Srilanka port project?

 

[beijingwalker]

What did China lose in Srilanka port project?

If China can't make this project work China will lose everything having an empty port, same as India having an empty airport there.

 

[ramu]

If China can't make this project work China will lose everything having an empty port, same as India having an empty airport there.

Not true. China has a geo-strategic advantage and free docking rights with no obligation from Srilanka. This is worth more than money invested and a good reason for China to favour a default.

 

[PAKISTANFOREVER]

Keep your friends close but your enemies closer. But is that your best counter.

Talk on content and personal attacks wont stop me from posting. Race and religion are the pillars in the minds of the weak and logic or facts take a backseat.



Indians like me wanted peace with Pak when the hawks wanted war. Your ability to think of Indians as a race not knowing the ancestry of Pakistan tells me the schooling you have had.

Ancestry of modern day Pakistanis is not the same as that of modern day indians.........

So we are expected to believe our enemies like you and question our strongest allies?............

 

[ramu]

Ancestry of modern day Pakistanis is not the same as that of modern day indians.........

So we are expected to believe our enemies like you and question our strongest allies?............

More denial.

 

[Vortex]

You start your post with a refreshing reality check that most Pak posters fail to see.
Then, you seek to downplay it with mutual dependence argument.
Let me break that down for you. If Pak defaults on loan payments then China can enforce control with long term lease, long enough to outstrech the lifetimes of children in Pakistsn. No dependency required but a simple enforcement to follow orders.

Check your CPEC contracts if your politicians are willing to make them public.

Thank you very much to quoting me. But please read my whole comment not just part of it.

Maybe due to your seniority your eyesight is weaken, so let me remind you what i wrote :

1) i said we should very carefull about debt trap. Because the risk and the stacks are high. This is the thesis.

2) yes i downplayed the debt trap in the case of Pakistan and China's relationship because of strategics reasons. This is the antithesis.

3) finally i said that will depends on the ability of China to support the debt of Pakistan. If their economy is strong enough then they could reschuddle the debt on soft terms, as it is a win win for both parties. But the outcmes could be totally different if china's economy is going down... And then i talked about the terms of contracts signed by both governments which are kept secret. This is the synthesis.

So i i really don't see the value of your reply. No really I don't see any valuable input from you in your reply.

And now i see the FAFT grey and black lists as trick to put Pakistan in the situation of loan defaulter...

 

[PAKISTANFOREVER]

More denial.

Lol........lol......that is the same guy (even though he is Pakistani himself) that once said Pakistan would NEVER EVER become a nuclear weapons state...............

NEED strong evidence that CPEC will badly affect Pakistan's economy not opinions and meaningless conjecture from laymen.......

PS About the East india company???.....the Chinese are not the British and Pakstanis are not indian.......

 

[Divergent]

Where is your sovereignty if you give away whole country - Pakistan to someone else?


Not if you manage it properly. Debt can be both good and bad.

We’re talking unmanageable debt.

 

[beijingwalker]

Pakistan borrows $500 million from China to shore up its reserves
https://economictimes.indiatimes.co...hore-up-its-reserves/articleshow/62958598.cms

Pakistan in talks with China to borrow $1b
https://tribune.com.pk/story/1651922/2-pakistan-talks-china-borrow-1b/

Just like what we did in the 80's and 90's from Japan when we were developing our economy. We borrowed so much loans from Japan during those years.