Debt trap label hides anxieties of developed nations
The “debt trap” allegation against China was raised again recently. When delivering a speech at the APEC Economic Leaders’ Meeting in Port Moresby, Papua New Guinea, US Vice President Mike Pence claimed that China’s assistance to Pacific Island countries has caused debt burdens for the recipients.
Japanese Prime Minister Shinzo Abe also made remarks at the meeting in which he supported Pence, stating that Asia-Pacific countries need to ensure investment openness, transparency and fiscal soundness for their infrastructure development.
But the hype about China’s “debt trap” begs the question: Do the US, Japan and other Western developed countries really care about the debt problems of developing countries? It seems that what they really care for is limited to the competition for interests and influence in the region.
First, they are concerned that their interests could be hurt as China’s political influence increases in the developing world. Most of the large-scale overseas infrastructure projects involving China’s participation are contracted by its State-owned enterprises (SOEs). With scant competitive advantage over Chinese SOEs, Western companies are not able to gain market share in many developing countries. Thus, they push their governments to accuse Chinese SOEs of unfair competition.
They claim that Chinese SOEs boost infrastructure investment at all costs, and as a result, countries where such projects are located drown in “debt crises” and must give land management rights to China, undercutting their sovereignty. This smug conspiracy theory, whether intentionally or not, overlooks the fact that China has not only carried out infrastructure construction in some developing countries, but has also built industrial chain clusters along its infrastructure projects.
Look at the broad picture – in the long run, such efforts bring great benefits to local development. For example, the Mombasa-Nairobi railway has been operating for more than one year, and it is believed to have lifted Kenya’s GDP growth by 1.5 percentage points. How did that lead to a “debt crisis”?
Second, the growing influence of China’s Belt and Road initiative (BRI) has unsettled some Western countries. With the BRI entering the stage of full implementation, landmark projects have successively seen great progress, warming up the relationships between the relevant countries and China.
This development has worried the US and other Western countries, which have accused China of “exporting its development model.” The successful hosting of a series of important meetings like the Belt and Road Forum for International Cooperation and the Beijing Summit of the Forum on China-Africa Cooperation also upset the West, which misled public opinion by calling investment, loans and aid “debts.”
Third, the West-led political governance structure faces rising challenges. For a long time, in order to get money for infrastructure construction, developing countries had to borrow from financial institutions controlled by developed countries, like the World Bank and the Asian Development Bank (ADB), with the Paris Club and the IMF in charge of their debt restructuring.
The president of the ADB is Japanese, while the president of the World Bank is an American. The US has veto power in the IMF. Established in 1956, the Paris Club is an informal international organization composed of 22 major creditor countries.
Paris Club creditors manage debt programs for debtor countries, such as debt restructuring, debt relief or even debt cancellation. If a debt problem doesn’t improve despite much effort, a heavily indebted country usually receives funding assistance from the IMF or the Paris Club. Now, however, developing countries have more choices. They can also borrow from the China-proposed Asian Infrastructure Investment Bank, the Export-Import Bank of China and the China Development Bank. This reduces the governance power of the West and challenges the West-dominated governance structure by curbing its interference in the internal affairs of developing countries.
Since the 1980s, the US and UK have promoted neoliberal globalization, advocating financial liberalization and political democratization, which led to a flood of hot money worldwide. Wherever the hot money flowed, bubbles boomed. But local economies were left in recession once the hot money fled. In this way, the West interfered in the internal affairs of other countries and sometimes even overturned their governments.
The consequences finally came home in the 2008 financial crisis.
The “debt trap” theory obviously indicates the anxiety of Western elites. But it is local people who have the most say about how the BRI works. No developing economy is facing debt problems because of cooperation with China. On the contrary, cooperation with China has helped these countries and regions enhance their ability to develop independently and raise their living standards.
If the US really cares about economic development and living standards in those places, it should join hands with China to do more practical things.
GLOBAL TIMES
The post Debt trap label hides anxieties of developed nations appeared first on The Manila Times Online.