China’s influence on developing countries.

30 . 07 . 18

By Ignatius Wilson

The macroeconomics of China’s rise is a popular point of discussion – how their politics and diplomacy have changed their own economy and how it affects other countries both in the region and across the globe – specifically, the possible negative side effects of China’s Belt and Road policies on developing nations.

One of the key complaints is that China is developing much smaller, less wealthy and less powerful countries by supporting infrastructure spending and construction. This seems like a good thing. In terms of growth, in any other scenario it most definitely would be.

However the criticism is that the growth is occurring too fast; the debt is being offered too freely; and China ultimately wishes for the debtor nation to fail in its obligations and surrender ownership over the asset and the influence over the country.

International bodies have asked China to stop pushing easy money to countries, act within agreed lending and diplomatic practices and to act prudentially and with higher barriers to lending.

To use a domestic analogy, lenders are often criticised for providing car and homes loans to consumers without due diligence. These borrowers inevitably fail in their obligations and forfeit their assets or are left with bad debts. Regulators now enforce strict lending criteria to protect borrowers.

China is also charging relatively high interest rates on many loans, rather than spreading their risk by joining up with other lenders, to mitigate their exposure risk in developing countries.

It is paternalistic for critics from wealthy, usually European nations to accuse China of  being too friendly with developing nations and it also sounds defensive. Those critics are the original colonists who haven’t successfully improved the economies of the developing nations in the regions they have since departed.

However, these wealthy first world critics may have some valid points. Last year Sri Lanka handed over an important port after being loaded with $1 billion dollars of debt. On the other side of the world Djibouti is mirroring this and in the process of handing over of another port to its financier, namely China.

All of this needs to be seen in the context of postcolonialism, as I touched on, and the geopolitics of China becoming the world superpower, taking over the from the United States of America. Anywhere China invests seems to be strategically important because it is another foothold for the growing superpower, upsetting America as they see their influence diminishing.

It bears remembering  that Australia has taken advantage of developing nations in its region after decades of both humanitarian aid and  finance. One case is the literal spying on our neighbours East Timor in 2004 during negotiations over oil and gas fields.

Australia, not China, is still the major sponsor of capital works in the Pacific region. Whether or not each of China’s Belt and Road infrastructure loans are debt traps remains to be seen, but there can be no doubt, China must move swiftly to gain influence over its debtors who will quickly sour.

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