China’s Massive Debt Crisis Hits Strain High Point, With Global Impact

china debt

August 30, 2022

Critics called out the “hope and hubris” of China’s Belt and Road initiative as China’s overseas debt crisis has reportedly reached a critical strain. This critical mass strain has reflected on Chinese society, with global impact, as China’s relationship with its foreign trade partners continued to turn sour over recent weeks.

The Chinese debt crisis has reportedly increased over a real estate and industry development bubble inside the country, which has led to civil unrest, as well as bad debt from the ambitious Belt-and-Road global development project. 

The Belt-and-Road Factor

Global impact included political strains, as the United States and its Indo-Pacific allies criticized China’s massive lending to Africa, and questioned the increased debt building around the bloated Belt-and-Road Initiative. 

The Belt and Road Initiative debt “going bad” amounts to what the Financial Times dubbed China’s “first overseas debt crisis.” Business Basics, a financial forecasts and advice YouTube channel, even went so far as to call it the “$1T fraud,” and claimed that China’s banks “are failing”. 

Global Impact From Debt Pressures 

As critics claimed the worst, the PRC strategized ways to bail out the Belt-and-Road initiative from the “growing pressure” of recently issued loans “going bad at an unprecedented rate,” Radio Free Europe reported on August 2. 

The impact of souring loans has reportedly reached Pakistan, Central Asia, and beyond. 

The Debt Gap Grew Over The Summer

China’s funding gap has been building over the summer. In July,  CNBC reported that China’s U.S. debt holdings fell below $1trillion for the first time since 2010. 

As the deficit continued to grow, China restructured debt relief programs. Beijing took steps to reorganize assets management companies and cracked down on loan sharks.

China-Africa Debt Trap Debate Increases Political Pressure 

Quartz Africa noted that China is “Africa’s second-biggest lender,” as well as “Africa’s preferred long-term development partner”. 

The economic superpower has reportedly extended debt relief programs to international partners in Africa, in response to a world diplomatic debate that China has created a “debt trap” across the continent. Yet, some of these nations, including Tanzania and Kenya, will likely not be included in this debt relief as their economic growth does not meet the Chinese Foreign Ministry’s requirements for loan forgiveness. 

China responded politically to “comments by the U.S.” over its role in the African debt crises. Yet, the superpower struggles with mounting financial crises making mass loan forgiveness unrealistic. 

The Chinese regime has historically been careful in its Africa loan forgiveness programs. As The Brookings Institute noted in a 2020 study, China has feared loan forgiveness will lead Africa to have more debt ratio to borrow from international investors. 

Chinese state-linked media has noted the PRC’s competition with Japan in Africa as the state-linked media accuses Tokyo and Washington of leading a “malicious discourse system” over the “China debt trap theory.”

Political Tensions Rise Over “Debt-Driven Agendas” 

Deccan Herald reported on August 28 that India has accused China of using its “debt-driven agendas” to trample regional sovereignty. India’s High Commission of Sri Lanka accused China of “trampling on Sri Lanka’s sovereignty” and “violating diplomatic etiquette” in what India claimed as a “debt trap diplomacy” generated economic crisis in the Indian Ocean nation.

The Hill contributor Diane Francis expressed how China’s debt crises will have “profound negative effects” on the world economy, and warned of domestic political uprisings in China. 

Instability and the Failing “Miracle Model”

As the Chinese leader Xi Jinping approaches reelection in November, defiance from the people might result “in an unstable Middle Kingdom,” Francis wrote. Western concerns are mounting over the growing instability of “the Chinese miracle model” economy, and its potential impact on world affairs, reported The Wall Street Journal

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