Developing countries are getting trapped in China’s ‘debt cycle’- News Sarasota


The loans given from financial assistance, business objectives have always been a part of the foreign policy of countries all over the world. But when it comes to China, the word ‘debt diplomacy’ is mentioned. Regarding this ‘debt diplomacy’, Christophe Trebesch, an economist at the Kiel Institute for the World Economy, Germany, says, “Half of the money China lends to developing countries is hidden credits. This is part of the results revealed in the investigations of Trebesh and Carmen Reinhart and Sebastian Horn. This team has analyzed 5,000 loans distributed by China between 1949 and 2017. By carrying out the heavy work of searching the information obtained from many sources, an attempt has been made to find out what role China is really playing in the world’s financial system.

What is its relationship with developing countries? In these developing countries, China has strengthened its roots and this work has been done through a loan of millions and millions of dollars given to the public and private sectors. These hidden loans are loans that have been given by different Chinese units and it is not easy to get to the bottom. They have been named Hidden Debt or Hidden Credits because they have not been recorded in any international institution.

This study has estimated that the total amount of these hidden debts has increased extensively in the past two decades and has now reached above $ 20,000 million. This figure also includes the combined value of the outstanding debt. If we talk about the 50 countries which have got the highest loan from China, then research shows that the average debt in these countries has increased to more than 15 percent of the gross domestic product (GDP). In this case, only the figures till 2016 are available. The bulk of ‘direct loans’ have been provided through two institutions controlled by the Chinese government. These institutions are – China Development Bank and Exim Bank of China. But, there are also many indirect arrangements through which China provides loan amounts to other countries. It is a very complicated task to find such loans because in the rare form such loans are taken under the ‘Government to Government’ system.

Most of the loans are for government-controlled units and the companies that acquire them are also usually the ones who own the main country. “The level of debt of the country and who it owes, it is also necessary for the government, taxpayers and risk analysis of the financial stability of the country,” says Trebesh.

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