China plays key role in debt crisis
COLOMBO, Sri Lanka — China says its initiative to build ports and other infrastructure across Asia and Africa, paid for with Chinese loans, will boost trade. But in a cautionary tale for borrowers, Sri Lanka’s multibilliondollar debt to Beijing threatens to hinder efforts to resolve a financial crisis so severe that the Indian Ocean nation cannot import food or gasoline.
Sri Lanka’s struggle is extreme, but it reflects conditions across dozens of countries from South Pacific islands through some of the poorest in Asia and Africa that have signed onto Chinese President Xi Jinping’s Belt and Road Initiative. The total debt of poor countries is rising, raising risks others might face financial trouble.
Sri Lanka’s 22 million people are in dire straits. Foreign currency ran out in April, leading to food shortages, power cuts and protests that forced a prime minister to resign. Payment on $51 billion of debt to China, Japan and other foreign lenders was suspended.
Sri Lanka and other poor Asian countries welcome Chinese financing. The Asian Development Bank says the region needs to invest $1.7 trillion a year in infrastructure to keep economies growing. But some, including Sri Lankan critics of their government’s spending, say Chinese-led projects cost too much or do too little for their economies.
China ranks third among Sri Lanka’s creditors after Japan and the ADB and accounts for 10% of the debt, but Xi’s government has an outsize potential to disrupt a settlement.
Beijing promised to “play a positive role” in talks with the International Monetary Fund on a possible emergency loan. China offered to lend more but balked at joining a process that might cut Sri Lanka’s debt, possibly for fear other Belt and Road borrowers that owe tens of billions of dollars will demand the same relief.
“If China gives a concession to Sri Lanka, it will have to give the same concession to other borrowers,” said economist W.A. Wijewardena, a former deputy governor of the Sri Lankan central bank. “They didn’t want to get into that trouble.”
If China tries to avoid debt cuts, that might disrupt the IMF talks or prompt private sector creditors to hold out for more money, experts say.
Some governments have run into smaller crises. Truck drivers in Kenya protested after their government imposed a fuel tax to pay for a Chinese-built railway the drivers complained would compete with them.
Others have canceled or scaled back projects. Malaysia scrapped a planned railway in 2019 as too expensive. Thailand renegotiated a high-speed railway following protests that too little work went to Thai companies.
Chinese officials say Belt and Road projects are business ventures, not aid. Most lending is on commercial terms. Details often are secret.
Belt and Road rankles Washington, Moscow, Tokyo, New Delhi and other governments that grumble Beijing, the biggest trading partner for all of its neighbors, is trying to expand its influence and undercut theirs.