Cancel All Debts to China

Sri Lanka’s debt is an example—but others should follow

The Grand Aurora vehicle carrier sits moored at Hambantota Port, operated by China Merchants Group, in Hambantota, Sri Lanka, on March 28, 2018. Under the overwhelming burden of the Chinese debt, the Sri Lankan government had to lease the port to Beijing for 99 years. (Atul Loke/Bloomberg via Getty Images)

Commentary

One of the many threats to the United States from China runs through Sri Lanka. In that South Asian country, there are ongoing food riots. Sri Lanka owes so much to Beijing that it had to surrender one of its ports, plus 15,000 acres, for 99 years. Beijing doubtless seeks to turn the port, about 250 miles from its arch-rival India, into a naval base.

Other countries also owe dangerously unsustainable amounts of debt to Beijing. Djibouti, Laos, Zambia, and Kyrgyzstan owe at least 20 percent of their respective gross domestic products (GDPs) to China. Most emerging market countries like this are paying more and more of their national income as interest. Once they can’t pay, the Chinese Communist Party (CCP) springs the trap, demanding major concessions, including military bases that threaten the United States and its allies.

China already has a military base in Djibouti.

Chinese People's Liberation Army personnel attend the opening ceremony of China's new military base in Djibouti on Aug. 1, 2017. (STR/AFP via Getty Images)

Beijing makes extraordinary profits on exports to the United States and Europe, then loans money to poorer countries around the world to finance infrastructure building by China’s own companies. The interest rates, repayment periods, and seniority of the debt (China gets paid first) are highly advantageous to the regime in Beijing, because the CCP makes sure to grease the palms of leaders who cooperate with up to millions of dollars.

The usurious terms that result must be kept secret, or else they outrage voters. According to the Financial Times on June 1, China “proved to be needlessly secretive in its dealings, so sovereign debt is more opaque than it was, as well as more fractured.”

The seniority of China’s loans is a stab in the back of international institutions such as the World Bank and International Monetary Fund, along with U.S. corporations that lent money to emerging market countries long before Beijing came along.

“Unless and until debtors plagued by weak institutions and ... corruption are held to account, a dollar borrowed will continue to be a dollar gained,” according to Jay Newman, author of a book on illicit global finance.

Emerging market countries “will suck in as much money as they can, whenever they can—whether from markets, from bribes, from the IMF, or from China—and hide behind the notion that events spiraled beyond their control,” he wrote.

While the top politicians in these debtor countries spend their illicit millions—pennies compared to the billions in debt with which they saddle their countries—their people sink deeper into poverty and hunger.

In 2019, Sri Lanka was an upper-middle-income country with $8 billion in reserves. Last month, it defaulted on $50 billion worth of international debts. Sri Lanka’s crisis has devolved into government begging from neighbors amid anti-government riots. In the short term, the country needs approximately 100,000 metric tons of food.

Sri Lanka is now plagued by fuel shortages, power blackouts, lack of medicine, delayed treatment at hospitals, and double-digit inflation. Rising interest rates in the United States and Europe will only further starve Sri Lanka and other emerging markets of capital.

India stepped in with $3 billion in credit and currency swaps for Sri Lanka. Still, India is the other country, in addition to China, that imposes egregiously opaque terms on their foreign loans. They seek to make their debt senior to that of international institutions and U.S. loans. The latter, which typically have better terms for poorer countries, are being driven out.

During Sri Lanka’s time of greatest need, its “friend” China only offered a few hundred million dollars—in loans. The mask has dropped, and now, it’s time for the CCP to try to extract another pound of flesh.

Sri Lanka, and the world, should say no. The CCP’s usurious debts globally are only imposed by bribing leaders and tricking voters. China’s regime is itself illegitimate, totalitarian, and allied with Russia.

Defaulting on loans to China would thus do the world a service, and ease a humanitarian crisis in emerging market countries. Western capital markets shouldn’t penalize Sri Lanka and other emerging markets for doing the world a favor.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.