“China moved so fast that in some parts of the world there is just too much debt.”
In his first interview after taking over as World Bank president, David Malpass expressed his willingness to work with China to push for high quality development projects and the World Bank’s overriding goal of sustainable development and poverty alleviation.
But he also warned of the risk of sinking into debt for recipient countries who benefited from China’s massive lending.
Although Malpass did not directly accuse China, this statement does belong to a larger discourse of blaming China for debt trapping poor countries for political gain or “grabbing assets,” which has been gaining increasing attention since Beijing rolled out many infrastructure projects in Asia and Africa under the Belt and Road initiative (BRI) framework.
There have been narratives, stories, and emotional accusations. But here is the core question: Where is the hard evidence?
“Just look at the list of countries who are facing a debt crisis, China’s role in their high external debt/GDP ratio is small,” said He Weiwen, a Senior Research fellow at the Chongyang Institute for Financial Studies at Renmin University of China.
One of the examples that has been widely used to prove China is using debt to achieve geopolitical gains is how Sri Lanka had to rent its Hambantota Port to China. But China accounts for only 10 percent of Sri Lanka’s external debt. Even the World Bank has a bigger share of 11 percent.
To blame China for Sri Lanka’s long-term and complicated debt crisis since the 1980s, just because China took over the management of the Hambantota Port, is unjustified to say the least.
In essence, debt is a neutral word in economic terms and can be seen as natural at the initial stage of a country’s development, just like college students take out student loans to pay for their tuition.
Thus, debt itself is hardly a problem to be solved per se. The key is how the money is used to make a wise investment for crucial projects. He Weiwen points out that China itself has abundant experience in utilising the money to help its economy take off.
Since China joined in 1980, the World Bank has provided over 50 billion U.S. dollars in loans and investments, mostly in the form of infrastructure and environmental projects. And China has been successful in carrying out these projects to help poverty alleviation and regional development.
As it moves from a recipient country to a lending country, China understands how money should be spent in the right place to enhance connectivity, thus laying the foundation for regional coordination and economic development. That’s why it is also putting money in long-term investments, building railways, roads and ports in recipient countries.
At the early development stage of a developing country, there surely will be a deficiency of funds to invest in expensive infrastructure projects. China’s loans to these countries can be seen as opportunities, which will come with risks as with stock markets; and China’s experience in development helps to minimise the risk.
“Also, China has been cautious of recipient countries’ debt issue itself,” said Zhao Zifei from the Institute of World Economic Studies, China Institutes of Contemporary International Relations.
“Otherwise, China would have to finally undertake the loss from the debt crisis.” China has been rating the risk of foreign investment and taking commercial interest into account. But as China has been investing heavily in infrastructure projects, it might take longer for them to have a positive effect in the development process of recipient countries.
So instead of focusing on how much money China has lent to other countries, perhaps the new leader of World Bank should ponder how the money can be best used to achieve sustainable development in poorer countries. Such is the way for Malpass to achieve the twin goal of “eliminating extreme poverty and achieving shared prosperity.”