China's Double-Edged Belt And Road Debt Trap

(MENAFN- Asia Times) As the world's largest bilateral lender, China faces challenges in dealing with the debt distress of some of its borrowers under the Belt and Road Initiative (BRI). Whether China can support those debtors and avoid trapping itself in unpaid debts will depend on its policy choices.

China's BRI has provoked criticism from parts of the Western world. The United States remains
that China's rise will undermine its values and interests. The alleged lack of transparency and expensive
lending terms of the BRI
have been central issues.

A“debt trap diplomacy” narrative persists in the media and certain policy circles despite recent research showing this is an
unfounded myth . There are
no winners
in a debt trap strategy, as the debtor, trapped with unsustainable debt, leaves its creditor out of pocket.

The fundamental challenge of sovereign debt in the developing world is not China, but rather how to deal equitably with unsustainable debt owed to various creditors when the creditor composition varies from country to country.

Bangladesh owes 53 % of its external public debt to multilateral creditors and only 7% to China. Sri Lanka owes 35% to international bondholders, while Laos owes 49% to China alone .

A promotional poster for the 414-kilometer Laos-China railway project that promised to transform Laos from landlocked to land-linked. Photo: Facebook

Understanding the claims to a debtor is critical for successfully restructuring debt when it becomes unsustainable. This is the case for some Asian nations, with Sri Lanka
declaring suspension of its debt payment
in April 2022 and Laos remaining in debt distress.


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