China's foreign policy has so far followed a clear pattern: economic aid is followed by political influence. And then? In Djibouti, Beijing's next step is apparent. The state of the Horn of Africa could serve as a template for many other countries.
By Michael Radunski
During the Covid epidemic, the Chinese state has enabled local governments to borrow at record levels. They are supposed to use it to pay for infrastructure projects and thus boost the economy. As a result, China's economy has grown as desired but so has the debt burden. Depending on how it is calculated, it even exceeds US debt as a share of GDP. But China has some decisive advantages.
By Frank Sieren
China wants to make its financial markets more solid with the 14th Five-Year Plan and bring the regional governments and the economy down from high debt levels. It also aims to reduce the risk of bubbles. Can this be achieved without slowing down the momentum on the markets?
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China is facing a new financial crisis – or so it is often said. That Beijing could face a major financial crisis is rarely debated. Yet the Chinese government is not limited in its spending in its own currency. It is unthinkable that the Chinese central bank, as the creator of the yuan, would refuse to make Chinese government payments.
By Redaktion Table
China's national debt, the Evergrande crisis, and China’s global debt diplomacy: Read all the important and latest news from China.Table editorial team.
China's national debt is estimated to rise to 14 trillion US Dollars in 2022. This number approximately amounts to 78 percent of China’s gross domestic product (GDP). Large parts of China’s national debt can be attributed to supporting non-profitable state-owned enterprises.
Furthermore, in 2020, following the coronavirus pandemic, China’s debt-to-GDP ratio rose to 270%. However, in 2021, the trend was reversed due to higher consumption and exports. Nevertheless, there is a lot of speculation on the sustainability of China’s model and whether or when the bubble would burst. A collapse could lead to a global financial crisis.
China's economic growth is built upon debt. Local governments are piling up deficits to boost the economic development of provinces. However, China’s central government announced in its 14th Five-Year Plan that it would stabilize financial markets and prevent further accumulation of deficit.
China’s Evergrande debt crisis starting in 2020 demonstrates the issues concerning China’s strategy. After new regulations on limits for Evergrande and other companies in China’s property sector were put into effect, Evergrande started facing immense difficulties. The real estate market is regarded as a core problem of the Chinese economy.
Yet, despite China’s high national debt, experts believe that the Chinese government has sufficient instruments at its disposal to cushion a collapse of its economy resulting from a possible financial crisis. Climate change, on the other hand, is seen as a far greater threat to China's prosperity.
Recently, accusations against China’s foreign debt diplomacy in African and Asian countries have arisen. China is the most important lender to many African countries. Countries use the money for infrastructure development. However, China uses this diplomacy to promote its values and narratives. Economic aid is often followed by political and economic dependencies. China’s debt diplomacy has risen the question as to whether it should be considered a trap for countries relying on China’s lending.
Read all the latest news on China’s policies and foreign debt diplomacy, delivered to you by China.Table.
