CHINA: With Great Loans Comes Great Responsibility

CITATION: Adam Behsudi, "The ‘rift is there’: China vs. the world on global debt," Politico, 11 April 2023.

Anyone following China's multi-trillion Belt and Road Initiative (BRI) these past few years knew this day was coming: when Beijing would be cast as the villain in one of those periodic write-downs of debt that is universally viewed as unduly stressing developing economies.

The lede:

China is catching up to the Western-dominated International Monetary Fund and World Bank and is exceeding other governments as the largest official lender to wide swaths of the developing world. But the geopolitical power struggle between the U.S. and China is inflicting collateral damage on those countries, as Beijing balks at demands to write down its loans even as three in five low-income countries are straining to pay their debts or are at risk of defaulting amid global economic pressures.

After Bono's push on debt forgiveness way back when, the major international financial institutions (World Bank, IMF, lessers) developed these rules that set the conditions under which sovereign loans could be completely forgiven. The West apparently feels those conditions are extant today, thus the US pushes China to step up and emulate that same flexibility.

China clearly has other ideas. By setting up what is essentially a global loan program that mirrors what the developed West has long offered, Beijing can -- in effect -- play hard ball with bilateral partners that dare not incur its wrath and THEN expect the West to be generous all by its lonesome. That's a macro moral hazard that encourages debt-ridden nations to seek relief from the West and, by gaining it, force the West to essentially subsidize China's more hard-nosed approach.

This is the kind of thing one gets away with as a rising power, only to bump into entirely different expectations once you are suddenly viewed as having risen. In that regard, 9/11 and the Global War on Terror were a godsend to China, buying it significant time on its ascension. But, of course, that only meant that, when the perceptual shift finally arrived, it would be that much harsher (the whole "America took its eye off the ball" argument so now favored by national security hawks).

We Americans don't handle these transitions well. It's never the case that we did this until we felt we needed to turn to that. No, we typically have to decry the preceding effort as a "lie," a "fantasy," and a "complete betrayal of our nation" so that we can now turn our laser-like attention to our latest crusade (which, years from now will also be decried in similar terms as we re-orient to its superseding crisis image). We have the strategic patience of a pre-schooler.

As I note in America's New Map, the debt-relief tension is but one of numerous adjustment-points that the world's great powers are forced to engage vis-a-vis Beijing over the next couple of decades. It will be a long and complex process to pry China away from its very intense and determined market-player persona (pressing its advantages to the limit with no sense of responsibility for the market as a whole -- the market maker mindset that Washington has long balanced against its natural desire to win all the time [the Trumpian fantasy]).

The key thing is to keep the larger process in perspective so that we don't view the various wins and losses (and there will be both) as existential turning points ("existential" being the most overused buzzword right now).

Remember, America took its sweet damn time stepping up to its global responsibilities across the first half of the 20th Century -- and we were already a democracy. For China to achieve the same, we are definitely looking at a much more difficult and dangerous road.

If you think Washington has an over-inflated, all-encompassing definition of national security, then, trust me, Beijing's is far worse in its expansive definitions of, and requirements for, success.