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China as a creditor nation UPSC NOTE

 Dependency on China

  • Debt owed by various countries, especially in South Asia and Africa, to China has multiplied in recent years

  • China is either the sole or the major lender for the majority of these countries

  • In other words, these nations owe a large share of their external debt only to China

  • External debt stock is the debt owed by a country to non-residents repayable in currency, goods, or services. 

  • It is the sum of all public, publicly guaranteed, and private non-guaranteed long-term debt, and short term debts.

  • The debt owed by South Asian, African, and South American countries to China increased significantly post the 2010s. 

  • According to the World Bank’s latest International Debt Report 2023, this was due to China’s ‘Going Global Strategy’, which was initiated in 1999 to improve Chinese investment and lending abroad. 

  • By the end of 2022, low-and-middle-income countries owed China a total of $180 billion

  • In comparison, the low-and-middle-income countries’ total debt owed to the International Bank for Reconstruction and Development, a global development cooperative owned by 189 nations, was just a little higher at $223 billion.


Loan to neighbouring countries

  • Interestingly, China has given a big chunk of its new loans in recent years to neighbouring countries, while its loans to African and South American economies have fallen

  • Pakistan’s total external debt stocks owed to China rapidly surged from $7.6 billion in 2016 to $26.5 billion in 2022

  • In the same period, Sri Lanka’s total debt owed to China almost doubled from $4.6 billion to $8.8 billion. 

  • Bangladesh’s increased from $0.97 billion to $6 billion. 

  • Maldives’ increased from $0.3 billion to $1.2 billion. 

  • Nepal’s increased from $0.07 billion to $0.26 billion. 

  • Most of the debts owed to China are in the form of loans for infrastructure projects.

  • However, in recent years, China has cut back its overall lending due to two factors.

  •  According to the World Bank debt report, this is because China’s own economic position is not strong

  • And some of the countries it lent to are defaulting on their payments because the investments funded by China have not been financially successful.

  • After months of food and fuel shortage, Sri Lanka defaulted on foreign debt in 2022. 

  • Sri Lanka’s interest payments will form nearly 54% of the country’s revenue this year, whereas Pakistan’s share is even higher at around 57%

  • Bangladesh’s interest payments will be 31.5% of its revenue

  • And most of these nations owe a large share of bilateral debt to China

  • Pakistan owes over 72% of its external bilateral debt to China

  • For Maldives, the figure is 68%; Sri Lanka’s is 57%, Nepal’s is 27%, and Bangladesh’s is 24%

  • Countries other than those in South Asia also owe a majority of their bilateral debt to China, with Japan, Germany and France being a distant second.

  • Notably, China too, during high levels of economic expansion in the 1990s and 2000s, increasingly accumulated foreign debt from countries such as Japan, Germany and France 

  • But its external debt stocks have rapidly fallen in recent years due to repayments.

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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: China as a creditor nation UPSC NOTE
China as a creditor nation UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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