Michael Pettis: China’s Dramatic Curtailment in Overseas Lending Shows That Beijing is Learning the Same Lesson Today That Other Creditors Learned Years Ago

Acclaimed China economist, Peking University professor, and Carnegie Senior Fellow Michael Pettis posted a 7-part Twitter thread on Tuesday where he reflected on the new data published by the China-Africa Research Initiative at Johns Hopkins University that shows a dramatic cutback in Chinese overseas lending to African governments.

The following is a full, unedited transcript of his posts on Twitter:

The lesson here was always more about ordinary incompetence than debt-trap diplomacy. One of the big problems with development-country lending — and especially from inexperienced lenders — is how dangerously pro-cyclical it always is. Another problem is how easy it has always seemed to countries that are first “going out” into development lending — e.g. the U.S. in the 1920s, the USSR in the 1950s, OPEC in the 1970s, Japan in the 1980s, China in the 2000s, etc.

In the early stages of the lending, when underlying conditions were good and commodity prices rising, Chinese investors, like all of their predecessors, thought they had discovered a new, better way to invest in riskier countries — with foreign observers worriedly agreeing — and poured money into all sorts of projects, especially in countries in which other investors were most reluctant to invest. This seemed to reinforce underlying growth, setting off even more inflows and, invariably, unleashing large amounts of wasteful spending.

But at some point — in this case, I suspect it happened with Venezuela around 2014-15 — they suddenly discovered what everyone else already knew about the difficulty of financing development projects, especially in certain political environments, and began sharply to pull back. This pulling back, of course, worsened underlying economic conditions even further and began to create political resentment.

We seem to be at the beginning of this stage. The best thing Beijing can do is recognize quickly that it has been caught in the same mess it said it would never get caught in and work to restructure and partially forgive the debt, but if historical precedents are any guide, that will probably take many more years of losses for both sides.

Read the original thread on Twitter.

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The post Michael Pettis: China’s Dramatic Curtailment in Overseas Lending Shows That Beijing is Learning the Same Lesson Today That Other Creditors Learned Years Ago appeared first on The China Africa Project.



source https://chinaafricaproject.com/2021/03/31/michael-pettis-chinas-dramatic-curtailment-in-overseas-lending-shows-that-beijing-is-learning-the-same-lesson-today-that-other-creditors-learned-years-ago/

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