|China's OBOR May Cost 8 Trillion Dollars|
The many people enthusiastic about China's bright future should not forget the country faces several huge challenges. It was recently announced that President Xi Jinping has somewhat unexpectedly picked PBOC deputy governor Yi Gang to run China's central bank. Yi has a formable task before him as he shapes a response to the three or more rate hikes expected from America's Federal Reserve while moving forward on Xi’s financial cleanup and deleveraging campaign. This will have to be done at the same time China attempts to keep inflation from rising and resolve trade issues with President Trump. One thing is certain that all this will be interesting to watch as it unfolds and so will the issue of whether Xi and his global partners can avoid falling into the age-old debt trap.
|Will OBOR Become A Bridge To Nowhere?|
Lagarde told a conference organized by the IMF and the People’s Bank of China, the country’s de facto central bank “The Belt and Road Initiative can provide much-needed infrastructure financing to partner countries,” She continued, “However, these ventures can also lead to a problematic increase in debt, potentially limiting other spending as debt service rises, and creating balance of payment challenges.” OBOR to move forward has to provide the financing for infrastructure that many countries desperately want and need but will they be able to repay the loans in coming years? Lagarde reminded the Beijing conference that, “In countries where public debt is already high, careful management of financing terms is critical.”
|China's Debt/GDP Ratio Is Well Above 300%|
The Center for Global Development, a Washington-based think tank, has highlighted in a report entitled Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective, the underlined the problems of extending credit to poor or unstable countries. It has pointed out that as many as 23 countries could be prone to “debt distress.” This group includes Pakistan, Djibouti, the Maldives, Laos, Mongolia, Montenegro, Tajikistan and Kyrgyzstan which were rated in the “high risk” category. Past high-profile horror stories associated with China’s overseas ventures add to overall concern and the fact Pakistan was flagged in the report as “by far the largest country at high risk” is sobering. The real question is whether OBOR will become a massive expensive bridge to nowhere?
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