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Centre for Geopolitics

Providing historically-grounded approaches to enduring geopolitical problems.
Dollar Lincoln wearing facemask

29th April 2020

Starting the conversation…

Alfredo Hernandez Sanchez, PhD Candidate at the Central European University

Sovereign borrowing and lending have a geopolitical logic that parallels economic considerations. Governments consider who to borrow from as carefully as they consider when to borrow and how much. As many countries throughout the global North and South will soon find themselves having to renegotiate their debts, how will this process look? Which actors will step up to fill the role of global lender of last resort?

China could turn its trillions of dollars in international reserves into much more valuable global political capital throughout the emerging world

As early as 2010, the China Development Bank (CDB) and other Chinese public financial institutions overtook the World Bank in terms of volume lent, especially to the Global South. Whereas loans from multilateral lenders such as the World Bank and the International Monetary Fund are contingent on the adoption of fiscal policies and relatively transparent; loans from the CDB are extended against resources or assets as collateral and often without clear monitoring mechanisms. In some cases, they are contingent on the purchase of Chinese technology – mainly in the oil extraction industry – and partially denominated in Yuan. Such loans have been part of Beijing’s strategy of gradually making its currency an international reserve and rerouting the global economy away from Washington.

Recent financial crises throughout Eurasia – as Turkey and Pakistan in 2018 – have shown that China is willing to assume the role of lender of last resort, especially if it advances key geopolitical objectives such as the Belt and Road Initiative. Despite concerns over this debt-book diplomacy, bilateral debt renegotiations between China and its partners have been relatively lenient to borrowers.  It is unclear if these practices will continue during a systematic debt crisis, as is expected from covid19.

However, unless Western financial institutions can offer a politically acceptable debt resolution framework which manages to balance the protection of creditor’s rights with the developmental potential of borrowers; China could turn its trillions of dollars in international reserves into much more valuable global political capital throughout the emerging world and beyond.


Vinod K. Aggarwal, Professor and Director of the Berkeley APEC Study Centre, University of California at Berkeley

Although it looks as though the Chinese have been lenient toward borrowers, this is highly misleading. In mid-April, the G-20 (with China dragging its feet) agreed to a debt moratorium starting on May 1 and running to the end of the year. Thus, there is a debt resolution framework, which will be further developed for the poorest countries by Western financial institutions and governments.

China, by contrast, as many sources have noted, has preferred to negotiate on a bilateral basis. Indeed, this point is not surprising since as the blog notes, China prefers to seek collateral, the purchase of Chinese technology in the oil industry (presumably to help them secure oil resources down the line), and advance its geopolitical objectives. While all countries pursue their own national interests, the Chinese are quite blatant in their efforts to seek quid pro quos. I would be skeptical of the concern that China will use its money to gain valuable “political capital” in the emerging world. To this point, China has acted as a free rider on global institutions. It has even used medical equipment “donations” in the middle of the Covid 19 crisis to extract political benefits. This behavior hardly speaks well of a country trying to gain influence in the world as a leader.