IMF warns countries involved in China Silk Road initiative

IMF warns countries involved in China Silk Road initiative


 
12-04-2018 11:27 AM

IMF Managing Director Christine Lagarde warned Thursday of the risks of rising debt in countries where China invests in the context of its large-scale program to carry out infrastructure projects abroad in an effort to cement its trade ties.

Lagarde warned in a speech in Beijing for a forum on the New Silk Road Initiative, a major project launched by Chinese President Xi Jinping in 2013 to set up roads, harbors, railways and industrial parks in Asia, Africa and the Middle East to reach Europe.

Although the initiative, which already includes 70 countries, is initially based on joint investments with the parties concerned, many of these workshops are actually financed by loans granted by Chinese institutions. Some Western countries see this as a deliberate strategy of China to consolidate and expand its influence.

Lagarde, speaking to an audience of Chinese and foreign officials, acknowledged that 'silk roads' could meet the 'critical need for infrastructure' in different parts of the world and provide funding to countries that are 'desperately needed'.

However, she warned that these partnerships 'could also lead to increased indebtedness (to the countries concerned) and reduce their other expenses as debt costs increase.' In countries facing already high public debt, dealing with Financing conditions by precautionary measures. '

In fact, China's public development banks and other financial institutions in Asia's first economic power are lending large sums to fund projects in the 'New Silk Road' countries, putting borrowing countries in a financial position they can not face.

This applies to Sri Lanka, which received huge loans from China to build a port, forcing it under the pressure of a 'spiral of indebtedness' to give up its share in the port of China specifically.

Lagarde called for more collective investment and greater transparency, stressing that "silk roads should not be led where they should not."

"In large-scale projects, there is a tendency to take advantage of supply entitlements," she said. "There is always the risk of some projects failing or the risk of misappropriation of funds. Sometimes it even reaches the level of corruption. '

However, Xi Jinping himself responded Tuesday to criticism of his plan at the Boao Forum, and said according to the official New China News Agency that the initiative 'is neither a Marshall Plan nor a Chinese plot. It is an initiative that follows its course in broad daylight. '

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I might add, large sums that according to the best analysts in the industry, they don't have to begin with. China is a bit of a hard nut to crack, and a lot of financial analysis is at least to a degree guess work, since the government controls the banks, the news, the markets, everything and everyone who might provide information in the financial and other sectors. Every analysis I have seen though points toward there being serious financial issues as a result of government overspending on defense and infrastructure.