Flat White

China: an empire of debt

5 May 2022

2:00 PM

5 May 2022

2:00 PM

‘China is building an empire on debt,’ said Mark Steyn, of GB News. He is correct. Australia’s Pacific neighbour exports debt to the third world as a tool of conquest. It is colonialism with a chequebook. Battle with a bank account. Slavery for nation-states…

Murdering the locals in open war tends to make China’s ‘Woke’ Western trading partners feel a little uncomfortable, so Beijing murders economies instead, taking assets hostage while handcuffing corrupt local officials to Chinese interests. The Solomon Islands is the latest in a long line of short-sighted Parliaments who took the money, waved the communists in, and then had to climb over all the strings attached to the bribe.

The Chinese economy is somewhat of a closed book in a locked vault, but observers note that a significant number of local governments have incurred serious debts. Economist Lu Ting estimated this to tally 45 trillion yuan (or US$7 trillion) in 2020. This is roughly 44 per cent of China’s GDP. The debt continues to climb, suggesting something has gone wrong, especially with the Ministry of Finance insisting it be paid back by 2023.

Chinese provinces ended up in this situation by engaging in ‘big spending’ infrastructure projects to disguise sickly economies. Building for the sake of it creates an artificial bulge – one built with matchsticks, thatch, and a healthy dose of petrol. It is a situation worsened by the limited options citizens have to invest, leaving the housing market as the primary source of asset acquisition. A single nest full of middle class eggs balanced on a twig.

The world has watched in horror over the last year as the first flickers of disaster have flared up at the corner of China’s construction industry. Evergrande – a construction giant – has been placed in State-operated resuscitation. Developers across the country, shaken by Evergrande’s situation, have been left staring down some nasty repayments nearing $20 billion for the first quarter of 2022. Evergrande is one of half a dozen construction empires on the edge of default. If they were to die, the communist government would have to absorb their losses and deal with a second nightmare – a housing crisis.

Interest repayments on debt are the real killer for China. They grew too fast (under encouragement from the government) and couldn’t stick the bill. If the construction industry dies, it is expected to drag property owners and thousands of small contract companies (and their families) down with them. Given that construction represents a support column for the economy, there is a good chance the disaster will spiral.

China is trying to ward off this credit crunch, as it would be politically devastating for Xi Jinping. This fear of economic failure could be the primary cause behind China’s unwillingness to make good on their threats against Taiwan. If the West and its investors were to economically blockade the East over a military disagreement, it could easily tip the regime over the edge – particularly with anti-government anger brewing in Shanghai over Covid lockdowns. Xi Jinping is many things, but he is not a stupid man. He will have watched carefully as the West financially self-harmed to protect its political safety. Yes, China has lots of friends to trade with, but we have to remember that most of them are in debt to China – not creating wealth for the regime.

Debt matters. For China, the balance sheet is misleading when it comes to foreign debt.

Most countries require a reasonable assurance that the money they lend to other nations will be repaid. If the debt is not going to be repaid, it is repackaged as aid. China deliberately seeks out nations that cannot pay their bills in what has become known as ‘debt-trap diplomacy’. 42 countries owe roughly $400 billion in figures that are kept off the World Bank’s radar by the subversive way China loans to State-operated entities and individuals linked to the government. It is a puppet economy conducted under the banner of the Belt and Road project – a role that Victorian Premier Daniel Andrews tried out for in 2021 before the federal government dragged him off the stage.

It is more accurate to view this foreign debt as a purchase rather than an IOU. For example, Tajikistan is 1,158 square kilometres smaller after defaulting on a loan and ceding physical territory to China; Sri Lanka lost control of a crucial deep-water port, airport, and surrounding land; Laos lost its national energy grid.

Buying influence is standard practice in the game of geopolitics, but those nations that spend what they don’t have fall over. When Beijing’s money runs out, the nations it tried to debt trap get to keep the Chinese assets they didn’t pay for. If China wants them back, they’d have to invade and occupy them. The one thing a debt-addled country can’t do is start picking fights.

These projects are not sustainable, which is why they appear to offer riches while the West bargains with a comparable pittance. The EU Global Gateway is attempting to compete with China, but it’s a tough sell when Europe is saddled with Russia’s war and millions of refugees from the third world crippling social order and economic strength – not to mention two-thirds of Europe already belongs to China’s Belt and Road project. ‘Build Back Better’ is meant to be another of these competitors to China, but no one wants what the World Economic Forum is trying to build. The people of the West do not want to compete with China’s communist State by creating a Globalist monstrosity. India has come closest, with a $30 billion investment in 64 countries offered without threats against sovereignty. However, in nations like Sri Lanka whose economies are collapsing, corrupt leaderships are grasping at the biggest, shiniest life-raft… China.

China’s sphere of influence appears insurmountable – but it is deceptively fragile. China’s economy grew originally because it made things. Production is the soul of the economy. If the world starts to think China looks a little Mao-ish, those customers will evaporate and won’t be easily replaced.

Take note, Australia; an empire built on debt cannot survive for long.

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