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The strength of the Chinese economy is nothing new. As a result, the country’s availability of resources has been building a new position: that of a creditor to emerging countries.
Borrowing from rich countries is a strategy that poor or developing countries have been applying for years. In many cases, the debt is not necessarily paid, but a debt renegotiation process begins with new payment terms.
For a few years now, China has become, alongside the United States, the biggest creditor of emerging countries. Thus, money is lent so that countries can promote recovery and economic development.
Loans and the IMF
The function of lending money for the economic development of the poorest countries is generally performed by the IMF. The organization counts on the participation of the richest countries and develops debt payment and renegotiation programs.
Closing agreements with the IMF is beneficial for emerging countries because in this case there is an organizational structure and guidelines based on the rights of citizens and the sovereignty of States.
Therefore, the objective of loans is, above all, the effective economic recovery of a country so that it can participate in the world market in a competitive and beneficial way for its population.
Borrowing directly with a nation like China, however, can eliminate these guarantees. In this case, the debtor States are subject to the conditions stipulated by China, which are not always clear or meet the needs of guarantees considered fundamental.
In this context, China has become the largest creditor of emerging states, alongside the United States. The point, however, is that China has its own way of negotiating the loans, which is not always very clear to the international community.
The great risk of these operations is, in fact, the dependency relationship that has emerged between China and the poorest states in recent years. Furthermore, the agreements with China are opaque, and there is no one-size-fits-all rule for all Chinese financial institutions.
The tension may exist because, while the loan with China proves to be somewhat unpredictable, there are not many countries in the world today capable of offering the amount of capital that China has. This situation practically leaves the fate of emerging countries in the hands of China.
The economic crisis and increasing dependence
Recent world events have further aggravated the situation of poor and emerging countries. As the money supply is scarcer and countries have increased poverty, dependence on Chinese resources is increasing day by day.
To contain this situation and try to preserve the sovereignty of states, the group of 20 launched a common framework for China and other countries like India to adhere to the IMF’s negotiation pattern. The invitation was made at the end of 2020.
The idea is to minimize this dependence and try to create an environment of transparent negotiations, in which the States are fully aware of the conditions of the loans made.
However, in practical terms, this proposal represents an increase in the bureaucratization of loan processes. Although the attempt is legitimate and intends to regulate economic relations, to some extent this means greater difficulty in obtaining resources.
For this reason, both creditor and debtor countries show resistance to IMF rules. Many of them do not have a really structured plan, and they need the resources to solve immediate problems, which is not easy to fit into the plans prepared by the IMF commission.
The discussion ultimately calls for the protection of the sovereignty of States. On the other hand, the impossibility of accessing resources that guarantee governability is also, to some extent, a form of limitation to this sovereignty.
It is hoped that the international community will reach a consensus on what is or is not allowed when it comes to the financial dependence of one State on another. To some extent, China’s role as maintainer of one of the strongest economies in the world also carries responsibilities that include guaranteeing the fundamental rights of human beings, such as freedom itself.