China hesitates in bailing out Sri Lanka, Pakistan as debt soars

Over the past few years, the US has accused China of using “debt diplomacy” to make developing nations across the world more dependent on Beijing. Yet the cases of Sri Lanka and Pakistan – both friends of China facing dire financial situations as inflation soars – show that President Xi Jinping‘s government is becoming more reluctant to pull out the chequebook. China still hasn’t made good on a pledge to re-issue loans totalling $4 billion that Pakistan repaid in late March, and it hasn’t responded to Sri Lanka’s pleas for $2.5 billion in credit support.
“Beijing has for the past couple of years been rethinking its external lending because their banks realised they were carrying a lot of debt with countries whose prospects of paying back were quite limited,” said Raffaello Pantucci, a senior fellow at the S. Rajaratnam School of International Studies. “This came on top of a tightening economic situation at home.”

China is currently facing its own economic troubles, with lockdowns to contain the country’s worst Covid outbreak since early 2020 shutting down financial hubs of Shanghai and Shenzhen. Premier Li Keqiang on Monday told local authorities they should “add a sense of urgency” when implementing policies as analysts warn the official growth target of a 5.5% is now in jeopardy. China has become the world’s largest government creditor over the past decade, with its state-owned policy banks lending more to developing countries than the IMF or the World Bank in some recent years.
Xi highlighted the importance of a more cautious approach at a high-level Belt and Road symposium in November. “It is necessary to implement risk prevention and control systems,” Xi said. He called on participants to make “small but beautiful” projects a priority for foreign cooperation and “avoid dangerous & chaotic places.”