<p><strong><em>China,
world 2<sup>nd</sup> largest economy may have been quite diplomatic in managing
huge undisclosed debts as revealed by</em></strong><strong><em> Christoph Trebesch, a ;
co-author at the Kiel Institute for the World Economy</em></strong><strong><em></em></strong></p>



<p>The West
still hasn’t understood how profoundly China’s rise has changed the international
financial system,” professor and economist Christoph Trebesch told Germany’s
Spiegel in an interview following the release of a new report on China’s
“hidden debt,” which Trebesch co-authored at the Kiel Institute for the World
Economy.</p>



<p>According
to the report, the amount of foreign debt held by China is 50% greater than
previously thought, making it the largest official
creditor in the world. More than twice the size of the International Monetary
Fund and the World Bank combined, says The Economist.</p>



<p>The value
of China’s outbound credit lines has surged from virtually nil in 2000 to over
$700 billion today but China has kept much of that debt “hidden” by not
reporting it to bodies like the IMF. The Fund’s managing director Christine
Lagarde has highlighted the lack of transparency in Chinese loans many times
before.</p>



<p>Credit
rating agencies like Moody’s and Standard and Poor’s aren’t privy to the debt
either because they only track sovereign loans issued by banks or bondholders
while most of China’s foreign loans are issued by the government itself.</p>



<p>Opponents
of China’s lending practices have long accused Beijing of engaging in debt
diplomacy, with Xi Jinping’s famous Belt and Road Initiative (BRI) frequently
criticized as “economic colonialism” that risks trapping developing nations in
debt. Djibouti, for example, is carrying a Chinese debt equivalent to 70% of
its GDP. China’s top 50 borrowers owe a value equivalent to over 15% of their
respective GDPs.</p>



<p>The
world’s seen this before, in the 1970’s, when banks from the U.S. and Europe
issued commodity-backed loans to emerging economies in Africa and Latin
America. When those commodity prices tanked the economies spiralled deeper into
debt.</p>



<p>According
to The Economist, many of the recipients of new loans from China were also
granted debt relief by Western creditors after defaulting on previous loans.
China, too, has offered restructuring plans and write offs on over 140 of its
foreign loans in the past decade, but other times it has seized strategic assets
as collateral – such as the Hambantota port in Sri Lanka.</p>



<p>As China
seeks to rein in the risk of its own domestic debt and offset the drag of its
slowing economy, the country’s outbound lending might slowdown. Some debtors,
meanwhile, have already started to pushback against China’s aggressive lending
schemes. But there’s still a lot of Chinese-issued sovereign debt out there
waiting to mature. Apparently, about 50% more than we realize. </p>

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