All rights reserevd “Belt and Road” Initiative International Think Tank, CASS
The objectivity of Harvard University economics professor Carmen Reinhart's study on China's overseas lending is doubtful.
Many have accused China of engaging in "debt-trap diplomacy" through the Belt and Road Initiative (BRI). German news weekly Der Spiegel reported recently that the world owes $6 trillion to China, citing a study jointly issued by Reinhart, Sebastian Horn and Christoph Trebesch. The study said that China's overseas lending was 50 percent higher than official statistics show.
In an article published in October 2018, Reinhart said "If, as I suspect, widespread debt-servicing difficulties are on the rise among many of the world's poorest countries, China's tendency to favor collateralized loans raises particular challenges."
China has become a big lender to countries around the world. This is a reality we cannot evade. According to Guan Tao, a former senior official at the State Administration of Foreign Exchange, China had $7.32 trillion in external financial assets as of end of 2018. The figure exceeds Reinhart's calculation of how much the world owes China. There is no reason to believe that China tries to dismiss claims of "debt traps" by deliberately underestimating its external financial assets.
But China's external financial assets don't tell the whole story. The country's external financial liabilities reached $5.19 trillion as of the end of 2018, so its net holdings of external financial assets were only $2.13 trillion, lower than the figure for Japan.
China is the world's third-largest creditor nation after Japan and Germany, according to a Reuters report in May, but there have been no accusations that Japan or Germany engage in "debt-trap diplomacy." It's clear some Western economists use double standards concerning debt issues.
Some believe that many of the debts involving China arise from the BRI, but data from the international consulting firm Ernst & Young (E&Y) showed in 2018 that loans offered by Chinese banking institutions to projects under the BRI totaled more than $200 billion in the past three years, far behind the $6 trillion figure offered by Reinhart. We can't help wondering if Reinhart deliberately exaggerates the challenges caused by "China's tendency to favor collateralized loans."
The key issue is whether China's loans can bring tangible benefits to the economies involved. However, some Western economists simply focus on the quantity rather than quality of Chinese loans to warn against China's "debt-trap diplomacy." According to E&Y, Chinese companies had built 82 economic cooperation zones in countries along the BRI as of August 2018, creating 244,000 jobs.
China isn't opposed to the study or investigation of BRI loans by Western economists but we are firmly opposed to biased views because the latter can easily mislead global public sentiment.
(The author is a reporter with the Global Times.)