China hesitates on bailing out its ‘friends’

Bloomberg

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 checkbook. China still hasn’t made good on a pledge to re-issue loans totaling $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.
While China has pledged to help both countries, the more cautious approach reflects both a refining of Xi’s signature Belt and Road Initiative as well as a hesitancy to be seen interfering in messy domestic political
situations. Pakistan got a new prime minister after parliament booted out former cricket star Imran Khan, and Sri Lanka’s leader is facing pressure from protesters to step down.
“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 at Nanyang Technological University.
“This came on top of a tightening economic situation at home which also required a lot of spending, so there was less appetite to just throw money around wantonly.”
China is currently facing its own economic troubles, with lockdowns to contain the country’s worst Covid outbreak since early 2020 shutting down the technology and financial hubs of Shanghai and Shenzhen. Premier Li Keqiang 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 International Monetary Fund or the World Bank in some recent years.