Commentary on Political Economy

Monday, 30 March 2020


China should write off debts to cover the cost of Covid-19

Azeem Ibrahim
The Times
Despite Beijing’s determined efforts, a comprehensive timeline has now emerged of the response of the authorities in Hubei province and in Beijing to the spread of the Covid-19 virus, proving that the Chinese authorities engaged in a cover-up in the critical early days. This makes them morally responsible for the global consequences of the pandemic in at least some key ways.
China took the virus to be a public relations challenge, rather than a severe threat to human health. Doctors who tried to alert the authorities were told to keep quiet. Those who went public with their concerns were arrested. As if to confirm this observation, Beijing has since gone on to mount a global propaganda effort to deflect responsibility and somehow blame the United States for the breakout. The only thing that matters is that the Communist Party is not believed responsible for its early failures.
If the authorities had contained the situation in Hubei in the first three weeks of the breakout, this disease could probably have been completely contained within the province. But party bureaucrats made a different set of choices. As a consequence of those choices, the world is now at a standstill.
Nevertheless, China can do things to atone for its mistakes. So far, Beijing has sent support to embattled Italy in the form of medical experts, and it is sending out medical kits to the whole of Europe. Cynics have dismissed these gestures as little more than a PR exercise, in the same vein as China’s earlier responses to the virus. And they are probably right. But medical experts and more medical equipment are definitely helpful things to have, regardless of motivation. It is a good start.
Yet Europe is unlikely to be the region worst affected by this pandemic in the course of time. The most acutely affected will, inevitably, be smaller, poorer countries which do not have the health infrastructure and the economic resilience to weather to weather this global shock.
Many of these countries are already financially indebted to China, as Beijing has been using its growing economic might in recent years to invest and buy influence all over the world. Countries such as Djibouti, Tajikistan, Kyrgyzstan, Laos, Maldives, Mongolia, Pakistan and Montenegro, have all been identified as already owing sums in excess of 45 per cent of their GDP to Beijing, largely in the form of debt towards Belt and Road projects.
Meanwhile, even countries such as the US and the UK have as much as a quarter of their government bonds owned by Chinese institutional investors closely associated with or even directly owned by the Chinese state.
For a real way to pay off its moral debts on the Covid-19 pandemic, China can start a programme of financial debt forgiveness to those countries affected by the virus. Priority should be given to those poorer countries who will not be able to pay off those debts anyway in the wake of the economic shock caused by the pandemic. Either China voluntarily forgives those debts, or default will happen anyway.
But Chinese ownership of sovereign debt is even more widespread than the virus. Italy owes China money, Spain does, everyone does. We should engage with Beijing to persuade them to waive the debts equivalent to the cost incurred by state budgets to handle the epidemic.
And if Beijing fails to heed this call, then it should be for the international community to come together and proclaim a proportional default on debts to China to pay for the fallout from Covid-19. By this agreement, perhaps underwritten by the IMF and the World Bank, we would proclaim than any such default would not hamper a country’s ability to seek credit on the open markets of the West.
Beijing has a moral obligation to forgive these debts. If it fails to do so, the rest of the world has a moral right to default. We may not have the capacity to force this on to China. But we do have the capacity, and the duty, to facilitate a co-ordinated default if it does not comply.
Dr Azeem Ibrahim is a director at the Center for Global Policy, Washington DC

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