By Ding Gang Source: Global Times Published: 2018-7-4
Sri Lanka`s debt problem is a hot topic nowadays. Western media outlets like the New York Times are keen to find fault with the China-proposed Belt and Road initiative (BRI).
This time the South Asian island nation is their target. They are full of gloat when declaring that Sri Lanka was trapped by the loan taken from China for the construction of a port.
They want to send a warning to countries which borrowed from China, forcing them to think about their ability to repay and speculating that defaulting nations will have to forego their land to China as compensation.
They are probably forgetting that China suffered the same problem at the beginning of the 21 century when short-term foreign loans reached 45 percent of the total external debt, above the internationally recognized red line of 40 percent.
Some foreign experts then took the same line as the New York Times, sending a warning to the world and even proclaiming that China`s development would soon meet its Waterloo.
When we look back at the debt problem China experienced in 2004, it appeared as only a brief interlude in the nation`s long symphony of modernization.
By the first half of 2003, the World Bank had lent $36.6 billion to 245 projects in China, making the country its largest and most reputable client. The bank`s lending played a significant role in China`s success, particularly in the development of remote areas.
China was confident of its ability to repay the debt - by sheer hard work and riding on its manufacturing prowess.
China`s experience of overcoming its debt problem has lessons for developing countries.
First, if the bank provides you with a loan, you have the liberty to act according to your ability, but remember, if you are not indebted, probably you wouldn`t want to work harder. Debt puts you under pressure, but is also an incentive. People without debt are not motivated to work harder. Not working harder magnifies the burden of the debt, even if it is small.
Second, infrastructure is of immense importance in the early stages of industrialization. China made full use of the money borrowed from the World Bank for the construction of first-class infrastructure which facilitated FDI to flood in and finally helped create a "world factory."
When discussing the debt problem of China`s Belt and Road initiative, Western media deliberately overlooked China`s experience and misled the developing countries.
When the loan and the project become a hot political issue, it points at another danger where the situation turns chaotic and different parties join the melee. After this, no one knows how long it is before the situation improves.
India is an example. Everybody knows India suffers from extensive shortage of electricity, but when the power projects were caught up in red tape, there was no end to the wait.
If a nation only concentrates on how much it borrows rather than how to use the money to create new value efficiently, it will be hard to pay it back.
The difference between China and many other countries is when borrowing money, we think how we can pay back by hard work and making more money from the borrowed capital. Debt is not a problem, the problem is the unwillingness to work harder.
In the future, China will pay more attention to the solvency of the recipient countries, but at the same time, under the Belt and Road initiative, the cooperation will not stop at the construction of infrastructure. It will expand to the industrial parks in those countries.
The New York Times report is a reminder that China may need to start building some of the industrial parks and transfer the manufacturing industrial chain more quickly, which will create conditions for the borrower to repay the loan.
It is impossible to replicate the Chinese model in its entirety, but it is not impossible to learn from China`s experience.
The Belt and Road initiative is in its early stages, but the New York Times is in a hurry to come to conclusions.
Could you be a bit more patient, sir?
Ding Gang is a senior fellow with the Chongyang Institute for Financial Studies at Renmin University of China.