China’s Lending Wisdom in Its One Belt One Road InitiativePosted: May 16, 2017
China has to lend its massive foreign exchange reserve. Previously, it lent to the US by purchasing of US treasury bonds. To avoid the risk, Chinese President Xi Jinping switched to lending to infrastructure projects in his Silk Road economic belt and 21st century maritime Silk Road (OBOR) plan mainly to countries in China’s backyard.
In its report “Behind China’s Silk Road vision: cheap funds, heavy debt, growing risk” yesterday, Reuters says that the OBOR “lending program of unprecedented breadth,” “could also leave some banks and many countries with quite a hangover”.
Certainly, there are risks and even serious risks in OBOR lending but are there no risks in lending to the US?
The US is heavily in debt but still get good rating for its debts. However, as US government is making no efforts to reduce its debts and its politics are in chaos now, the risks in lending to the US are by no means small compared with the lending to the countries with poor rating.
Moreover, there is in addition the risk of the falling exchange rate of US dollars.
Reuters says that the interest rates of the loans to OBOR are low, but are the interest rates of US treasury bonds high?
The most important in Xi’s OBOR lending strategy is that the lending to the US helps the US to maintain its excessive military budget in building and developing weapons to attack China such as B21 bombers that the US is developing for bombing Beijing.
In fact, China shall not lend even a penny to the US to enable the US to have the funds to deploy its military near China to threaten China. China buys US treasury bonds because it lacks alternatives.
Xi is wise to use China’s massive foreign exchange reserve to lend to countries within its OBOR plan. The infrastructures built by the lending, even if giving rise to bad debts, will first of all strengthen China’s national security instead of weakening that as the lending to the US does.
The infrastructures built under the OBOR plan will facilitate development of China’s and other countries economies. When those countries have grown rich, their politics will be more stable. China will be benefited by such stability in expanding its trade and investment there.
The lending to the US on the contrary will enable the US to have funds to invade other countries or interfere with their politics and thus may give rise to losses in China’s trade and investment there. Libya and Iraq are good examples.
The amount of lending to OBOR projects, though large, is but a fraction of China’s lending to the US. In fact, China shall gradually sell all its US treasury bonds and spend the proceeds mostly in OBOR projects since it is difficult to make good investment in the US and other developed countries.
Comment by Chan Kai Yee on Reuters’ report, full text of which can be viewed at http://www.reuters.com/article/us-china-silkroad-finance-idUSKCN18B0YS.