For some time now, Beijing has been providing loans to specific South Asian and African economies. Two objectives drive this lending.
First, to challenge US hegemony over the world financial system. Beijing has been striving to take the lead in global banking since since the Chinese economy developed into one of the largest in the world. This is more difficult to achieve, however, given Washington not only controls the majority of international financial institutions, including the World Bank and the International Monetary Fund (IMF), but also the US Dollar is the dominant currency in most international trade.Source: Forbes
The second goal comes after the first. China aspires to political dominance in addition to economic and financial dominance. Chinese base-building and loan-giving inevitably lead to the exercise of political dominance as well. The leaders of these recipient economies are liberated by China’s money from practising macroeconomic restraint, so they continue to spend. Constant reliance on Chinese funding results in continued transfer of political control to China. These nations continue to get sucked deeper and deeper into Beijing’s debt trap.
India’s economy, which China has not lent to, has been impacted by its loan diplomacy. Although not being a part of South Asia, China has a significant amount of influence there. Due to the size of its economy, India dominated the region until recently, but China has made a strong push to displace India.
Source: Study IQ IAS
These days, Beijing exerts disproportionate influence over these states, sometimes even swaying the smaller South Asian countries in New Delhi’s favour. These countries have now turned to India as a result of the pandemic and the cessation of Chinese support. With the exception of Pakistan, India has offered assistance to these nations when they have needed it.
The odds are always stacked in Beijing’s favour when it comes to its loan diplomacy with these countries. These countries have realised this reality as a result of the post-Covid-19 economic realities, but it is already too late. Portia defended Antonio in William Shakespeare’s Merchants of Venice against Shylock. Who will be these economies’ Portia?
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