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TematicheCina e Indo-PacificoBeijing's development finance as part of China hegemonic behavior

Beijing’s development finance as part of China hegemonic behavior

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China’s global rise in terms of economic engagements with the world are not only due to its financial lending, but it has gone on to incorporate many other critical factors within the framework of developmental finance as well. Most notably among them are the «Currency Swap agreements», which are bilateral agreements between two countries that facilitate the exchange of one currency for another at an already decided exchange rate.

In 2021, a report sourced by the People’s Bank of China (PBOC) claimed that China has swap facilities with more than 40 countries around the world and has agreed to over 4 trillion-yuan (US$570 billion) worth of deals with its partners. This line of deals is proving to be a significant part of Chinese economic coercive strategy. By the same token, these agreements are also an attempt by Chinese authorities to internationalize the currency in order to destabilize the stronghold of the dollar in the international market. However, Beijing’s methods have so far been understood to be problematic for various reasons.  In the last ten years, China has widely gained significant leverage against independent countries and their autonomous decision-making processes. Through currency-swap agreements, Beijing has provided liquidity and financial support to indebted countries, especially those facing currency or balance of payment crises. This kind of support has been understood to be in the form of economic assistance and has majorly created dependencies and influenced the recipient countries economic policies that favor the lender. 

Above and over such attempts, by engaging in currency-swap deals Beijing has also deepened its economic ties with developing countries to extend its political influence in domestic policy-oriented decision making. Major concerns have also been raised upon the fact that China has attached a set of stringent conditionalities to currency-swap deals that benefit its own interests and promote its preferred policies. These conditions have been understood to range from economic reforms to political alignment and support for China’s positions on complex issues. This has not only undermined the sovereignty and independence of the recipient country, but it has also led to widespread concerns about long-term economic and political repercussions for the international market as a whole. Beijing’s broader economic engagement has also solidified concerns about debt sustainability in recipient countries. Such concerns are also about debt trap diplomacy and unsustainable debt burdens that have so often extended to financial arrangements such as currency swaps agreements. However, the larger aim of such strategies still remains to internationalize its domestic currency, the Chinese Yuan. Experts have argued that the Chinese Communist Party’s efforts to internationalize the yuan are meant to be used as a method to manipulate the value of the yuan for international economic and political gains. By doing so, Beijing would withhold the leverage of its competitive advantage which could also lead it to dictate over other countries economic decisions and force the recipients’ nations into agreeing on stringent conditions for repayments. 

Such Chinese subversive practices combined with its ill-intentioned developmental finances to middle and low-income countries have caused significant concerns to countries and their economic feasibility in repaying high interest loans. As part of safeguarding its international lendings, Chinese lenders have rallied around strict contractual agreements that incorporate hidden debts mechanisms and stricter repayments with higher interest rates than the global market. With the promise of faster access to capital, Chinese developmental banks have been duping weaker economies with enticeful incentives for infrastructural development in lieu of guarantees that its business will be permitted to function as per its convenience. These methods have also led to Chinese multinational companies at times being allowed to override local laws as per its needs. 

In the given scenario, countries struggling to cope with Chinese debt and obligated to sign currency-swap agreements must act promptly to prevent Chinese hawkish behavior upon its sovereign decision-making processes. Especially countries from the developing world must prevent Beijing’s authoritative intentions through economic coercive means from taking shape by calling out its double-faced tactics, aimed to expand its influence through internationalizing its currency. These countermeasures will not only go on to restrict the Party’s hegemonic aspirations, but they will also motivate other economically distressed countries from falling into Chinese dictates in terms of policy decisions that Beijing is attempting to achieve.

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