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China’s Curtailment of Loans to Developing Countries Was Expected, Says Economist Michael Pettis

Michael Pettis is one of the world’s foremost China economists. He shared a few insights this weekend on the current trend of reduced Chinese lending to developing countries. In a three-part thread published on Twitter, the Peking University professor said Beijing’s new wariness around lending large sums to developing countries was entirely predictable:

10-15 years ago most analysts were either marveling at Beijing’s spectacular success in providing development loans to the world or were terrified at the speed with which Beijing was expanding its influence abroad. 

I argued, however, that Beijing was mostly just following the path that every country before it followed when first “going out” to invest abroad: it was significantly underestimating risk, and would soon begin pulling back sharply on its lending once it discovered how risky these loans could be. COVID-19 – as it has done with so many other trends – seems to be accelerating this pro
cess.

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