Cancel Culture: The World Should Cancel Chinese Debt and the Belt & Road Initiative

A guiding principal of ‘Quorum Theory’ is the increasing and unnecessary acrimony between our political parties.  It’s important to note that just because a member of a party says something does not necessarily make that idea conservative or liberal, Republican or Democrat.  In order to test this part of the theory, let me take you back…
It was the spring of 2020, tie dye was back in style, Andrew Cuomo was solidifying his role as ‘America’s Governor’ and surely nothing could ever derail that, and COVID-19 was raging through the US.  Around this time, Lindsay Graham and a few others started floating the idea of canceling US debt to China in retaliation for the virus.  This was written off by the left as a hawkish Republican concept, but whether you hate him or just dislike him, Lindsay Graham might have stumbled onto a pretty good point.

A conservative estimate of the financial impact on the US from COVID so far is ~$800bn¹, coupled with wrongful death liabilities for ~500k U.S Citizens at $1.0m per person, and that equates to the ~$1.3t² of US Debt held by China.  In this sense, canceling the US portion of debt to China seems like a rather elegant solution.

In the little public discussion this received, critics, mostly from the Lanister family, insisted that the US must, above all else, always pay its debts.  Pundits immediately jumped to the conclusion that the US defaulting on debt in any way would be financially ruinous.  But would it?  There are creative solutions that could materially reduce the blow to the financial markets and the US’s credit worthiness.  Offering improved terms on existing debt coupled with the fact that this action aligns with the national self-interest of our largest holders, Japan (~4.7% of US Debt) and our own Government (~60%³), would materially reduce the risk to the financial markets.

While there is certainly a great self-interest aspect on why to default on China’s debt, to not do anything, which is the current course of action, is a greater moral hazard.  COVID is the latest in a string of infectious diseases. SARS (2007), Bird Flu (1997), and Hong Kong Flu (1968), originated from China, and are the results of rapid urbanization mixed with low political will to enact health and safety standards that are different in urban settings from rural areas.  In this sense, not only should the US consider canceling its debts to China, but other borrowers should also do the same.

In 2013, Xi Jinping laid out his grand vision for an infrastructure project called the Belt & Road Initiative (BRI), linking China, South East Asia, the Middle East, Africa and Europe through maritime ports, railways and infrastructure projects.  China hawks have labeled the plan a form of ‘debt trap diplomacy’, in which China saddles other nations with debt for projects, forces them to hire Chinese firms for the work, and then flexes their political will over the debtor nations or reclaims the project at favorable terms when the debt burden overwhelms the host nation.  While this would be really helpful for my underlying thesis, there are only a few projects so far in which lender countries have buckled under the debt burdens and does not yet constitute a pattern of behavior.⁴  The real issue with the BRI is the fact that China’s government has shown three times in the last ~50 years that due to their unwillingness to make structural changes necessary for safe urbanization, contagious diseases emanating from China are a material risk to the rest of the world.  Allowing China to increase its interconnectivity with the world right now increases the exposure we have and is completely tone deaf.  The Chinese government has proven that while they are willing to do what is necessary to keep disease from spreading within their own country, they have little regard for its impact outside their boarders, and are willing to obfuscate and purposefully confound information to the rest of the world just to keep plausible deniability.  Furthermore, their lack of structural corrective action to date indicates that this will be a problem going forward.

We often think of China as an authoritarian country where people do as they are told by the government.  The answer to the question, “why has a country that built a COVID hospital in a week⁵ been unwilling to shut down wet markets en masse,” may speak to some misunderstandings of China.
One of the most concerning developments in the last few years was in 2018, when Xi Jingping, abolished term limits, allowing him to remain president for life.  While this received very little attention from U.S. news outlets at the time, it was a massive break with recent tradition in China.  Unlike the U.S. system, in which citizens come together every four years to collectively allow Pennsylvania to determine who will be the president⁶, China’s president is ‘elected’ for 2 consecutive five year terms at the meeting of the National People’s Congress.  When they meet in 2023, Xi will likely be looking for a third term.  While Xi has seemingly consolidated power, Chinese authoritarian control only goes so far.  The Chinese people are not fragile and have a history of overthrowing governments that displease them.  This is likely why the government is reticent to crack down on wet markets, which are favored by recent rural migrants to cities, even though it has proven to be a wildly dangerous practice to allow in urban settings.

The Biden administration has focused on Human rights in their first meetings with Chinese leaders, specifically the safety of Hong Kong protesters and the treatment of the Uighur Muslim minority in the western province of Xinjiang.  The issue of Hong Kong protesters seems like a challenging point of attack, while the issue of Uighur human rights violations might be better addressed through other means.
Hong Kong belongs to China.  It was taken by the British in the 1800s when the Chinese government requested the British stop smuggling opium into the country.⁷  It’s sad to see Hong Kongers, who enjoyed greater freedoms in their lifetime adapt to the more restrictive Chinese form of government, but it seems like an easy argument for China to make that they should have the autonomy to govern all of their citizens the same.