China’s credits to various countries along its much-discussed Belt and Road Initiative (BRI), the most ambitious infrastructure undertaking in history, have recently been criticized for drawing poor countries into a debt trap by extending huge credits. Myanmar is often cited, as well as Sri Lanka. Malaysia and Pakistan are renegotiating multi-billion-dollar projects of previous regimes. What is not widely being examined however, is whether there is a danger that the China economy itself is vulnerable to a far larger debt trap, one that could spell trouble for the BRI project itself as well as for the unprecedented four decades of booming China economic growth. Could it be that debt is becoming China’s Achilles Heel?
The state of the Chinese economy is likely far graver than its leaders are admitting. The cause is not the effect of the US trade war. Rather it’s the structure of a debt-driven growth that has defined the unprecedented rise of China to a world economic power second only to the USA. What is called “socialism with Chinese characteristics” looks more and more like the Western debt-collapse model on steroids.
At the heart of the current problem is China’s home real estate debt market.
A debt trap is defined as a situation where a borrower takes on new debt to repay existing debt to a point where the terms of the original debt have drastically changed for the worse and default looms. During the Alan Greenspan US sub-prime debt bonanza more than a decade ago, millions of Americans took out loans, often with little bank checking, in a securitized mortgage market where home prices were rising so fast many believed they couldn’t lose. Until the bubble burst in early 2007.
In China over the past decade or more, a rising middle class began to realize for the first time they could buy goods never before possible. The American and European cars their labor produced were the first big consumer purchase boom. Over the past decade and more, that consumption has shifted to buying a home or apartment in one of China’s many growing cities. Much of the financial credit for the housing construction boom has come from unregulated local finance vehicles, a form of shadow banking, as the large state banks were tightly controlled.
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Corrupt officials at German consulates in some Middle Eastern states have been collaborating with people smugglers and literally selling forged visas to migrants seeking to come to Germany as refugees, Der Spiegel revealed.
The corrupt schemes “have been run smoothly [by employees] in the visa centers of many German diplomatic missions abroad,” and the Middle East in particular, German Der Spiegel weekly reported, calling the consulates an “Achilles heel” in the fight against people smuggling. The paper also calls the local employees a “weak spot” of German visa departments, as it is they who usually work with people smugglers.
A German consulate in Iraq’s northern city of Erbil was particularly involved in one such fraudulent scheme, according to the paper’s investigation. Local human traffickers offered to get their clients visas through corrupt consulate officials without the need for an approval by the visa and registration department in Germany. A false document, which could allow a would-be asylum seeker to legally enter Germany as part of a refugee reception program, cost between $3,000 and $13,000.
The shady scheme reportedly ran smoothly between August and December 2017 until finally came to the attention of Foreign Ministry officials. The forgers managed to sell some two dozen visas over this period, Der Spiegel says, adding that the real number of such cases might be much greater.
A similar scheme was run by an employee at a German consulate in Beirut, Lebanon, identified as Mohamad J. The man is reported to have been handling a lucrative visa trade in the consulate between December 2014 and May 2015. He is now facing charges in Germany over 11 instances of selling visas. However, the real number may be much larger, as the investigators have identified as many as 201 suspicious visa applications processed in the consulate over that period.
The German authorities, however, seem to be surprisingly reluctant to investigate such cases. According to Der Spiegel, such probes are usually set in motion only after such incidents hit the media headlines. The authorities started actively investigating the Beirut consulate fraud only after German WDR broadcaster reported on it in its ‘Monitor’ show.
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