China closes the money tap to Venezuela

The Asian giant suspends the credit to the Bolivarian country for its economic and political instability

China closes the money tap to Venezuela

China has interrupted without warning the granting of loans to Venezuela coinciding with the deterioration of the economy in the South American country. For the first time in the last ten years, the institutional banks of the Asian nation did not extend new credit to Caracas or last year or until 2018. This decision responds to the growing concern of China for the sustainability of its investments and the capacity of the government of Nicolás Maduro to repay the loans.

Leer en español: China le cierra el grifo del dinero a Venezuela

Between 2005 and 2016, Beijing granted a total of 62.2 billion dollars to Venezuela, according to the annual report of the Inter-American Dialogue study center, which made China the largest creditor in the Caribbean country. Caracas had promised to repay the loan through shipments of oil, but has encountered serious difficulties in meeting its obligations due to the fall in the price of crude oil and the increasingly scarce production of the state oil company (PDVSA).

The Chinese Ministry of Foreign Affairs said in a statement that the financial cooperation between the two countries is "completely legal" and that "it works without problems". However, a senior official of the China Development Bank (CBD) -one of the banks that issued credit to the Bolivarian nation- acknowledged that "they are very concerned about everything that is happening in Venezuela and are acting in accordance with the situation."

Also read: Venezuela: Is dollarization doable?

This entity went from providing 5,000 million dollars in 2015, to 2,200 in 2016, and 0 in 2017. For this year, the situation does not seem to be changing, and experts in the operation of the Cooperation Fund between China and Latin America confirm that if the situation of the South American country does not improve it is very difficult for the second world power to continue collaborating financially. The amount of oil sent to the Asian giant is a reflection of the difficulties of the Bolivarian country to return what has been received. In 2014, barrels of crude worth $ 14,371 million were shipped to Beijing. The figure fell to 5,803 million in 2016.

According to the latest estimates, Caracas owes China a total of 19.3 billion dollars. The Chinese government has always been flexible, granting an extension of two years in which the Maduro Government was exempted from the payment of the debt and only charged the interest. However, this term has already expired. Most likely, according to the Reuters Agency, this agreement can be extended, giving some oxygen to the Venezuelan authorities.

According to Michael Pettis, professor of finance at Peking University, the options in this situation are "restructuring the loan or announcing its default". Both options are quite improbable. For the expert, the only way out of the current situation would be the cancellation of debt, an option that Beijing does not even want to consider because it would publicly recognize that part of its strategy, as a foreign investor, has been a failure. Pettis predicts that China will try all possible alternatives before finally recognizes that it has to forgive Venezuela's debt.

Latin American Post | José María González
Translated from China le cierra el grifo del dinero a Venezuela”

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