Dividends and After doling out huge loans, China is competing with US to bail out countries

After WW II was over and peace was in the land, there were many countries around the world that needed to be rebuilt. In Europe the rebuilding was called the Marshall Plan, but as the country with a large economy and not needing basic infrastructure to be built, the US and International Monetary Fund (IMF) and later the World Bank came together to lend money to countries. Ideally the premise was to stay within the free market economy. Eventually the USSR had a fund for those countries that were communist. For generations, the US and USSR were the bankers for the world, when the USSR broke up and China began to government surpluses, it rose to be the banker to other countries. In China, the plan is called the Silk Road or the Belt and Road Initiative.

In an article by Keith Bradsher of the New York Times News Service, China has emerged to provide emergency loans to debt ridden countries. New data show that China is providing ever more emergency loans to countries including Turkey, Argentina and Sir Lanka. The countries are either geopolitical significance, or have lots of natural resources.

While China is not equal to the IMF, in recent years, China has provided $240 billion in financing. In 2021, China gave $40.5 billion. The data is provided by AidData, a research institute at William and Mary University in Willamsburg, Virgina.

The IMF lent $68.6 billion in 2021.

China’s money has paid for construction of highways, bridges, hydroelectric dams and other infrastructure. US officials have accused China of engaging in debt trap diplomacy. The country is saddled with debt, but the work is carried out by Chinese companies often using Chinese engineers, Chinese workers and Chinese equipment.

China typically charges higher rates than the IMF at 4% versus 1 to 2% for financially distress countries, but both charge about the same for middle income countries at 4.8%.

Linking to dividend paying stocks, similar to businesses, when there is a gap in the market someone will cover it for both political and economic gains. Sometimes the larger profitable companies do not want the business because of economic risk factors or in the private sector companies can determine who they want as customers or do not want. When there is a gap, a company will emerge to close the gap. When there is a concern is does the second-tier company begin to take business from the top tier company. In the world of digital finance, the distinction maybe less than previous years. For your companies that you invest in, who and who is not the target market?

There are more questions than answers, till the next time – to raising questions.


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