Johnny Olszewski Asks Witness: ‘How Has Chinese Lending Contributed To The Current Debt Crisis?'

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During a House Foreign Affairs Committee hearing prior to the Congressional recess, Rep. Johnny Olszewski (D-MD) questioned Matthew P. Goodman, the Director of the Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations, about the national debt crisis.

Transcript

00:00Mr. Olszewski for your five minutes of questioning.

00:04Thank you, Chair Kim.

00:06To our ranking member, Bera, for holding this hearing.

00:09It's actually a good follow-up to an outstanding roundtable discussion

00:12we had just last week with some of our Pacific Island ambassadors

00:16discussing partnerships and strengthening those in the region.

00:21My takeaway was the overwhelming consensus was that that region wants the U.S. to show up.

00:26They want us to be there, even as they see what I think is a global retreat.

00:32And again, they were concerned about the on-again, off-again tariffs from the administration.

00:36In some ways, it reinforced the point made by my colleague, Representative Castro,

00:40about the world is still moving.

00:42So I appreciate all of your testimony today on that front.

00:46That roundtable specifically touched on two issues I hope to focus on with my time.

00:50One is the mounting debt crisis being driven partly by Chinese lending practices,

00:56as well as strengthening economic growth through a pact modeled on something like AGOA,

01:00the African Growth and Opportunity Act.

01:02We know that China's extensive lending policies on Pacific Islands has resulted in unsustainable debt burdens.

01:08Tonga, for example, relies heavily on international loans

01:12and is currently saddled with more than $100 million in debt to China.

01:16That's about 20 percent of its GDP.

01:18Not a one-off story.

01:20Over the past 20 years, China's become one of the largest lenders in the region,

01:23and often governments then face an impossible choice.

01:26Do we cut spending on critical services,

01:29or do we default on our loans and risk access to future financing?

01:33So we know that this is possible.

01:36We need to show up and support our businesses, to the Chair's point.

01:40Actually, there's a great company in my home state of Maryland doing great work.

01:43It is a company called Inventwood.

01:46It's a supplier of climate-resilient building materials in Frederick, Maryland.

01:50It's signed a landmark partnership with Tonga to advance climate-resilient construction across the Pacific.

01:57So we want to be incentivizing more partnerships like that for a model for sustainable development.

02:02We'll start on the debt crisis, and we'll start with you, Mr. Goodman,

02:05and if others want to jump in.

02:06From your perspective, how has Chinese lending contributed to the current debt crisis

02:10in the Pacific Island countries,

02:12and what are the key risks for U.S. interests resulting from that?

02:15Yeah, it's a huge problem globally, and the Pacific Islands are very vulnerable to this model of Chinese lending

02:22that's non-transparent and has hidden conditions attached to it.

02:26This is something that there's been great work done on this by a group in Williamsburg.

02:35Sorry, AidData, thank you.

02:38AidData and also the Center for Global Development here in Washington

02:42have done some great work on trying to expose the contracts

02:46and the terms on which China is making these lending.

02:49I think that's one thing that would, more transparency would be helpful.

02:53I think we also need to find a way through diplomacy

02:55to try to pull China into some of the international arrangements like the Paris Club,

03:00even if we have to rename it because China doesn't want a club

03:02that was set up without them in it originally, but we need to get them at the table

03:06to help with some of the resolution of these debts.

03:09And it is an absolutely critical issue.

03:12But the final thing is, the U.S. has to also offer some alternative.

03:15And I haven't said the word DFC myself, but just since others have mentioned it,

03:19I should have said it's really important that we reauthorize the DFC,

03:22give it more muscle power, let it fix this scoring, equity scoring problem,

03:27and make it a more capable organization, because at the end of the day,

03:32that's what the Pacific Islanders want.

03:33They want us to have a better offer.

03:35Yeah, and I think we all agree on the reauthorization.

03:37Any other points on that one?

03:40I have a second question, a trade question on the AGOA-like trade pact

03:45that could signal, I think, a new commitment to the region and its growth.

03:50What would, and this can go, we can start with Ms. Cutler,

03:53and again, we'll open it up if there's time.

03:54What would the economic benefits be for the Pacific Islands and U.S. businesses

03:58from a trade agreement modeled on AGOA?

04:01And what sectors hold the most promise for expanding trade?

04:04And how can we better incentivize more public-private partnerships

04:07like we mentioned with Inventwood back in Maryland?

04:11Well, I think you raised an excellent suggestion,

04:14some kind of AGOA program for the Pacific Islands,

04:18because countries like this, as Matt said, then you said,

04:21they very much want us to show up.

04:23They want to work with us, but they need some benefits, right?

04:26And so even though these programs provide unilateral benefits,

04:31they also very much provide an opportunity

04:35for continued connectivity and cooperation

04:39between the United States and these countries.

04:42So I think that's a model that's worth looking at.

04:46I have 20 seconds if any other witnesses wanted to chime in.

04:49Yeah, I was going to say, I think that your comments

04:51raised some awareness around making sure you understand

04:53what the partners need, what are they looking for?

04:55So listening to what is going to be resonant for them.

04:59And also this idea of building capacity,

05:03being able to have that transparency around these debt agreements,

05:06these are all things that are going to reinforce good governance

05:08and I think are going to play to our strengths.

05:09The key really is the commercial viability,

05:12particularly with the Pacific Island nations.

05:14And some of them struggle with that.

05:17Thank you all.

05:17I'm Sherry Yuleback.

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