China Hesitates On Bailing Out "Sinking Ships" Sri Lanka, Pakistan

China has become the world's largest government creditor over the past decade, with its state-owned policy banks lending more to developing countries than the International Monetary Fund or the World Bank in some recent years.

Over the past few years, the U.S. has accused China of using "debt diplomacy" to make developing nations across the world more dependent on Beijing.

Yet the cases of Sri Lanka and Pakistan -- both friends of China facing dire financial situations as inflation soars -- show that President Xi Jinping's government is becoming more reluctant to pull out the checkbook. China still hasn't made good on a pledge to re-issue loans totaling $4 billion that Pakistan repaid in late March, and it hasn't responded to Sri Lanka's pleas for $2.5 billion in credit support.

While China has pledged to help both countries, the more cautious approach reflects both a refining of Xi's signature Belt and Road Initiative as well as a hesitancy to be seen interfering in messy domestic political situations. Pakistan got a new prime minister on Monday after parliament booted out former cricket star Imran Khan, and Sri Lanka's leader is facing pressure from protesters to step down.

"Beijing has for the past couple of years been rethinking its external lending because their banks realized they were carrying a lot of debt with countries whose prospects of paying back were quite limited," said Raffaello Pantucci, a senior fellow at the S. Rajaratnam School of International Studies at Nanyang Technological University. "This came on top of a tightening economic situation at home which also required a lot of spending, so there was less appetite to just throw money around wantonly."