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The international community is ablaze with questions as the economic situation deteriorates in Venezuela. Will the country default on its debts？ What will China—one of Venezuela’s top creditors—do in the face of this dilemma？
China has already consulted with Venezuela on its debt issues. While it’s natural for the former to be worried about the latter’s problems， reaching the conclusion that these issues will twist the relationship between the two countries is a stretch.
Venezuela is one of the world’s top oil producers. Its economy is heavily dependent on oil exports， as oil revenues make up 95 percent of its total export revenues. While the world was focusing on the impact of plunging oil prices on Russia amidst the Ukraine crisis， the blow to Venezuela seems to have affected it even more—Venezuela’s economy has fallen in tandem with oil prices.
Worse still， sharply shrinking oil revenues have made it almost impossible for the country to afford imports that are needed to maintain people’s living standards and methods of production. Venezuela is now suffering from the most severe inflation and economic recession in Latin America.
Against this backdrop， the international community has expressed doubts on Venezuela’s capacity to repay its debts. As a matter of fact， the country has not defaulted yet and is continuing to pay off its dues as usual. However， there is a possibility that its capital chain may break， amplifying the possibility of a default. Venezuela has stated more than once that it will not default， adding that it has large gold reserves as a backup. However， the fact that it is the 16th largest gold holder in the world is not enough to disperse the international community’s suspicion.
According to open announcements， Venezuela owes other countries a total of $123 billion， of which $65 billion is owed to China. Foreign debts amounting to $10 billion are due in 2016， of which $6 billion belongs to China.
China and Venezuela define their relationship as a comprehensive strategic partnership， covering cooperation in political affairs， economy and trade， science and technology， culture， finance， etc. Given the strong relationship between the two countries， we have reason to believe that the debt issue is just a temporary problem in the bilateral economic and trade relationship—one that is unable to affect their partnership in the long term.
To begin with， Venezuela’s debt issues are due to slumping oil prices—a global issue， not one unique to Venezuela. China offers Venezuela loans on the basis of oil procured from the country， so China does not need to worry about whether or not the latter will pay off its debts. In addition， China will not give up Venezuela over economic problems， and is able to lend its friend a hand at this critical juncture. With help from China， this crisis is likely to provide an opportunity for Venezuela to change its economic structure.
In recent years， China and Venezuela have seen a series of tangible cooperation outcomes in terms of energy， infrastructure， high technology， manufacturing and finance. In particular， programs involving housing， emergency power plants， construction materials， auto making， and cellphone production， have gradually seen development. The social and economic benefits brought about by these programs have favored people in both countries. If both nations were to expand their collaboration into more areas and on larger scales， it would be possible to change Venezuela’s energy-dependent economic structure.
Furthermore， the two countries have already started discussions on debt restructuring. If China restructures its loans to Venezuela， it will help release a cash equivalent of 650，000 barrels of oil every day， which would greatly reduce the pressures incurred by a cash shortage in Venezuela and help it increase vital market supplies. This scheme also conforms to China’s interests in the long run.
Finally， all walks of life in Venezuela hold friendly attitudes toward China， believing China’s investment and technology are essential to Venezuela’s development. No matter which political party in Venezuela comes to power， as the priority is to develop the economy and improve people’s living conditions， it will not shun a mutually beneficial relationship with China.
As far as China is concerned， it’s therefore more important to carry out cooperation with Venezuela in more areas and to help it recover and renew its economy， than to worry about it defaulting on its debts.
China has already consulted with Venezuela on its debt issues. While it’s natural for the former to be worried about the latter’s problems， reaching the conclusion that these issues will twist the relationship between the two countries is a stretch.
Venezuela is one of the world’s top oil producers. Its economy is heavily dependent on oil exports， as oil revenues make up 95 percent of its total export revenues. While the world was focusing on the impact of plunging oil prices on Russia amidst the Ukraine crisis， the blow to Venezuela seems to have affected it even more—Venezuela’s economy has fallen in tandem with oil prices.
Worse still， sharply shrinking oil revenues have made it almost impossible for the country to afford imports that are needed to maintain people’s living standards and methods of production. Venezuela is now suffering from the most severe inflation and economic recession in Latin America.
Against this backdrop， the international community has expressed doubts on Venezuela’s capacity to repay its debts. As a matter of fact， the country has not defaulted yet and is continuing to pay off its dues as usual. However， there is a possibility that its capital chain may break， amplifying the possibility of a default. Venezuela has stated more than once that it will not default， adding that it has large gold reserves as a backup. However， the fact that it is the 16th largest gold holder in the world is not enough to disperse the international community’s suspicion.
According to open announcements， Venezuela owes other countries a total of $123 billion， of which $65 billion is owed to China. Foreign debts amounting to $10 billion are due in 2016， of which $6 billion belongs to China.
China and Venezuela define their relationship as a comprehensive strategic partnership， covering cooperation in political affairs， economy and trade， science and technology， culture， finance， etc. Given the strong relationship between the two countries， we have reason to believe that the debt issue is just a temporary problem in the bilateral economic and trade relationship—one that is unable to affect their partnership in the long term.
To begin with， Venezuela’s debt issues are due to slumping oil prices—a global issue， not one unique to Venezuela. China offers Venezuela loans on the basis of oil procured from the country， so China does not need to worry about whether or not the latter will pay off its debts. In addition， China will not give up Venezuela over economic problems， and is able to lend its friend a hand at this critical juncture. With help from China， this crisis is likely to provide an opportunity for Venezuela to change its economic structure.
In recent years， China and Venezuela have seen a series of tangible cooperation outcomes in terms of energy， infrastructure， high technology， manufacturing and finance. In particular， programs involving housing， emergency power plants， construction materials， auto making， and cellphone production， have gradually seen development. The social and economic benefits brought about by these programs have favored people in both countries. If both nations were to expand their collaboration into more areas and on larger scales， it would be possible to change Venezuela’s energy-dependent economic structure.
Furthermore， the two countries have already started discussions on debt restructuring. If China restructures its loans to Venezuela， it will help release a cash equivalent of 650，000 barrels of oil every day， which would greatly reduce the pressures incurred by a cash shortage in Venezuela and help it increase vital market supplies. This scheme also conforms to China’s interests in the long run.
Finally， all walks of life in Venezuela hold friendly attitudes toward China， believing China’s investment and technology are essential to Venezuela’s development. No matter which political party in Venezuela comes to power， as the priority is to develop the economy and improve people’s living conditions， it will not shun a mutually beneficial relationship with China.
As far as China is concerned， it’s therefore more important to carry out cooperation with Venezuela in more areas and to help it recover and renew its economy， than to worry about it defaulting on its debts.