Thanks, that gave me some food for thought, as I did not analyse via this angle previously.

Promising to pay back a certain amount of currency in future always creates new demand for that currency as the borrower has to earn the currency (or print it, which is not the case for foreign borrowers).

Would you say the Plaza accord is a vindication of this theory? This certainly puts the accord in perspective.

That is a very difficult decision to make. If China lets the debtors default, then it will inevitably mean some domestic defaults on their banking institutions as well, which (as per some estimates) is way more leveraged than wall street. There already are reports of people queueing up at ATMs occasionally. I do not think they will be happy to receive a token of some rail route running in Indonesia or Africa in lieu of their deposit. So China has to loosen its monetary policy not to bailout the Indonesians, but to prevent its own people from revolting.

Even if Indonesia (as an example) defaults, they can, theoretically, say a subtle Fuck You to China and refuse to handover the rail tracks or whatever. I mean it's a physical asset (not a bank account held in Hong Kong). China is unlikely to launch a military invasion to claim it. And if Indonesia does it, then the US, European central bank etc. will be happy to parade it as a victory against Chinese oppression, ready to extend their own loan/grant or whatever, all it will take is a high level visit of some foreign ministers.

In fact, conspiracy theorists suggest China's overseas expansion of its Keynesian initiatives (borrow and build, irrespective of real demand) is a desperation when the CCP is only slowly realising the impacts of overbuilding domestically (and trying to cover it via stimulus, as usual). So to China, it is almost a necessity to find new suckers (read subprime borrowers previously rejected by even IMF).