Staff prepare reinforcing steel for the One Galle Face project developed by China Harbor Engineering, a unit of China Communications Construction, in Colombo, Sri Lanka, March 31, 2018.
Bloomberg | Getty Images
At its height, China’s Belt and Road Initiative was seen as central to Beijing’s commitment to the world.
Now, a decade after its introduction, observers say the ambitious strategy of constructing infrastructural trade links across Eurasia and beyond is losing momentum, with some questioning the continued viability of the Beijing mega-project.
“Beijing went right into a lending frenzy and issued 1000’s of loans price almost a trillion [dollars] for giant infrastructure projects spread over 150 countries” in a decade, said Bradley Parks, executive director of AidData, a research group at the College of William and Mary in Virginia.
“At the moment, many borrowers are having difficulty repaying infrastructure project debts owed to Beijing,” says Parks. “In 2010, only 5% of China’s foreign loan portfolio supported borrowers in financial difficulties. Today that number is 60%he told CNBC.
Chinese President Xi Jinping announced in 2013 his original idea for foreign policy – which he once called ” “project of the century”.
Xue Gong, a non-resident scientist in Carnegie Chinain March noted that the momentum of the project “appears to be slowing down resulting from debt sustainability repercussions, the impact of the coronavirus pandemic and China’s economic slowdown.”
Since its inception, the total value of Chinese Belt and Road projects has been $962 billion – including $573 billion for construction contracts and $389 billion for non-financial investments, in accordance with the report by Fudan University in Shanghai.
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“Beijing faces a significant loan repayment challenge and is responding with a strategic turn,” Parks said. “Cuts loans for infrastructure projects and increases emergency loans.”
The Chinese embassy in Singapore told CNBC that “it’s true that developing countries’ debt risk has increased significantly recently, but there are numerous external aspects.”
“We never force others to borrow from us. We never attach any political commitments to loan agreements or pursue selfish political interests,” spokesman Meng Shuai said. “We’ve got at all times done the whole lot in our power to assist developing countries reduce their debt.”
5% interest
Parks of William and Mary was one of the authors published report in March by scientists from AidData, the World Bank, Harvard Kennedy School and the Kiel Institute of World Economy.
In keeping with the report, China provided 128 emergency loans price $240 billion to 22 countries, including Pakistan, Sri Lanka and Turkey, amongst others. In keeping with the report, almost 80% of loans were granted between 2016 and 2021.
But China’s emergency bailout will not be low cost, a study finds.
“A typical emergency loan from Chinese banks requires an rate of interest of 5 percent,” the report said. These rates are “significantly higher than the IMF’s average rate of interest, which has been around 2 percent for non-concession lending operations over the last 10 years.”
The report raises questions on the “long-term sustainability” of the entire Chinese initiative, Parks said. “I believe it’s just an indication of what’s to return.”
“Attempting to Save the Belt and Road”
Chinese efforts to redevelop the Belt and Road have been underway since 2020, in accordance with one observer.
“Previous expansion strategy didn’t work well,” said Weifeng Zhong, a senior research fellow at the Mercatus Center at George Mason University in Virginia, who says Xi is “trying to save lots of the Belt and Road with a post-2020 overhaul.”
Zhong said he conducted an evaluation late last 12 months of how People’s Each day, the state-controlled newspaper of the ruling Communist Party of China, had covered the initiative over the past decade.
During the Belt and Road Forum, at the International Conference Center in Yanqi Lake, north of Beijing, on May 15, 2017, where, amongst others, leaders of China, Russia, Turkey and Indonesia.
Ng Han Guan | AFP | Getty Images
“When the newspaper covered the initiative, it emphasized the ambitious economic prospects for infrastructure projects and goal countries,” he said.
In keeping with Zhong, since 2020, the focus has shifted to the importance of the so-called “high-quality development”.
“A nod to concerns that many Belt and Road projects weren’t economically viable in the starting. The initiative was, to say the least, not profitable.
On the hook to China
The slowdown in the global economy, rising rates of interest and high inflation have made it difficult for a lot of countries to repay their debts to China.
In South Asia, debt to China has increased from $4.7 billion in 2011 to $36.3 billion in 2020, and Beijing is now the largest bilateral creditor to the Maldives, Pakistan and Sri Lanka. World Bank report on international debt statistics for 2022.
Sri Lanka defaulted on its debt first time last 12 months. in 2017 the country transferred the rights to the strategic port to China in a high-profile case that has caused alarm over Beijing’s lending practices.
“The increased debt in many Belt and Road countries is a direct consequence of Beijing’s overshoot in the pre-2020 phase.” Zhong said.
“China not only tried to lend to many infrastructure projects that might not find other lenders, but in addition sought business terms, or no less than not so preferential ones, making repayment even less likely,” he added.
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For countries struggling financially and “not willing to face economic adjustment immediately, China is a straightforward first option,” said Gabriel Sterne, head of emerging markets macroeconomics at Oxford Economics.
“China could also be willing to lend at times. I do not think that is going to alter any time soon,” he said.
But a former IMF economist added that “the ongoing wave of the debt crisis will teach China a lesson.”
“That debt sustainability ought to be part of lending criteria, and that there are large economic and political costs of refraining from debt forgiveness on par with other creditors,” Sterne said, adding that Beijing must have placed “more emphasis on subsidies, and not loans to countries with a high debt burden.
The Chinese embassy in Singapore told CNBC that “China attaches importance to debt sustainability” and issued guidelines for coping with the issue in cooperation with developing countries “to enhance their debt management capability.”
The “debt trap” debate.
Chinese loans have long faced criticism from Western countries, with some describing the project as “diplomacy in a debt trap.
The debt trap argument is that Beijing strategically ensnares borrowers with loans they can not repay in order to exert political influence on them later.
Parks said if China desires to “put an end to the narrative that it’s engaging in predation and trapping,” it must be transparent about its foreign lending practices.
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Beijing “aroused suspicion and fueled speculation about its actions and motivations by refusing to reveal comprehensive and detailed details about the individual projects it funds,” he added.
“To this point, none of the partner countries have accepted the claim” that the initiative “created “debt traps,” the Chinese embassy in Singapore said.
The embassy stressed that China had at all times conducted its financial practices with “openness and transparency”, noting that almost all projects were concluded on a business basis and the Chinese government was not interested.
To this point, Xi’s tighter-than-ever grip on power will not be encouraging, whether by initiative or otherwise.
Weifeng Zhong
George Mason University in Virginia
“Whether project details or credit agreements might be released to the public will not be a matter for the Chinese government,” the spokesman said.
Nonetheless, analysts generally agree that despite all the lending problems, China is not going to surrender on the megaproject since it is closely linked to Xi’s legacy.
The Chinese leader who visited Russia last month reportedly invited President Vladimir Putin Tto go to China for the third Belt and Road Forum this 12 months, which is geared toward the injection a latest momentum in the mass enterprise.
In March, Xi formally won an unprecedented third term as president for five more years, further cementing his power.
“Now that the change of government is over, it stays to be seen whether there can be a practical faction led by latest prime minister Li Qiang,” said George Mason’s Zhong.
“In that case, will it significantly contribute to improving the quality of Belt and Road loans,” he added. “To this point, Xi’s tighter than ever grip on power will not be encouraging – by initiative or otherwise.”