China owes more than $1 trillion under its Belt and Road Initiative, making it the world’s largest debt collector, according to a report this week. An estimated 80 percent of the loans support countries in financial distress.

Beijing says more than 150 countries worldwide, from Uruguay to Sri Lanka, have joined the Belt and Road Initiative (BRI), a massive global infrastructure initiative launched by President Xi Jinping in 2013.

In the project’s first decade, China issued huge loans to finance the construction of bridges, ports and highways in many countries in the so-called Global South, Eastern Europe and the Balkans.

Today, an analysis of nearly 21,000 projects in 165 countries shows that Beijing has pledged “around $80 billion a year” in aid and loans to low- and middle-income countries.

More than half of these loans have now reached their principal repayment deadline, according to the Belt and Road Reboot report released Nov. 6 by AidData, a U.S.-based research firm that tracks development finance.

But according to Bradley Parks, executive director of AidData and responsible for the report: “China will not stand by and watch its flagship global infrastructure initiative crash and burn.”

Chinese authorities have already made “extensive efforts to reduce the Belt and Road risk,” he told RFI.

Beijing is on a rescue mission. It scans its global project portfolio and combats crises.

NOTE from Bradley Parks, Managing Director of AidData

Jan van der Made

According to Parks, Beijing is in the process of “future-proofing” the BRI “by introducing a series of loan repayment guarantees and project implementation guardrails.”

Problem projects

China has granted around 5,000 loans worth nearly $1.3 trillion to developing countries, most of them for large infrastructure projects such as railways, airports or mines.

AidData’s report found that 80 percent of China’s foreign loan portfolio currently supports borrowers in financial distress.

China had already started participating in projects abroad in 2000, more than a decade before the BRI was officially launched.

But, Parks says, at the turn of the century there were only 17 “problem projects” worth around $450 million. Today the problem is hundreds of times larger, with nearly 1,700 such projects worth more than $450 billion in 125 countries.

“These headaches are really widespread,” Parks says.

Overview of China’s Belt and Road Initiative. © Reuters

When China launched the BRI in 2013, it did so “to win friends and gain influence by giving out a lot of cheap loans for these big infrastructure projects,” Parks says.

The strategy initially worked. About 140 countries jumped on the BRI bandwagon, but within a few years things began to falter.

“Beijing saw its public approval in developing countries decline from 56 percent to 40 percent,” Parks said.

“Projects that were supposed to be reputational assets became liabilities,” he says.

Things got even worse when payment deadlines for Chinese loans expired. Many countries were unable to service their debts, and Beijing responded with heavy-handed tactics, trying to use its influence as the world’s largest official debt collector to push itself to the front of the repayment line.

“The thing about debt collectors is that they just don’t win a lot of popularity contests,” Parks says.

Alternatives to “debt trap diplomacy”

However, Parks and AidData found no evidence that Beijing was engaging in systematic “debt trap diplomacy.” According to this hotly contested theory, China intentionally made unsustainable loans in order to obtain collateral in the form of raw materials or infrastructure assets.

Although this may have happened in some isolated cases, “China is much smarter,” Parks says.

According to the AidData report, Beijing is currently trying to reduce the risk of the BRI by “imposing increasingly stringent safeguards to guard against the risk of non-repayment.”

This includes allowing major BRI lenders to afford themselves the principal and interest payments due by “unilaterally canceling” borrowers’ escrow foreign exchange reserves.

“These cash seizures are mostly conducted in secret and beyond the immediate reach of domestic regulators… in low- and middle-income countries,” it said.

Chinese President Xi Jinping waves after delivering his opening speech at the Belt and Road Forum at the Great Hall of the People in Beijing on October 18, 2023. © AP / Ng Han Guan

Parks estimates that around 50 percent of China’s non-emergency loan portfolio in developing countries is now provided through cooperation agreements with a group of banks called a syndicate.

And 80 percent of China’s syndicated loans to developing countries are directed at Western commercial banks, including French banks and multilateral institutions – a pivot that Parks says “has remained undetected until now.”

However, this means Beijing is moving the BRI “away from a purely bilateral course” while seeking to spread repayment and reputational risk across a wider group of lenders inside and outside China.

“Think of this strategy as a shortcut to risk reduction,” Parks says.

Many belts, several streets?

The BRI sparked an uproar in Western countries, which were suddenly faced with the nightmare scenario that the world’s roads, telecommunications infrastructure and transport networks could be dominated by China.

Against the backdrop of deteriorating relations with Beijing, the West launched a series of massive counter-initiatives together with Beijing’s arch-enemy India.

These include Japan’s Free and Open Indo-Pacific Initiative; the Asia-Africa Growth Corridor, a joint project between India and Japan; Washington’s Build Back Better World Partnership; the EU global gateway; the G7 Partnership for Global Infrastructure and Investment initiative; and the India-Middle East-Europe Economic Corridor.

But Parks believes those projects can’t really compete with the Belt and Road.

“There’s a lot of talk,” he says. “There’s not much to do. And I think what we see in our analysis in this new report is that Beijing is really one step ahead of its competitors.”

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