7-11-2023 (BEIJING) China’s Belt and Road project has positioned the country as the world’s biggest debt collector, with over a trillion United States dollars owed to Beijing, according to a recent report. Approximately 80% of these loans are supporting countries facing financial distress.
The Belt and Road Initiative (BRI), launched by President Xi Jinping a decade ago, has garnered participation from more than 150 countries, spanning from Uruguay to Sri Lanka. Over the past ten years, China has extended substantial loans to finance the construction of bridges, ports, and highways in low and middle-income nations.
However, a report published by AidData, a research institute at Virginia’s College of William and Mary, reveals that a significant portion of these loans has now entered the principal repayment phase. By the end of the decade, it is estimated that 75% of the loans will be in this repayment period.
AidData analyzed data on Chinese financing for nearly 21,000 projects across 165 countries and found that China commits aid and credit of approximately $80 billion per year to low and middle-income nations. In contrast, the United States provides $60 billion annually to similar countries.
“The world’s largest official debt collector” is the role that Beijing is currently navigating, states the report. AidData indicates that the outstanding debt, excluding interest, owed by developing countries to China amounts to at least $1.1 trillion. Furthermore, approximately 80% of China’s overseas lending portfolio in the developing world is directed towards financially distressed countries, according to AidData’s estimates.
Supporters of the BRI commend its contributions in terms of resources and economic growth to the Global South. However, critics have long raised concerns about opaque pricing in projects undertaken by Chinese companies. Countries such as Malaysia and Myanmar have renegotiated deals to mitigate costs.
AidData’s report highlights that China’s approval rating among developing countries has declined from 56% in 2019 to 40% in 2021, resulting in reputational damage. Nevertheless, the study acknowledges that Beijing is learning from past mistakes and adopting effective crisis management strategies.
To mitigate risks associated with the BRI, China aims to align its lending practices with international standards. However, the report notes that China has also implemented increasingly stringent safeguards to protect itself from the risk of non-repayment. These measures include allowing key BRI lenders to unilaterally access borrowers’ foreign currency reserves held in escrow to collect principal and interest due.
According to AidData, these cash seizures are often carried out discreetly, beyond the immediate reach of domestic oversight institutions, particularly in low- and middle-income countries. The ability to access cash collateral without borrower consent has become a crucial safeguard within China’s bilateral lending portfolio.
During a recent summit in Beijing commemorating the tenth anniversary of the BRI, President Xi pledged to inject over $100 billion of new funds into the initiative. However, a joint report by the World Bank and other institutions, including AidData, revealed that China has been compelled to provide billions of dollars in bailout loans to BRI countries in recent years.
The massive carbon footprint and environmental degradation resulting from extensive infrastructure projects under the BRI have also attracted scrutiny and criticism.
