Hidden Debt Plagues China’s Belt and Road Infrastructure Plan, Studies Find

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Research on Chinese projects abroad points to other major problems such as corruption, labor violations and environmental risks

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In its deep dive into Belt and Road projects, EdData, a research center at the College of William and Mary in Williamsburg, Va., counted 42 low- and middle-income countries that now have credit exposure to China at 10% of their annual More than. Gross Domestic Product.

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It identifies $385 billion in Chinese loans, which is not included in the nations’ official borrowings – or nearly half of China’s foreign debt to build roads, railways and power plants. This hidden debt has become more common as lenders fund the activity through special-purpose corporations rather than host governments.

The report also estimated that 35% of China’s overseas infrastructure projects have faced major problems such as corruption scandals, labor violations, environmental hazards and public pushback. EdData links about 400 projects worth $8.3 billion to the Chinese military.

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The report published on Tuesday mainly disclosed details of $843 billion in Chinese loans for 13,427 projects between 2000 and 2017. It is one of several Western analyzes to detail the challenges associated with Beijing’s international debt, much of it officially initiated under the Belt and Road plan. 2013.

These reports follow indications that Beijing has already begun to rein in officials’ pitch for a modern Silk Road trading system. Concerns about the debt burden have risen in debt-seeking countries, while Western countries, led by the US, have criticized some of Beijing’s lending practices as exploitative.

Eddata said its findings show that Beijing has pursued three consecutive goals before and under the Belt and Road plan: to convert huge amounts of dollars earned by the country’s exporters into foreign debt; Engage your largely domestic construction and industrial sectors by pursuing construction projects overseas; and securing commodities such as oil and grain to address domestic shortages.

“The developing world is helping China fix its problems,” said Brad Parks, EdData’s executive director.

In response to questions detailed for this article, China’s foreign ministry described the Belt and Road as “the largest international cooperation forum in the world today” that will support economic growth and prosperity. “China attaches great importance to the issue of debt stability of the countries that jointly build the Belt and Road,” it said.

Speaking to the United Nations on September 21, US President Biden called for transparent and sustainable investment in developing countries. He appeared to take a dig at China, warning that “infrastructure that is of low quality or that promotes corruption or exacerbates environmental degradation can only contribute to greater challenges for countries over time.”

Plan-linked Chinese loans have been shunned by expansion at all costs in recent years. Mr. Xi signaled a re-evaluation of the program in April 2019 when he told the heads of state of some of the biggest recipients of Belt and Road financing that China would emphasize financial stability and transparency in its Belt and Road portfolio.

In his UN address this month, Xi addressed an ongoing international concern, saying China would stop building coal-fired power plants abroad, and vowed to help other countries diversify their energy sources. Will promise The president also proposed a global development initiative that would facilitate debt suspension and development assistance for vulnerable countries facing extraordinary difficulties.

Chinese lenders have agreed to suspend payments on loans owed by 19 African countries since the advent of COVID-19, Wu Peng, a top Chinese foreign ministry official for Africa, told China Africa Project non-profit media this month. Told the organization.

However, China has appeared reluctant to write off its loans to foreign countries, which EdData says are on average four times higher than the interest rates offered by other bilateral lenders and have maturities of a third.

About 49% of Chinese loans have been earmarked for Africa during the period covered by EdData. According to a study this year by researchers at Johns Hopkins University and Boston University, outlays to that sector fell nearly 30% in 2019 to $7 billion from $9.9 billion the previous year.

Ved Vaidyanathan, visiting fellow at the New Delhi-based Institute of Chinese Studies, who has traveled extensively in Africa to study China’s activities, said lending is likely to rise again. “BRI’s success in Africa is very important to BRI as a whole,” she said.

For many projects in poor countries, China remains a scarce source of funding. Ms Vaidyanathan recalled her trip to a remote part of Ethiopia where her team’s China-made bus was struggling to climb a China-made road. She says her host said, “There’s at least one road and one bus.”

China does not officially define or quantify Belt and Road projects, but outside researchers agree that its foreign loan program is much larger. According to EdData, it was $85 billion annually during the period of focus—more than double the commitments made by the US or other major powers.

To counter China’s large footprint in developing countries, Mr Biden and another group of seven major democracies committed in June to an infrastructure-building initiative aimed at poorer countries, which they called Build Back a Better World, or Said b3w.

According to the Washington think tank Center for Strategic and International Studies, it is conceivable that the US and the other countries behind B3W could unlock more than $200 billion in private funding over five years, while the G-7 official development assistance in about $113 billion for infrastructure between 2015 and 2019.

EdData’s findings said that prior to the Covid-19 crisis, Chinese lenders began building safeguards into many loans to mitigate risks between multiple banks and link more of them to commodity-supply agreements. Mr Parks said it is ultimately unclear who has the most exposure to Chinese borrowing, the borrowing countries, or China, as its state-run companies rely on money.

Mr. Xi’s program has faced some local backlash, including requests for debt relief from the small Balkan nation of Montenegro, where a Chinese highway is being built, and in Zambia, where a change in government drew attention to its risks. has done. A report published Tuesday by Johns Hopkins researchers calculated $6.6 billion in Zambian debt outstanding from at least 18 Chinese creditors, nearly double the government’s reported figure. In a statement, the government of Zambia said it has been transparent in its accounting and is pursuing debt stability.

write to James T. Areddy at [email protected]


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