As the Belt and Road Initiative (BRI) celebrates its 10th anniversary, China is confronting a myriad of challenges and criticisms while undertaking significant policy adjustments to sustain its ambitious infrastructure projects across the developing world.
According to The Wall Street Journal, nearly 60% of China's overseas loans in 2022 were held by countries in financial distress, a sharp increase from 5% in 2010. This surge comes after China has invested nearly a trillion dollars and established over 3,000 cooperation projects. The global economic slowdown, rising interest rates, and higher inflation—exacerbated by the pandemic—have strained developing nations, making debt servicing increasingly difficult. Consequently, China's nonperforming BRI loans have ballooned to tens of billions of dollars, with several projects stalling.
Western officials and media have accused China of engaging in "debt-trap diplomacy," suggesting that lending practices are designed to seize assets from indebted countries. However, Western analysts, including those from the Rhodium Group, have debunked these claims. Their 2019 review of 40 cases found that asset seizures were rare, and despite China's significant economic influence, its leverage in negotiations remains limited.
Nonetheless, China's lending has undeniably contributed to debt crises in countries like Sri Lanka and Zambia. Between 2017 and 2021, China provided Pakistan with around $23 billion in fresh loans to prevent the country's credit rating from plummeting and to manage rising debt-servicing costs. In 2020, China joined the Common Framework, an international debt-relief effort endorsed by the G20, to coordinate debt negotiations among creditors. A 2022 analysis by the Centre for Economic Policy Research highlighted China's pivotal role in international sovereign debt renegotiations, surpassing both private creditors and traditional entities like the Paris Club.
Southeast Asia remains the epicenter of China's BRI ambitions, with major projects such as the 1,035km high-speed railway in Laos, the newly opened 142km Jakarta-Bandung high-speed railway in Indonesia, and the 665km East Coast Rail Link in Malaysia currently under construction. However, the South China Morning Post reports that China's expansive plans in Southeast Asia have encountered a "10-year speed bump." While these projects have spurred economic growth, concerns linger over increasing debt risks and potential political repercussions. Foreign investors face challenges related to land ownership, labor rights, corruption, and environmental impact, further complicated by ethnic tensions.
In response to these hurdles, China is innovating its financing approaches through institutions like the Asian Infrastructure Investment Bank and the Silk Road Fund. These entities uphold world-class financial standards, emphasizing rigorous due diligence and bespoke financing structures tailored to each project's anticipated cash flows.
Chinese officials are committed to refining the BRI by tightening project selection, enhancing productivity, adjusting financial frameworks to adopt more conservative strategies, and mitigating diverse risks to ensure project viability. President Xi Jinping's vision for the BRI, heralded as "a project of the century," remains unwavering and is now enshrined in the Party Constitution.
China's mid-course corrections focus on comprehensive risk management, addressing political uncertainties, escalating security threats, and local issues such as cultural differences and indigenous industrialization. BRI officials are mandated to conduct thorough risk assessments before initiating projects, establishing robust monitoring and control systems to facilitate early detection and prevention of potential issues.
As the Belt and Road Initiative moves forward, China's ability to adapt and implement these corrections will be crucial in determining the initiative's long-term success and its impact on global development.
Reference(s):
The Belt and Road at 10: Challenges, criticisms, corrections
cgtn.com
