China hits by Belt and Road bad loan surge

Beijing’s global finance scheme is a millstone as $78bn has been renegotiated or written-off in the past three yearsChina’s $1tn Belt and Road Initiative infrastructure finance programme has been hit by spiralling bad loans, with more than $78bn-worth of borrowing turning sour over the past three years.

The scheme has made China the largest bilateral creditor in the world, but figures show that it is a financial burden for Beijing and the biggest banks.

According to the Rhodium Group, a New York-based research organization, about $78.5bn in loans made by Chinese institutions for roads, railways ports, airports, and other infrastructure were renegotiated between 2020 and March 31, 2019.

The Rhodium Group recorded $17 billion in renegotiations, write-offs and other costs between 2017 and 2019.

Brad Parks of William and Mary University in the US, the executive director of AidData, believes that the BRI loan total is “in the ballpark” of $1tn.

Beijing has also extended a record volume of “rescue loan” to avoid sovereign defaults among the 150 countries who have signed up for the BRI.The value of such sovereign bailouts amounted to $104bn between 2019 and the end of 2021, according to a study by researchers at AidData, the World Bank, Harvard Kennedy School and Kiel Institute for the World Economy. Over a longer timeframe between 2000 and the end of 2021, such bailouts to developing countries totalled $240bn, the study found.

A growing number of BRI-borrower countries are on the verge of bankruptcy due to a slowdown of global growth, increasing interest rates and record debt levels in developing nations. has blamed China, while western creditors of these countries have accused China of blocking debt restructuring talks.

“Frankly I think this is just the beginning. Parks stated that Chinese banks are interested in making sure their largest overseas borrowers have enough liquid assets to service their debts for infrastructure projects. Beijing will probably continue to lend emergency money as long as it’s biggest borrowers have financial problems.

In 2022, the pace of BRI renegotiations slowed down compared to the peak of the pandemic that occurred in 2020 and 2021. Experts said that this didn’t mean the quality of China’s loan book was better.

Matthew Mingey is a senior research analyst with Rhodium. While some of the major recipients of China’s lending have been able to maintain their IMF and bilateral bailouts like Pakistan, the cracks are growing in the BRI.

Analysts did not expect Beijing would end the programme, which was so closely linked to China’s image in the world as well as to the reputation of Xi Jinping. Nearly a century ago, Xi called the BRI “the project of the century”.

Francesca Ghiretti is an analyst at Merics in Berlin. She said, “Many countries continue to welcome Chinese investments under the BRI framework and I don’t see this changing.”

Xuegong, a Carnegie China fellow, predicted that China will use the Belt and Road Forum for International Cooperation (which Beijing is expected hold later this year) to celebrate a decade’s worth of BRI accomplishments and map future plans for cooperation.

She added that Beijing’s focus on developing its own technologies and the strain on funding in China may lead to fewer resources being allocated for the initiative. Gong stated that large-scale cash payments to state companies for the BRI were off the table.

China’s diplomatic and political outreach to the developing world is increasing, which could potentially erode the BRI’s importance over time.

Since 2021, Xi launched three strategic initiatives aimed to remould the architecture of global government and dilute the influence of western-led institutions which have dominated world affairs since after the Second World War.

Beijing is seeking international support for the Global Development Initiative (GDIS) and the Global Security Initiative. However, the countries that sign up to be “friends” with China’s vision of the future are also almost always Chinese creditors.

Alice Ekman a senior analyst at the European Union Institute for Security Studies said that Cambodia, Mongolia Cuba, Uruguay, Nicaragua, and Belarus all showed their support for GSI in recent meetings. All of these countries are prominent BRI members.

According to China’s Ministry of Foreign Affairs, the Group of Friends of the GDI now includes nearly 70 countries.

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