China outspends US, others in overseas belt and road projects

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NEW DELHI: China outspends the US and other major powers by a minimum of 2:1 in its Belt and Road Initiative (BRI) international development finance projects, spending a whopping $85 billion annually. But Chinese debt trap is real: 42 countries now have levels of debt exposure to China in more than 10% of GDP According to a study by AidData released today titled, “Banking on the Belt and Road: Insights from a replacement Global Dataset of 13,427 Chinese Development Projects,” “35% of the BRI infrastructure project portfolio has encountered major implementation problems, like corruption scandals, labor violations, environmental hazards, and public protests.” BRI infrastructure projects, says the report, take for much longer to be implemented, on a mean of 1047 days. Incidentally, Chinese government-financed infrastructure projects outside the BRI fare far better .

The report says many host governments are “mothballing high-profile BRI projects due to corruption and overpricing concerns also as major changes publicly sentiment that make it difficult to take care of close relations with China.” China prefers to use loan instead of aid, and in BRI, its loan-to-aid ratio is 31:1, staggering by any standards The study is vital since it gives a granular detail about China’s mammoth BRI program. It comes because the Quad signalled the beginning of an infrastructure partnership initiative, to create quality and transparently financed infrastructure within the Indo-Pacific countries. But how the four countries decide to set about it without sinking into the bureaucracy that characterises of these countries are going to be the test.

Richard Heydarian, Asia-based academic scripting this week, reckoned “Infrastructure development is increasingly becoming the pivot of 21st-century geopolitics, with one authoritative study by Oxford Economics estimating that a staggering $94 trillion worth of worldwide infrastructure spending are going to be required between now and 2040.” This explains the world’s hunger for Chinese money, also as why countries are willing to overlook the deficiencies of the BRI, and China’s “asks” if they will access China’s infrastructure building capabilities.

For instance, the AidData study shows that Chinese projects outside the BRI have a greater chance of success than BRI itself.Second, the primary five years of BRI had more “mega projects” — over $500 million. Over the years China has inbuilt more repayment safeguards — in other words, most of its loans accompany heavy collateral put up by recipient countries The study says, “In the interest of securing energy and natural resources that it lacks in sufficient quantities reception and maximizing investment returns on surplus dollars and euros, China has rapidly scaled up the supply of foreign currency-denominated loans to resource-rich countries that suffer from high levels of corruption. These loans are collateralized against future commodity export receipts to attenuate repayment and fiduciary risk and priced at relatively high interest rates (nearly 6%).”

In a stimulating observation the study points out that while the pre-BRI loans by China went mainly to central governments, “nearly 70% is now directed to state-owned companies, state-owned banks, special purpose vehicles, joint ventures, and personal sector institutions.” Most low and medium income countries (LMICs) don’t reflect these in their balance sheets, and routinely underreport them to World Bank’s Debtor Reporting System