Hidden debt plagues China’s belt and highway infrastructure plan, studies find

In its in-depth review of the Belt and Road projects, AidData, a research center at the College of William and Mary in Williamsburg, Virginia, identified 42 low- and middle-income countries that now have greater than 10% of their annual income. gross domestic product.

It identifies $ 385 billion in Chinese loans as not included in the countries’ official borrowing, nearly half of Chinese loans abroad for the construction of roads, railways and power plants. This hidden debt has become more common because lenders finance the activity through specialist companies rather than host governments.

The report also estimates that 35% of China’s overseas infrastructure projects have faced major issues such as corruption scandals, labor law violations, environmental risks and public setback. AidData links nearly 400 projects valued at $ 8.3 billion to the Chinese military.

The report released on Tuesday unveils details of $ 843 billion in Chinese loans for 13,427 projects mainly between 2000 and 2017. It is one of many Western analyzes to detail the challenges associated with Beijing’s international lending, largely in as part of the Belt and Road plan which officially started in 2013.

The reports follow signals that Beijing has already started to curb what authorities tout as a modern Silk Road trading system. Concern is growing among borrowing countries about the debt burden, while Western countries led by the United States have criticized some of Beijing’s lending practices as exploitative.

AidData said its findings show that Beijing has always pursued three goals before and under the Belt and Road plan: to turn the huge amount of dollars earned by the country’s exporters into foreign loans; keep its huge domestic construction and industry sectors busy by pursuing construction projects abroad; and securing raw materials such as oil and grains to fill domestic deficits.

“The developing world is helping solve China’s problems,” said AidData executive director Brad Parks.

In response to detailed questions for this article, China’s Foreign Ministry described the Belt and Road as the “world’s greatest platform for international cooperation today” that will support economic growth and prosperity. He said, “China attaches great importance to the issue of debt sustainability of countries that jointly build the Belt and Road.

Addressing the United Nations on September 21, US President Biden called for transparent and sustainable investments in developing countries. He appeared to lash out at China, warning “infrastructure that is poor or that fuels corruption or worsens environmental degradation can only contribute to greater challenges for countries over time.”

The Chinese loans associated with the plan have seemed to move away from expansion at all costs in recent years. Xi had signaled a recalibration of the program in April 2019 when he told heads of state of some of the biggest recipients of Belt and Road funding that China would focus on financial stability and transparency in its “Belt and Road” portfolio.

Xi addressed a lingering international concern in his speech to the UN this month, saying China will stop building coal-fired power plants abroad and pledge to help other countries diversify their markets. sources of energy. The president also proposed a global development initiative that would include debt suspension and development assistance for vulnerable countries facing exceptional hardship.

Chinese lenders have agreed to suspend payments on debt owed by 19 African countries since the advent of Covid-19, Wu Peng, a senior Chinese foreign ministry official for Africa, said this month at the non-profit media organization China Africa Project.

However, China has appeared reluctant to write off its loans to foreign countries, which AidData says carry on average interest rates four times higher than those offered by other bilateral lenders and maturity periods a third longer.

About 49% of Chinese loans during the period covered by AidData went to Africa. Spending in that region fell nearly 30% in 2019, to $ 7 billion from $ 9.9 billion the year before, according to a study this year by researchers at Johns Hopkins University and the ‘Boston University.

Veda Vaidyanathan, a visiting scholar at the New Delhi-based Institute of Chinese Studies who has traveled extensively to Africa to study China’s activities, said loans are expected to rise again. “The success of the BRI in Africa is very crucial for the BRI as a whole,” she said.

For many projects in poor countries, China remains a scarce source of funding. Ms Vaidyanathan recalled a visit she made to a remote part of Ethiopia where her team’s Chinese-made bus struggled to climb a China-built road. She says her host said, “At least there’s a road and a bus.”

China does not formally define or quantify Belt and Road projects, but outside researchers agree that its overseas lending program remains large. According to AidData, it stood at some $ 85 billion a year during its period of concentration, more than double the commitments made by the United States or other great powers.

To counter China’s strong footprint in developing countries, Biden and the other major democracies in the Group of Seven embarked on an infrastructure-building initiative targeting poor countries in June that they called Build Back. Better World, or B3W.

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

AidData results indicate that before the Covid-19 crisis, Chinese lenders had started putting in place guarantees in many loans by syndicating them between several banks to reduce risk and by tying more of them to raw material supply agreements. Mr Parks said it is ultimately unclear who is most exposed to Chinese loans, borrowing countries or China, because his government companies are so dependent on money.

Xi’s agenda has faced local backlash, including demands for debt relief from the tiny Balkan nation, Montenegro, where a Chinese highway is being built, and Zambia, where a shift. government has drawn attention to its risks. A report released Tuesday by researchers at Johns Hopkins found $ 6.6 billion in Zambian debt outstanding with at least 18 Chinese creditors, about double the figure announced by the government. In a statement, the Zambian government said it has been transparent in its accounts and is seeking debt sustainability.

Write to James T. Areddy at james.areddy@wsj.com