China outspends US, others in overseas belt and road projects
NEW DELHI: China outspends the US and other major powers by at least 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 public debt exposure to China in excess of 10% of GDP.
According to a study by AidData released today titled, "Banking on the Belt and Road: Insights from a New Global Dataset of 13,427 Chinese Development Projects," "35% of the BRI infrastructure project portfolio has encountered major implementation problems, such as corruption scandals, labor violations, environmental hazards, and public protests." BRI infrastructure projects, says the report, take much longer to be implemented, on an average of 1047 days. Incidentally, Chinese government-financed infrastructure projects outside the BRI fare much better.
The report says many host governments are "mothballing high-profile BRI projects because of corruption and overpricing concerns as well as major changes in public sentiment that make it difficult to maintain close relations with China." China prefers to use loan rather than aid, and in BRI, its loan-to-aid ratio is 31:1, staggering by any standards.
The study is important since it gives a granular detail about China's mammoth BRI program. It comes as the Quad signalled the start of an infrastructure partnership initiative, to build quality and transparently financed infrastructure in the Indo-Pacific countries. But how the four countries plan to go about it without sinking into the bureaucracy that characterises all these countries will be the test.
Richard Heydarian, Asia-based academic writing 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 global infrastructure spending will be required between now and 2040." This explains the world's hunger for Chinese money, as well as why countries are willing to overlook the deficiencies of the BRI, and China's "asks" if they can 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 first five years of BRI had many more "mega projects" — over $500 million. Over the years China has built in more repayment safeguards — in other words, most of its loans come with 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 at home and maximizing investment returns on surplus dollars and euros, China has rapidly scaled up the provision 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 minimize repayment and fiduciary risk and priced at relatively high interest rates (nearly 6%)."
In an interesting 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 private 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 (DRS).