In the third Belt and Road Initiative (BRI) forum opening speech on October 18, Chinese authoritarian leader Xi Jinping vowed a US$47.8 billion financing pledge from Chinese development banks, “small yet smart” projects that include plans for 100 joint laboratories, and 100,000 training opportunities for partner countries by 2030.
Without singling out the U.S. by name, Xi declared China “opposed geopolitical rivalry, bloc politics, unilateral sanctions, economic coercion and decoupling, and supply chain disruption” in his address.
According to Xi, China will team up with its BRI partner countries to set up multilateral cooperation platforms covering multiple fields such as energy, taxation, finance, green development, disaster reduction, think tanks, media, culture, and anti-corruption.
Yet considering China’s faltering domestic economy and a recent slew of Chinese real estate defaults, (up to 40 percent of bank loans in China are linked to real estate), Xi’s continuing grandiose projections of massive spending are causes for concern, particularly as many BRI recipients are facing mounting debts of their own, observers have pointed out.
China’s BRI has long been criticized by skeptics as “debt colonialism”, a deliberate strategy by China to load developing countries with debts they can never repay so Beijing can obtain political leverage over client nations.
Amid fears that Communist China’s rise will jeopardize its democratic values and interests, the U.S., along with other critics of the BRI, has lashed out at the lack of transparency and expensive lending terms of the scheme.
Furthermore, the BRI has faced considerable controversy, mainly linked to Beijing’s culpability in exporting corruption, promoting debt-trap diplomacy, and overlooking labor exploitation.
World’s biggest debt collector
On November 6, The Guardian news outlet noted that China has become the “world’s biggest debt collector”, owing to huge loans developing nations took out from Chinese banks to finance BRI infrastructure projects.
Many of those projects have brought about far less revenue than anticipated, leaving borrower nations with loans that cannot they repay, and Chinese bankers with hundreds of billions of dollars’ worth of possible defaults.
For instance, Zambia reached a historic deal in June to restructure US$6.3 billion of debt, two-thirds of which was owed to the Export-Import Bank of China, one of the country’s two main policy banks.
Cheng Chin-mo, chair of the Global Politics & Economics Department at Tamkang University of Taiwan, remarked that the recent BRI summit in October was a propaganda tool for domestic Chinese audiences, as many BRI projects have ceased without completion and led to huge debts for the recipient countries.
“For many developing nations, the BRI has become nothing short of a nightmare,” said Cheng.
Illustrating how BRI has served Chinese corrupt officials as a money laundering mechanism to channel their corrupt monies overseas, Cheng broached the example of the beleaguered cabinet of former Malaysian Prime Minister Najib Razak as to how the BRI has adversely impacted client countries.
It was believed in some circles that China exploited the corrupt Malaysian regime to promote its BRI interests. Eventually, May 2018 saw Najib ousted from office and charged with a multi-billion-dollar graft scandal associated with Malaysia’s development fund known as 1MDB (1Malaysia Development Berhad).
Additionally, the Wall Street Journal (WSJ) unearthed evidence like minutes from a series of meetings at which Malaysian officials recommended to their Chinese counterparts that China bankrolled infrastructure projects in Malaysia at inflated costs. The WSJ report implied that the extra cash could be used to address 1MDB’s debts.
A common complaint among disenfranchised client countries is that the good jobs pledged by China’s BRI officials never came to fruition. Rather, Chinese crews and managers were sent to these partner countries, resulting in locals getting mediocre jobs, if any, with dismal remuneration packages.
Over the years, many investigative journalists have probed further into the BRI and uncovered collusion between Chinese firms and regional politicians.
Feng Chongyi, associate professor in China Studies at the University of Technology Sydney, declared that when it comes to the Chinese Communist Party (CCP), statements made must be interpreted in reverse. That is, when the CCP mentioned anti-corruption training, it is really about “spreading corruption”, said Feng.
Moreover, Feng opined that the years since BRI came about in 2013 has directly led to China’s economic slowdown and debt crisis.
“Those state-owned and central enterprises engaged in the BRI projects have to bribe local officials, and these projects are conducted through corrupt practices. The cost of each project is inflated to benefit the corrupt officials,” Feng said.
In Kenya, for example, in 2017, a Chinese-built railway line from the coast reaching Uganda ended suddenly in a remote village, about 120 km west of the Kenyan capital of Nairobi after Beijing withdrew.
China is Kenya’s largest external creditor, with about 22 percent of the country’s external debt as of December 2018, according to Kenyan National Treasury data.
Similarly, a 2023 survey of China’s debtors organized by the AidData research lab at William & Mary college in Virginia painted a bleak outlook.
The AidData researchers discovered a positive correlation between debts owed to Chinese lenders and the number of suspended or canceled projects.
With a significant share of lending aimed at countries in, or at risk of, financial distress, Beijing is now increasingly concerned about the risk of defaults.
Notably, however, the AidData researchers seemed to credit China for establishing a financial “safety net” for developing nations.
“Beijing is trying to find its footing as the world’s largest official debt collector at a time when many of its biggest borrowers are illiquid or insolvent. And debt collectors don’t win a lot of popularity contests,” AidData executive director Bradley Parks told the Guardian.
Bradley claimed that China was attempting to “futureproof” BRI. Besides Bradley, other contributors to the AidData report called China’s moves a “reboot”.
“Beijing’s track record of bankrolling and building big-ticket infrastructure projects with record speed and near-term economic impact changed the nature of policymaker demand in the Global South,” the report authors said, referring to the world’s developing economies.
On a more ominous note, the report also mentioned that China expedited some of those BRI projects so rapidly as it cooperated with “political leaders, rather than technocrats” in client nations, and that Beijing depended on those political leaders to deal with citizens who were “displaced or harmed by construction activities”.
Also, such was the one-sided nature of the Chinese-dictated BRI contracts that, while limiting the options of the borrowing nations, they empowered China’s state-owned banks unlimited discretion over any borrower, including the power to scrap loans or even demand full repayment ahead of schedule, a 2021 AidData study reported.
The study went on to state: “Such terms give lenders an opening to project policy influence over the sovereign borrower, and effectively limit the borrower’s policy space to cancel a Chinese loan or to issue new environmental regulations.
“Some of the debt contracts in our sample could pose a challenge for multilateral cooperation in debt or financial crises, since so many of their terms run directly counter to recent multilateral commitments, long-established practices, and institutional policies.”
Little wonder that the Philippines declared in late October this year that it will no longer obtain financial aid from China for various railway projects, the country’s transportation secretary said, adding that officials were hopeful the projects could still proceed with funding from other interested sources.
The Marcos administration announced the decision to drop the Chinese loans amid tensions between Manila and Beijing in the South China Sea and days after a pair of minor collisions in disputed waters between ships and boats from both nations.
China had been scheduled to construct two of the rail lines on the main Philippine island of Luzon and the third on southern Mindanao island, officials revealed.
When questioned about AidData’s findings that around 80 percent of Belt and Road loans were granted to countries in financial distress, Chinese Foreign Ministry spokesman Wang Wenbin denied claims that Beijing built “debt traps” for the developing world.
“Anyone who talks about only the negatives of debt without mentioning its benefits or even portrays it as a poison for development is simply being ill-informed or amateurish,” Wang said, without tackling the issue that lending hundreds of billions of dollars to corrupt, unstable, and/or impoverished countries was financially imprudent to begin with.
“Leaders of developing countries have noted that China shows up where and when the West will not or are reluctant and is a true good friend,” Wang maintained.
After a decade of the BRI, China, as the world’s largest bilateral lender, evidently still faces an uphill task to address the debt woes of some of its borrowers under the scheme. Whether China can back those debtors and avoid trapping itself in unpaid debts will hinge on its policy choices and partner countries’ responses to them.
Around 150 countries have been involved in various ways under the BRI, in fields such as energy, transportation, logistics infrastructure, mining, and commodities.
What is left unsaid is the CCP’s looming shadow in the BRI’s enforcement, as military collaboration and other security arrangements between China and participating countries have come alongside the scheme.
Photo credit: iStock/ Grindi