China's Belt and Road Initiative suffers $78bn blow

April 17, 2023 (MLN): China’s $1 trillion Belt and Road Initiative infrastructure finance program has been hit by spiraling bad loans, with more than $78 billion worth of borrowing turning sour over the past three years, as reported by Financial Times. 

The scheme made China the world’s largest bilateral creditor, but the figures suggest it has become a financial millstone for Beijing and its biggest banks.

About $78.5bn of loans from Chinese institutions to roads, railways, ports, airports, and other infrastructure around the world were renegotiated or written off between 2020 and the end of March this year, according to figures compiled by New York-based research organization the Rhodium Group.

This is more than four times the $17bn in renegotiations and write-offs recorded by Rhodium in the three years from 2017 to the end of 2019, it added.

There are no official figures for the total scale of BRI lending over the past decade, but it is believed to total “somewhere in the ballpark of $1tn”, according to Brad Parks, executive director of AidData at William and Mary University in the US.

In addition, Beijing has extended an unprecedented volume of “rescue loans” to prevent sovereign defaults by big borrowers among about 150 countries that have signed up to 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.

Financial Times further reported that over a longer timeframe between 2000 and the end of 2021, such bailouts to developing countries totaled $240bn.

Increasing numbers of BRI borrower countries are being pushed to the brink of insolvency by a slowdown in global growth, rising interest rates, and record-high debt levels in the developing world. Those countries’ western creditors, meanwhile, have blamed China for blocking debt restructuring negotiations.

The pace of BRI renegotiations and write-offs slowed somewhat in 2022, compared with the height of the pandemic in 2020 and 2021. But experts said this did not indicate that the underlying quality of China’s loan book had improved.

“Far from it,” said Matthew Mingey, senior research analyst at Rhodium. “While some major recipients of China’s lending, like Pakistan, have managed to hold on with IMF and bilateral bailouts, the cracks in the BRI are widening.”

At the same time, China is broadening its political and diplomatic overtures to the developing world, potentially diluting the importance of BRI over time, it read.

Since 2021, Xi has launched three strategic initiatives aimed at remolding the architecture of global governance and diluting the influence of the Western-led institutions that have directed world affairs since the end of the second world war, it noted. 

China is seeking international backing for its Global Development Initiative and Global Security Initiative. However, it's worth noting that most countries that agree to support China's vision are also indebted to Chinese creditors through the Belt and Road Initiative (BRI).

These countries are being referred to as "friends" of China's vision.

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