Report: China’s Belt and Road debt exceeds $1 trillion

A recent report revealed that China has become the largest debt collector in the world, with over a trillion dollars owed to it through its Belt and Road project. Approximately 80 percent of these loans are supporting countries facing financial distress. China’s ambitious initiative, known as the Belt and Road project, has garnered participation from around 150 countries, spanning from Uruguay to Sri Lanka. Over the past decade, China has provided substantial loans for the development of infrastructure such as bridges, ports, and highways in low and middle-income nations.

However, a report released by AidData, a research institute at Virginia’s College of William and Mary, highlights that more than half of these loans have now entered their principal repayment period. By the end of the decade, it is expected that 75 percent of the loans will be in this repayment phase. AidData compiled data on Chinese financing for nearly 21,000 projects across 165 countries and estimated that China commits aid and credit of approximately $80 billion annually to low and middle-income nations. In comparison, the United States provides $60 billion per year.

The report emphasizes that China finds itself in an unfamiliar role as the world’s largest official debt collector. The outstanding debt owed to China by developing countries is estimated to be at least $1.1 trillion, excluding interest. AidData further estimates that 80 percent of China’s overseas lending portfolio in the developing world supports countries experiencing financial distress.

Proponents of the Belt and Road project commend it for bringing resources and economic growth to the Global South. However, critics have raised concerns over the lack of transparency in pricing for projects undertaken by Chinese companies. Some countries, including Malaysia and Myanmar, have renegotiated deals to reduce costs. Moreover, China’s approval rating among developing countries has declined from 56 percent in 2019 to 40 percent in 2021, indicating reputational damage.

Despite these challenges, the study acknowledges that China is learning from its mistakes and becoming more adept at crisis management. Beijing aims to de-risk the Belt and Road project by aligning its lending practices with international standards. However, the report also notes that China has implemented increasingly stringent safeguards to protect itself from the risk of non-repayment. One such method is allowing key Belt and Road Initiative lenders to unilaterally seize borrowers’ foreign currency reserves held in escrow to pay themselves principal and interest.

These cash seizures often occur discreetly and beyond the purview of domestic oversight institutions in low and middle-income countries. Accessing cash collateral without borrower consent has become a crucial safeguard in China’s bilateral lending portfolio. At a recent summit in Beijing commemorating the tenth anniversary of the project, President Xi Jinping announced that China would inject more than $100 billion of new funds into the Belt and Road Initiative. However, a joint report by the World Bank and other institutions, including AidData, revealed that China has had to provide billions of dollars in bailout loans to Belt and Road countries in recent years.

The initiative has also faced criticism for its significant carbon footprint and the environmental degradation caused by extensive infrastructure projects. As China moves forward, it aims to address these concerns and bring its lending practices in line with international standards.