China’s Belt and Road Initiative (BRI) has attracted much attention in recent years.
In 1999, Beijing initiated the “Go Out” policy, encouraging Chinese enterprises to invest overseas to reduce pressure on the yuan. In 2013, Chinese President Xi Jinping (習近平) upgraded the policy to the current BRI as a vehicle to export China’s excess production capacity abroad.
When the BRI was first announced, areas for cooperation with foreign nations focused on basic infrastructure projects. Beijing signed labor service cooperation agreements with foreign countries to export Chinese labor, reducing China’s unemployment rate.
Research between 2013 and 2017 by AidData, a research lab at the College of William and Mary in the US, showed that through the BRI framework, China channeled an average of US$85.4 billion per year into overseas investment, of which 81 percent were loans.
The study found that a typical loan from a Chinese government-backed organization had an interest rate of 4.2 percent, an average repayment period of 9.4 years and an average grace period of 1.8 years. Compared with an average interest rate of 1.1 percent and repayment period of 28 years attached to loans from Organisation for Economic Co-operation and Development member nations, the Chinese government loans are made on unfavorable terms.
China has encountered a backlash from a growing number of nations, with BRI projects shelved as a result of public pressure or a deteriorating debt relationship.
An even greater number of countries have requested that China provide debt relief on their loans. In deciding whether to do this, Beijing is caught between two stools.
As the world teeters on the brink of a global economic crisis, if Beijing demands that impoverished nations repay their debt, its international image would be further damaged. To offer developing nations debt relief the Bank of China would need to take on the financial losses, which could incite public anger at home.
When Chinese Minister of Foreign Affairs Wang Yi (王毅) last month announced that China would waive the debt for 17 African nations on 23 interest-free loans that had matured by the end of last year, it sparked a furious online backlash, with Chinese accusing their government of providing preferential treatment to foreigners.
The BRI project is faced with a rapidly cooling Chinese economy that is a far cry from the heady years of double-digit growth. The Chinese government is targeting GDP growth of 5.5 percent this year, while the IMF cut China’s GDP growth forecast for this year to 3.3 percent, down from 4.4 percent in its World Economic Outlook report published in July.
The Chinese economy is faced with the concurrent shocks of a puncturing of its over-inflated real-estate bubble, rolling “zero COVID-19” lockdowns that are constraining economic activity and foreign companies moving their supply chains out of China.BRI investment sums are declining, falling from a peak of US$170 billion in 2016 to US$113.6 billion last year. The era of Chinese easy money is over.
BRI is also unhelpful for China’s international image. The Chinese Communist Party constantly reminds the Chinese public of when China was partially colonized by Western nations, yet it is doing exactly the same through the BRI, setting debt traps for developing nations and allowing Beijing to establish numerous Chinese special economic zones. It is covert colonialism, with targeted nations becoming Chinese colonies in all but name.
Anti-China protests are commonplace in countries where China has moved in under the cover of its BRI. Demonstrations have broken out in Pakistan over Gwadar Port, which is under the operational control of China Overseas Ports Holding Co, as well as in Peru and Kyrgyzstan.
After Xi became president, he began to promote the concept of a “China dream,” of which the BRI forms an important component.
The US and some European countries have developed their own policies to counter the BRI. G7 nations have set aside US$600 billion over five years to provide financial support to developing nations to fund their infrastructure construction needs. With indebted developing nations now provided with an alternative, China’s BRI could suffer.
With the Chinese economy already in significant peril, China might eventually have to absorb the mountain of bad debt accrued by its debtor nations. The BRI could be the straw that breaks the camel’s back, once and for all shattering Xi’s “China dream.”
Yang Chung-yueh is a researcher at a think tank.
Translated by Edward Jones
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