A new comprehensive study found that China is overhauling its decade-long Belt and Road Initiative (BRI), a global infrastructure scheme that has invested billions of dollars into developing nations.
According to AidData, a research lab at the university of William & Mary, Chinese leaders are looking to “de-risk” by adjusting the worldwide lending initiative to mitigate risks of not being repaid. Beijing also is attempting to limit its reputational damage in these developing markets, as a recent Gallup World Poll found that average disapproval ratings in low- and middle-income countries have soared since 2019.
The report found that the Chinese government is addressing project performance risk and minimizing exposure to environmental, social, and governance (ESG) elements.
“Beijing has launched a far-reaching effort to de-risk the BRI by refocusing its time, money, and attention on distressed borrowers, troubled projects, and sources of public backlash in the Global South,“ the report stated. It is learning from its mistakes and becoming an increasingly adept international crisis manager.”
Fifty-five percent of BRI-related loans are in the repayment phase, projected to grow to 75 percent by 2030. Total outstanding debt from borrowers in developing nations, excluding interest, is as high as $1.5 trillion. In addition, overdue payments have skyrocketed over the past year.
A growing issue for China is that 80 percent of its overseas lending portfolio supports nations facing financial distress. As the number of borrowers enduring solvency crises increases, China’s state-owned lenders have slapped higher penalties for late payments, rising from 3 percent to 8.7 percent. This enormous increase has received immense criticism, but China has defended its actions by saying it has maintained “positive” and constructive” discussions with BRI participants.
“Beijing is finding its footing as an international debt collector at a time when many of its biggest borrowers are illiquid or insolvent,” researchers noted.
In response to these rising worries, China has cut its investments to low- and middle-income nations, from $117 billion a year between 2013 and 2017 to $79 billion in 2021.
Global Response to BRI
China continues to be the world’s largest source of development finance, outpacing any single G7 country and other multilateral lenders. However, with the United States and its major partners looking to erode China’s goodwill across the globe, this is gradually changing as the entire G7 outspent China by $84 billion in 2021.Study authors warn that the international community policymakers are unaware of China’s changes to BRI. This could potentially “run the risk of competing with a version of the BRI that no longer exists,” the report added.
“In the long run, it is not clear that the U.S. and its allies have the financial firepower to compete dollar-for-dollar with Beijing,” the report stated. “The G7 has a history of over-promising and under-delivering net increases in international development spending. Beijing, by contrast, has a real source of financial strength that allows it to avoid making promises that it cannot keep: foreign exchange reserves that are vastly larger than the official, foreign currency reserve holdings of its central bank.”
As part of the current administration’s efforts to de-risk from China, the White House has engaged in the Indo-Pacific Economic Framework for Prosperity (IPEF). Observers assert this is the unofficial successor to the Trans-Pacific Partnership (TPP). Others purport that the IPEF is trying to offer an alternative to the BRI.
“Reimagining TPP, punching up the IPEF, expanding the USMCA [which replaced NAFTA], or starting afresh are all options that deserve serious consideration to ensure that the United States can provide a meaningful economic proposition to the Indo-Pacific, as well as an alternative to China,” wrote Wendy Cutler, the vice president of the Asia Society Policy Institute (ASPI).
At the same time, China has been responding to the U.S.-led campaign to garner influence in the Indo-Pacific region and other places.
Funding for IMF, World Bank
In recent months, White House officials have been lobbying Congress to boost funding for the International Monetary Fund (IMF), the World Bank, and other worldwide organizations to counter China’s increasing presence that has shaped policy at these institutions.Appearing before the House Financial Services Committee in June, Treasury Secretary Janet Yellen explained to lawmakers that bolstering America’s lending capacity to these groups can serve “as an important counterweight to nontransparent, unsustainable lending from China.”
Republican critics have pushed back against these proposals, arguing that the United States has failed to persuade the IMF to stand up to the Chinese government.
“If the fund keeps letting Beijing drag out restructuring talks with its borrowers, there won’t be much of a case for additional IMF resources at the end of this year,” Rep. French Hill (R-Ark.), vice chair of the House Financial Services Committee, told Ms. Yellen.
Moreover, as the United States encourages the IMF to expand its lending war chest, IMF member countries, such as China and Brazil, are concerned that their shareholdings would not be adequately aligned.
Today, the United States is the IMF’s largest shareholder, with 16.5 percent voting power. China, contributing 18 percent of global GDP, possesses a little more than 6 percent of the fund’s voting power.
