President Xi Jinping’s “Belt and Road” trade infrastructure project could be hitting significant bottlenecks as some countries begin to sound alarms regarding the massive debt loads their governments are incurring.
Xi first announced the trade initiative also known as the “New Silk Road” in 2013, which needs more than $26 trillion of infrastructure investment by 2030 to keep regional economies expanding. The project includes railways, power plants, ports, highways and other projects across the world, with Beijing providing billions of dollars in credit to drive these schemes.
Major governments including the United States, Japan and India have expressed grave concern Beijing is trying to construct a new economic system that will erode their influence.
Xi said China’s trade with Belt and Road countries had exceeded $5 trillion, with outward direct investment surpassing $60 billion.
Already, some Chinese-led projects have experienced high levels of complaints that they are too expensive and give little work to local contractors. In response, some governments including Thailand, Tanzania, Sri Lanka and Nepal have halted, scaled back, and or renegotiated projects with Beijing.
In August, Malaysia’s Prime Minister Mahathir Mohamad canceled various projects including a $20 billion rail system he said his country could no longer afford.
Recently, Pakistan’s new prime minister, Imran Khan, has vowed more transparency amid fears about the country’s ability to repay Chinese loans related to the China-Pakistan Economic Corridor.
Last December, Sri Lanka had to sell its controlling stake of Port of Hambantota to a Chinese state-owned finance firm after it almost defaulted on a $1.5 billion loan from Beijing.
Mohamed Nasheed, the exiled leader of the opposition in the Maldives, warned China’s debt-fueled projects in the Indian Ocean archipelago amounted to a “land grab” and “colonialism,” with 80 percent of its debt held by Beijing.
“China does not have a very competent international bureaucracy in foreign aid, in expansion of soft power,” Anne Stevenson-Yang, co-founder and research director at J Capital Research, told AFP.
“So not surprisingly they’re not very good at it, and it brought up political issues like Malaysia that nobody anticipated,” she said.
“As the RMB (yuan) becomes weaker, and China is perceived internationally as a more ambiguous partner, it’s more likely that the countries will take a more jaundiced eye on these projects.”
The Center for Global Development, a nonprofit think tank based in Washington, D.C. that focuses on international development, discovered “serious concerns” about the sustainability of the sovereign debt in eight countries receiving infrastructure project funds from Beijing.
Those were Pakistan, Djibouti, Maldives, Mongolia, Laos, Montenegro, Tajikistan and Kyrgyzstan.
For example, a $6.7 billion China-Laos railway project represents almost half of the Southeast Asian country’s GDP, according to the study.
In Djibouti, the International Monetary Fund (IMF) warned that the African country faces a “high risk of debt distress” as its public debt soared from 50 percent of GDP in 2014 to 85 percent in 2016.
Next week, a group of African leaders will gather in Beijing for an economic conference which will include talks on the “Belt and Road” initiative.
On Friday, foreign ministry spokeswoman Hua Chunying denied that Beijing is strategically implanting huge amounts of debt in its trading partners to eventually expect default and acquire the country’s assets for pennies on the dollar.
“It’s unreasonable that money coming out of Western countries is praised as good and sweet, while coming out of China it’s sinister and a trap,” she said.
Stevenson-Yang said China’s loans are recorded in dollar terms, “but in reality, they’re lending in terms of tractors, shipments of coal, engineering services and things like that, and they ask for repayment in hard currency.”
Five years into China’s debt-fuelled “New Silk Road” initiative across many countries in the Eastern Hemisphere, it seems as a handful of governments are mounting complaints against Beijing for inducing a debt trap that strips their countries of its critical assets.