China’s Belt and Road Initiative (BRI) aimed to increase the GDP of participating countries. However, in many countries, debt to China has increased, pollution has increased, and the trade deficit with China has increased. On the other hand, BRI-related GDP growth was elusive.
Silk Road to Debt
In 2013, Chinese leader Xi Jinping said he started the Belt and Road Initiative for mutual prosperity and to help improve the economic conditions of developing countries. However, most of the money these countries received from China was in the form of debt, not donations.The ratio of Belt and Road is One grant For every 31 loans.
Between 2000 and 2017, China raised at least funding 13,427 projectA total of $ 843 billion through more than 300 state-owned enterprises in 165 countries. China has averaged in 2013 since the start of BRI $ 50-100 1 billion a year. Loans are primarily dollars and cost much more than funding from western donor countries and institutions.
Debt to China, unlike domestic debt, is particularly problematic for developing countries as external debt must be dealt with through exports.Therefore, there is a clear limit on how much debt Poor countries Can be sustained. In addition, the general slowdown in the global economy has reduced the amount of debt that is considered sustainable. The largest borrowers are African countries that are currently at high risk of debt crisis or suffering.
The Aid Data Research Lab at William & Mary’s Global Institute has determined that 42 low- and middle-income countries currently have China’s debt of over 10% of GDP. Debt is even more extreme in some countries.For example, Laos owes 30% or more That GDP to China.
Debt repayment burden
Many countries along the BRI are increasing their debt to China. Some extreme examples are: The Republic of the Congo’s debt to China went from 13.62% of Gross National Income (GNI) in 2014 to 38.92% in 2019. Djibouti went from 7.71 percent to 34.64 percent.According to, Angola went from 5.87 percent to 18.95 percent Report According to the Green Finance & Development Center (GFDC).
By the end of 2019, the BRI countries with the largest debt to China were Pakistan with $ 20 billion, Angola with $ 15 billion, Kenya with $ 7.5 billion, Ethiopia with $ 6.5 billion and Laos with $ 5 billion. Reported.
When loan payments begin between 2021 and 2024, many countries will be overwhelmed by debt repayment payments and will not be able to continue investing further. According to the GFDC, among these biggest blows are Tonga, Djibouti, Cambodia, Angola, the Republic of the Congo, Comoros and the Maldives.
Due to the lack of transparency in BRI lending, the total public debt is estimated to be much less than the actual total. Financing to BRI projects is provided not only by the Chinese government, but also by government-controlled institutions. State-owned enterprise, And private companies. The system is so confusing that even Chinese regulators do not know how much financing has been made.
For the past few decades, Chinese loans have been directed to foreign governments. But for BRI, AidData found that “70% of China’s overseas lending is now directed to state-owned enterprises, state-owned banks, special-purpose entities, joint ventures, and private enterprises. Sector agency.. “
Due to the opaque nature of Chinese lending $ 385 billion Of hidden debt not shown on the country’s balance sheet.
This off-balance sheet loan is the result of a spaghetti-like structure in a BRI loan agreement. A special purpose vehicle, a type of shell company, is often created solely for the purpose of borrowing money so that it is off the balance sheet of the parent company or government agency.
China has acquired a large number of shares in countries where it cannot repay its debt. The BRI project in Laos is a good example of a misleading debt and capital structure. Three Chinese state-owned enterprises have acquired a majority stake in a joint venture in Laos. $ 3.6 billion.. On the balance sheet, this looks like the debt owed by a Chinese company.
Overall, 35% of projects suffer from corruption and unfair labor practices. Environmental pollution, And protest. A stagnant and abandoned project has failed to generate the promised GDP profits of the host country. The domestic industry does not benefit from the construction of the project.Only 7.6% of projects are awarded to local businesses, 89% Chinese company.. Employment is not boosted. Promised jobs often do not come true, but even workers are brought in from China.
Environmental researchers have determined that China is also benefiting from its exports Carbon emissions To BRI countries. The host country has run out of carbon budget for the BRI project. This will make China richer and increase the debt of the host country.
While China is reducing pollution Green energy Homes use solar power to export pollutants to other countries. For example, China exported a coal-fired power plant to Cambodia.Global net emissions remain the same, but emissions rates for this plant have been shifted From China To Cambodia.
China has invested in 240 coal Power plants along the BRI from 2001 to 2016, according to energy professor Kelly Simms Gallagher. Of the 50 China-funded coal-fired power plants, 58% used low-efficiency, highly polluted, subcritical coal technology. Tufts University Environmental Policy.
A Full 75% While China is increasing its clean energy products domestically, many BRI projects involve burning more fossil fuels. Even high-speed rail sold to other countries emits more than those used in China.
Why join BRI?
The country agrees to conclude BRI contract They cannot rent it elsewhere and believe that the increase in GDP generated by the completed project will outweigh the cost of debt. In reality, this GDP growth rate is often not realized. One example is Pakistan. According to the growth model used by BRI, Pakistan 5.18% increase With GDP. The China-Pakistan Economic Corridor (CPEC) started in 2015, but since 2018 Pakistan’s GDP It is steadily declining and has reached a low level that has not been seen for many years.
2019, World Bank I tried to quantify the winners and losers from BRI. When deciding whether to participate, each country used a variety of models to calculate expected costs and benefits. However, the World Bank sought to create a unified model based on geographic information, transportation costs, and the cost of building new infrastructure projects.
The World Bank has determined that the GDP of BRI countries will increase by up to 3.4%.However, the gains from trade were not always equal. Investing in a project, There are some negative effects on welfare in some countries. All countries will have to repay their loans to China. And while many countries are losing, China continues to make profits.China’s trade surplus with BRI countries $ 199.2.a billion By 2020, it will account for 40.4 percent of China’s total trade surplus.
Far from benevolent efforts, AidData has determined through BRI that Beijing is trying to achieve. Three purposes: Convert dollars earned through exports into external debt. Providing work to the domestic construction and industrial sector. And securing products.Another worrying trend is that 400 projects The value of $ 8.3 billion is related to the Chinese army.
The views expressed in this article are those of the author and do not necessarily reflect the views of The Epoch Times.