China’s BRI Grapples With Trillion-Dollar Debt Load And Growing Concerns

During the initial decade of the initiative, China provided substantial loans to support the development of bridges, ports, and highways in low and middle-income nations.

A recent report highlighted that China has accumulated over a trillion dollars in debt from its Belt and Road initiative, positioning it as the world’s largest debt holder. The report further indicated that approximately 80% of these loans have been extended to countries facing significant financial challenges.

According to Beijing, more than 150 countries, spanning from Uruguay to Pakistan, have participated in the BRI, which is an extensive worldwide infrastructure project introduced by President Xi Jinping ten years ago.

During the initial decade of the initiative, China provided substantial loans to support the development of bridges, ports, and highways in low and middle-income nations. A report released on Monday by AidData revealed that more than half of these loans have now reached their principal repayment phase.

The report also projected that this percentage is expected to increase to 75% by the end of the decade. AidData, which analyzed data on Chinese funding for nearly 21,000 projects in 165 countries, stated that Beijing’s annual commitment to aid and credit to low and middle-income countries is approximately $80 billion. In contrast, the United States has been providing around $60 billion annually to such countries.

The report pointed out that Beijing finds itself in an unfamiliar and uncomfortable position, assuming the role of the world’s largest official debt collector. AidData disclosed that the total outstanding debt, comprising principal but not interest, owed by developing countries to China, is at a minimum of $1.1 trillion.

Additionally, AidData’s estimation indicated that 80% of China’s overseas lending portfolio in the developing world is currently directed towards nations experiencing financial difficulties.

Critics have frequently raised concerns about the lack of transparency in pricing for projects undertaken by Chinese companies. Several countries, such as Malaysia and Myanmar, have initiated negotiations to reduce project costs, citing this issue.

Additionally, AidData noted that China’s reputation has suffered in recent years among developing countries, with its approval rating declining from 56% in 2019 to 40% in 2021. However, the study also mentioned that China is learning from its mistakes and is becoming more skilled at managing crises.

The report highlighted that Beijing is actively working to reduce the risks associated with the Belt and Road Initiative (BRI) by aligning its lending practices with international standards. Yet, among these measures are increasingly stringent safeguards to protect itself from the risk of non-repayment.

These safeguards, the report explained, include enabling key BRI lenders to independently access the principal and interest owed by unilaterally sweeping the foreign currency reserves held in escrow by borrowers. The report highlighted that these cash seizures are primarily conducted discreetly and beyond the immediate jurisdiction of domestic oversight bodies in low and middle-income nations. It emphasized that the capability to access cash collateral without the borrower’s consent has become a crucial safeguard within China’s bilateral lending portfolio.

During a summit held in Beijing last month to commemorate the project’s tenth anniversary, President Xi announced that China would inject over $100 billion in new funds into the BRI. However, a joint report released this year by the World Bank and other institutions, including AidData, revealed that Beijing had been compelled to provide billions of dollars in bailout loans to BRI countries in recent years.

The initiative has also faced scrutiny due to its substantial carbon footprint and the environmental damage resulting from extensive infrastructure projects.