How China Became The World's Largest Creditor

Aiming to shift trade and gain influence, the country lent $1.3 trillion to infrastructure projects from Asia to Latin America

China’s Belt and Road Initiative (BRI) is seen by many as the centerpiece of leader Xi Jinping’s foreign policy, regularly supporting and building around 21,000 infrastructure projects around the world.

According to a new report, more than $1.3 trillion (about R$6.3 trillion) was borrowed in the last decade to finance the construction of bridges, ports and highways in low and middleincome countries something Comparisons have already been made with the US Marshall Plan for Europe after the Second World War.

But it was thanks to the restoration of ancient trade routes between China and the rest of the world that the BRI became known as the New Silk Road. She is also credited with boosting Beijing’s global influence, raising concerns in Washington and Brussels.

Critics say the BRI creates uncontrolled debt for developing countries and a huge carbon footprint at a time when environmental protection should be a priority. Some countries, such as the Philippines, have had to abandon inclusive projects.

Others have pointed to China’s strategy of offering its own stateowned companies contracts to build infrastructure projects, often resulting in opaque construction costs that countries find difficult to renegotiate later.

Although China has committed to continuing to invest billions in new projects, the day of reckoning has come: the bill for many of these loans over the past decade is just due.

How many BRI loans are in default?

A report released earlier this month by AidData estimates that 80% of China’s loans to developing countries go to countries in financial difficulty. The USbased research firm estimated the total debt, excluding interest, to be at least $1.1 trillion.

While the report does not provide figures on how many loans are delinquent, the document does note an increase in the number of late payments. The survey authors also found that 1,693 BRI projects are at risk, while 94 of them have been canceled or suspended.

AidData further calculated that more than half of BRI loans have already reached their main repayment deadline, at a time when global interest rates have risen sharply, placing an even greater burden of repayment on debtor countries.

The report’s authors also noted that China has more than doubled interest rates as a penalty for late payments in some cases, from 3% to 8.7%.

When Beijing began offering loans to developing countries around the turn of the century, less than a fifth of the projects were secured; today the figure is almost twothirds.

Earlier this year, a World Bank report concluded that China had already had to distribute billions in bailout loans to BRI countries.

According to AidData, the country would now adopt a new strategy to free itself from the threat of a wave of bankruptcies, which would include rescue loans that help strengthen the finances of the governments it has lent to and often their central banks.

Competition with the USA and Europe

AidData found that while China spends about $80 billion annually on loans to low and middleincome countries, the United States is catching up.

Each year, Washington spends about $60 billion on similar development financing, largely through financing of private sector projects by the U.S. International Development Finance Corporation (DFC).

One example of American financing is plans to build a halfbilliondollar deepwater container terminal at the port of Colombo in Sri Lanka, announced earlier this month.

The Indian Ocean island nation has struggled to recover from a terrible financial and economic crisis, and its financial exposure to BRI loans has further hampered efforts to pay off its debts.

Beijing lent money to build the Hambantota port on Sri Lanka’s southeast coast, as well as an airport and a city on reclaimed land. However, the projects are not profitable enough to repay the loans.

Two years ago, the G7 countries launched the “Build Back Better World” initiative (B3W for short), another attempt by the USA and its allies to create a counterweight to the BRI.

Last month, the European Union held the first summit for its Global Gateway program, also seen as an alternative to the BRI and aimed at maintaining Europe’s influence, particularly in the Global South.

As part of the negotiations, agreements worth almost 70 billion euros were signed with governments across Europe, Asia and Africa. The EU support, which could amount to $300 billion, will support projects related to critical raw materials, green energy and transport corridors.

According to European Commission chief Ursula von der Leyen, the Global Gateway will offer developing countries a “better choice” in financing infrastructure projects. Although she did not specifically criticize the BRI, she noted that other financing options often come with a “high price.”

According to AidData, the G7 spent $84 billion more than China in 2021, even as the U.S. and its allies are unable to continually maintain the same level of investment as Beijing, in part because they overpromise and cannot comply.

In its report, AidData also warned the US and its allies against competing with the BRI as Beijing moves from large construction projects to debt collection.

However, the report’s authors claim that the failure of many BRI projects offers an opportunity to pull affected countries like Sri Lanka back into the Western sphere of influence.

rc/cn (Portal, AP, DPA, DW)