China will need to urgently restructure debt linked to the US$1 trillion Belt and Road Initiative.
The fallout from the Covid-19 pandemic has left countries with close ties to Beijing struggling to service massive loans.
To combat this, Beijing has already signed up to a “G20 debt suspension” plan “that allows up to 73 of the world’s poorest” nations “to halt payments” to help fund critical health spending, Reuters news agency reported. But more needs to be done.
Since the B&R blueprint was rolled out in 2013, China has steadily increased its lending and is now the world’s largest official creditor.
“The data that we put out called IDS, the international debt statistics report, showed that of the official bilateral creditors – all the different credit agencies of the governments around the world – 65% of that debt is owed to Chinese creditor agencies,” World Bank President David Malpass said last month.
- The emerging-market bond sector is worth around $30 trillion.
- China’s Belt and Road project is owed a slice of that.
- The B&R Initiative is the jewel in the crown of President Xi Jinping’s foreign policy.
- These New Silk Roads include a maze of multi-billion-dollar infrastructure projects and digital links involving at least 70 nations and 4.4 billion people across the globe.
- Many of the nations that joined the B&R program are now struggling to pay off the interest on loans.
What was said: “What I think China will need to do to confront this is what previous other creditors in the past had done, which is you have to restructure. And restructure big time, meaning either lower interest rates, longer maturities, write-off in the principal or some combination of that,” World Bank Chief Economist Carmen Reinhart said at a conference earlier this week.
Reaction to the news: Critics have accused Beijing of pursuing “debt-trap” diplomacy. But others have questioned that argument. “While it is hard to find evidence of debt-trap diplomacy, there are real concerns about debt sustainability that are relevant for all lenders. Foreign debt is different from domestic debt in that it ultimately has to be serviced via exports, and there are clear limits to how much debt poor countries can take on,” David Dollar, of the Brookings Institution, a Washington-based think, said in October.
China Factor comment: It is nearly impossible to judge how big the B&R debt mountain is because of a lack of transparency. Like most things involving the ruling Communist Party of China, secrecy is paramount. This, in turn, has caused serious concerns among nations that signed up to Xi’s signature policy. Ashraf Mahmood, the then governor of the State Bank of Pakistan, delivered a haunting statement back in 2015. Perplexed by Chinese investment pouring into the country, he confessed: “I don’t know out of the $46 billion how much is debt, how much is equity and how much is in kind.”