Belt-tightening squeezes China’s global ambitions

Debt is piling up at home and abroad as President Xi’s New Silk Road project hits a potholed-strewn landscape

It is time for China to tighten its belt. At least US$1 trillion has been funneled into President Xi Jinping’s signature foreign policy project.

But the cost of the massive Belt and Road Initiative has become unsustainable as the world’s second-largest economy struggles with a mountain of debt.

Times have changed since it was launched amid a fanfare of hype in 2013.

Nearly a decade later, the aftermath of the Covid-19 pandemic, rising geopolitical tension and rampant global inflation have turned China’s vision into a futuristic nightmare for struggling nations in Africa, Asia and Latin America.

“There’s no doubt that the Chinese Ministry of Finance and central bank are looking at their dashboards and their red lights are going off right now,” Bradley Parks, the executive director of the AidData Lab at the College of William and Mary in the United States, said.

Roadblocks:

  • The B&R Initiative has been crucial to China’s global ambitions.
  • These New Silk Roads include a maze of multi-billion-dollar infrastructure projects and digital links.
  • They involve more than 140 nations and five billion people across the globe.
  • They also account for 3,000 projects worldwide, China’s Ministry of Foreign Affairs stated in August.
  • Yet many of the countries that joined the B&R “family” are now struggling to pay off the interest on loans.

Unfortunately, China’s lending is unusually difficult to track.

Brad Setser, of the Council of Foreign Relations

Delve deeper: An overriding concern has been the lack of transparency. In a policy report, AidData highlighted “hidden debt” totaling a whopping $385 billion in vital projects.

Between the lines: “Unfortunately, China’s lending is unusually difficult to track. Its two main lenders don’t self-report their existing exposure by country, and they have at times insisted on limited disclosure by their borrowers as well,” Brad Setser, of the Council on Foreign Relations, a New York-based think tank, said.

Big picture: This is hardly surprising as China’s domestic economy is run along similar lines. What we do know is that nearly every sector has been buffeted by Xi’s “zero-Covid” policy, a “meltdown” in the world’s largest property market and shrinking consumer demand.

Missing link: What we do not know is the depth of the country’s underlining debt problems from the boom decades in the past 30 years.

Official line: “Cooperation under the BRI has brought expressways to East Africa and a cross-sea bridge to the Maldives, turned Laos from a land-locked to a land-linked country and made the China-Europe Railway Express an important lifeline in keeping global logistics stable and smooth,” state-run Global Times reported, quoting the Ministry of Foreign Affairs.

China Factor comment: Not at the moment. That “lifeline” has been badly hit by China’s “best friend” Russia and its illegal invasion of Ukraine. Yet more “hidden” risks in the “hidden” economy.  

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