By Yang Chung-yueh 楊宗岳
China’s Belt and Road Initiative (BRI) has attracted a lot of attention in recent years.
In 1999, Beijing launched the “Go Out” policy, encouraging Chinese companies to invest overseas to reduce pressure on the yuan. In 2013, Chinese President Xi Jinping (習近平) upgraded the policy to the current BRI as a way to export China’s excess generating capacity overseas.
When the BRI was first announced, areas of cooperation with foreign nations focused on basic infrastructure projects. Beijing has signed labor service cooperation agreements with foreign countries to export Chinese labor, thereby reducing the unemployment rate in China.
Research conducted between 2013 and 2017 by AidData, a research lab of the College of William and Mary in the United States, showed that through the BRI framework, China channeled an average of $85.4 billion per year in investments abroad, 81% of which were loans.
The study found that a typical loan from a Chinese government-backed organization had an interest rate of 4.2%, an average repayment period of 9.4 years, and an average grace period of 1. 8 years. Compared to an average interest rate of 1.1% and a repayment period of 28 years attached to loans from member countries of the Organization for Economic Co-operation and Development, Chinese government loans are granted on terms unfavorable.
China has faced a backlash from a growing number of countries, with BRI projects put on hold due to public pressure or a deteriorating debt relationship.
Even more countries have asked China to provide debt relief on their loans. In deciding to do so, Beijing is caught between two stools.
As the world stands on the brink of a global economic crisis, if Beijing demands that poor countries repay their debt, its international image will be further damaged. To provide debt relief to developing countries, the Bank of China would have to bear the financial losses, which could spark public anger at home.
When Chinese Foreign Minister Wang Yi (王毅) announced last month that China would forgive the debt of 17 African countries out of 23 interest-free loans that matured at the end of last year, it sparked a backlash online, with Chinese accusing their government of giving preferential treatment to foreigners.
The BRI project faces a rapidly cooling Chinese economy that is a far cry from the heady years of double-digit growth. The Chinese government is targeting 5.5% GDP growth this year, while the IMF has cut China’s GDP growth forecast for this year to 3.3% from 4.4% in its report on World Economic Outlook published in July.
China’s economy is facing simultaneous shocks from a burst of its overinflated housing bubble, the implementation of “zero COVID-19” lockdowns that limit economic activity, and foreign companies moving their supply chains out of the country. China. BIS investment sums are down from a peak of US$170 billion in 2016 to US$113.6 billion last year. The era of Chinese easy money is over.
The BRI is also not helping China’s international image. The Chinese Communist Party constantly reminds the Chinese public of the days when China was partially colonized by Western countries, but it does exactly the same thing through the BRI, creating debt traps for developing countries and allowing Beijing to establish many Chinese special economic zones. This is covert colonialism, with the targeted nations becoming Chinese colonies in all but name.
Anti-China protests are commonplace in countries where China has set up shop under the guise of its BRI. Protests have erupted in Pakistan over the port of Gwadar, which is under the operational control of China Overseas Ports Holding Co, as well as in Peru and Kyrgyzstan.
After Xi became president, he began to promote the concept of the “Chinese dream”, of which the BRI is an important component.
The United States and some European countries have developed their own policies to counter the BRI. G7 countries have set aside US$600 billion over five years to provide financial support to developing countries to finance their infrastructure construction needs. With indebted developing countries now having an alternative, the Chinese BRI could suffer.
With the Chinese economy already in jeopardy, China may eventually have to absorb the mountain of bad debt accumulated by its debtor countries. The BRI could be the straw that broke the camel’s back, shattering Xi’s “Chinese dream” once and for all.
Yang Chung-yueh is a researcher in a think tank.
Translated by Edward Jones
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