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Wednesday, April 17, 2024

China Leads the World as the Largest Debt Collector with Over $1 Trillion in Belt and Road Loans

China’s Belt and Road Initiative (BRI) has amassed more than $1 trillion in debt, establishing China as the world’s largest debt collector, a recent report revealed. The study, conducted by AidData, a research institute focusing on development finance, highlighted that around 80% of China’s overseas lending supports countries experiencing financial distress.

Since President Xi Jinping unveiled the BRI a decade ago, over 150 countries, spanning from Uruguay to Sri Lanka, have joined this ambitious global infrastructure project. The initial ten years of the initiative saw China offering substantial loans to finance various infrastructure projects in low and middle-income nations, including bridges, ports, and highways.

However, as per the AidData report, more than half of these loans have now entered their principal repayment period, and this percentage is expected to reach 75% by the end of the decade. The research institute, which compiled data from almost 21,000 projects across 165 countries that received Chinese financing, estimated that China now commits approximately $80 billion annually in aid and credit to low and middle-income countries, exceeding the $60 billion provided by the United States.

The report noted that China is embracing an unfamiliar role as the world’s largest official debt collector. The total outstanding debt, excluding interest but including the principal amount, from developing world borrowers to China stands at least at $1.1 trillion, according to AidData. Furthermore, an estimated 80% of China’s overseas lending portfolio in the developing world supports financially distressed nations.

Proponents of the BRI applaud the initiative for fostering economic growth and resources in the Global South. However, critics have raised concerns about the lack of transparency in pricing for projects executed by Chinese companies. Countries such as Malaysia and Myanmar have renegotiated deals to reduce costs.

In recent years, China’s reputation has suffered among developing nations, with approval ratings dropping from 56% in 2019 to 40% in 2021, as per AidData’s findings. Nevertheless, the study highlighted that China is learning from its past mistakes and evolving into a more proficient crisis manager.

Beijing is taking steps to reduce risks associated with the BRI by aligning its lending practices with international standards. These efforts include introducing stricter safeguards to protect against the risk of non-repayment, such as permitting BRI lenders to access borrowers’ foreign currency reserves held in escrow to retrieve principal and interest without borrower consent. These actions are carried out discreetly and beyond the immediate reach of local oversight institutions in low- and middle-income countries.

At a recent summit commemorating the BRI’s tenth anniversary in Beijing, President Xi pledged to inject over $100 billion in new funds into the project. However, a joint report from the World Bank and other institutions, including AidData, revealed that China had provided billions of dollars in bailout loans to BRI countries in recent years.

The Belt and Road Initiative has also faced scrutiny for its substantial carbon footprint and the environmental harm caused by extensive infrastructure projects.

For more updates stay tuned to FELA News!

Source: The New Indian Express

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