Hidden debt rising for partners of China’s BRI plan

What is the news?

A new study has found under- reported debts to the tune of $385 billion in projects carried out in dozens of countries under China’s Belt and Road Initiative (BRI), with a rise in “hidden” debt.

The study was conducted by AidData, a development research lab at the College of William & Mary in the U.S. The report studied 13,427 projects across 165 countries worth $843 billion, in the time period from 2000 to 2017, and examined how President Xi Jinping’s BRI plan, launched in 2013, has changed China’s overseas lending.

What are the findings of the study?

Chinese debt burdens are substantially larger than previously understood, and 42 countries now have levels of public debt exposure to China in excess of 10% of GDP.

– The total debt was systematically under-reported to the World Bank’s Debtor Reporting System (DRS) because, in many cases, central government institutions in LMICs [low and middle income countries] are not the primary borrowers responsible for repayment.

– The big difference between China and other prominent sources of overseas financing was that Chinese banks have used “debt rather than aid to establish a dominant position in the international development finance market.

While earlier most overseas lending involved central government institutions, now nearly 70% of China’s overseas lending is now directed to state-owned companies, state-owned banks, special purpose vehicles, joint ventures, and private sector institutions. This has introduced major public financial management challenges for LMICs.

From 2000 to 2017,

– Biggest recipients of Official Dev Assistance: Iraq ($8.5 billion), North Korea ($7.17 billion), Ethiopia ($6.57)

– Biggest recipients of Chinese loans: Russia ($151.8 billion) Venezuela ($81.96 billion) and Angola ($50.47 billion)

– India ranked 23rd in the list of top recipients of Chinese loans from 2000 to 2017, receiving $8.86 billion

– 35% of the BRI infrastructure project portfolio has encountered major implementation problems, such as corruption scandals or labour violations, with Pakistan topping the list of countries with the most number of projects hit by scandals and corruption

China has a 4.2% interest rate, a grace period of less than two years, and a maturity length of less than 10 years. Despite such conditions, what has, however, led to many countries, such as Nepal and Sri Lanka in South Asia, turning to Chinese loans at higher interest rates is the lack of financing options elsewhere for infrastructure projects.

Source: This post is based on the article “Hidden debt rising for partners of China’s BRI plan” published in The Hindu on 1st Oct 2021.

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