According to a new study, China’s Belt and Road Initiative has resulted in dozens of low- and middle-income countries amassing $ 385 billion in “hidden debt” to Beijing.
AidData, an international development research lab based at William and Mary College in Virginia, analyzed 13,427 Chinese development projects totaling $ 843 billion in 165 countries over 18 years to end 2017.
China has provided developing countries with record levels of funding over the past two decades, supporting public and private projects. The Belt and Road Initiative, President Xi Jinping’s flagship foreign policy initiative, launched in 2013 to invest in nearly 70 countries and international organizations, has led China to dominate international development finance worldwide.
The US plans to develop a similar scheme in South America. In September, the EU announced a global Global Gateway program as both regions seek to challenge China’s enormous financial and geopolitical influence in the developing world.
According to a report by AidData, China currently spends at least twice as much on international development finance as the United States and other major economies, collectively about $ 85 billion a year. However, this is in debt rather than aid, and this imbalance has intensified in recent years.
The report indicates that since the launch of the Belt and Road program, China has issued 31 loans for each grant. However, deal financing mechanisms remain somewhat opaque due to a lack of detailed information, causing investor reticence in some low- and middle-income countries such as Zambia in recent years.
China has long denied that it is pulling developing countries into so-called debt traps, which could open the way for Beijing to divest assets as collateral for unpaid debt obligations. However, since the inception of the Belt and Road Initiative (BRI), concerns have been raised about the possibility that lending may be higher than officially reported in many low- and middle-income countries.
According to the aggregate estimates of AidData, the debt is about $ 385 billion. The largest recipient of “hidden” loans from China over the 17 years was Russia – $ 125 billion. there are central government institutions),” the researchers say. “However, there has been an important transition since then: almost 70% of China’s external lending now goes to state-owned companies, state-owned banks, special-purpose companies, joint ventures, and private sector institutions.”
These debts are often not reflected in the balance sheets of countries. Still, many of them by their governments, thus blurring the lines between private and public debt and creating financial problems for the participating countries. Moreover, these guarantees can be explicit or implicit – in the sense that public or political pressure may compel the government to help a company in financial difficulty.
The researchers found that the debt obligations of these countries to China significantly exceed the ratings of international research institutes, rating agencies, or intergovernmental organizations. The report claims that 42 countries’ public debt to China currently exceeds 10% of their GDP. “These debts are systematically underreported in the World Bank’s Debtor Reporting System (DRS) because in many cases central government institutions in low- and middle-income countries are not the main borrowers responsible for repayment,” the report says.
“We estimate that the government is understating its actual and potential commitments to repay loans to China by an amount equivalent to 5.8% of its GDP.” Cumulatively, this would amount to about $ 385 billion, and AidData analysts suggested that managing this hidden debt has become a “serious problem” for many affected countries. “
The hidden debt problem is not so much that governments know they will need to service undisclosed debts with a known monetary value to China.
But rather than governments do not know the economic value of the obligations they may have to China. or will not have to be serviced in the future, added the researchers.