BOFIT Viikkokatsaus / BOFIT Weekly 2019/18

President Xi Jinping announced the Belt and Road Initiative (BRI or New Silk Road) in 2013. The second BRI Forum was held last weekend in Beijing. Participants included presidents or prime ministers from 36 countries among a total of approximately 5,000 delegates. China’s official BRI website claims the initiative embraces 130 countries. China reiterated its long-standing theme that the purpose of the BRI is to increase investment in infrastructure and promote international cooperation. The BRI has expanded in multiple directions over the years, so nowadays the Chinese even speak of an “Arctic Silk Road” or “Agricultural Silk Road” projects.

During the forum, president Xi announced the signing of new BRI contracts worth a total of 64 billion dollars. The figure seems quite high given that China’s National Development and Reform Commission (NDRC) announced just before the forum that Chinese firms invested a total of 90 billion dollars in BRI countries during 2013–2018 and that Chinese banks have lent BRI countries roughly 200–300 billion dollars. Financial market data provider Refinitiv puts the total value of BRI projects globally at 3.67 trillion dollars.

The project has been criticised as neo-colonialism and that the aggressive lending to participating countries effectively ties them to China’s apron strings. Criticism of BRI projects has increased recently, as have efforts of partner countries to review the value they receive from such projects. For example, a Malaysian BRI project involving the purchase of construction services for a Chinese rail line was put on ice in January until the parties agreed in April to reduce the project price tag by a third.

Beijing sharply disputes the criticism, so assuaging these fears were the major themes at the forum. In his opening address, president Xi emphasised the advantages of BRI projects for all parties, including their permanent nature, environmental friendliness and reasonable pricing. Mr. Xi also said that he would not tolerate corruption in any BRI project and called for transparency. A big problem with BRI loans has been that the loan terms, usually negotiated in secret, may confer exceptional remedies to the lender (China) in the event of default (e.g. seizure of all project assets). Chinese officials are also accused of bribing loan counterparties to assure smooth signing of the project documents.

This week the independent think tank Rhodium Group released a note on the renegotiations of Chinese debt granted to other countries. The note found that 40 Chinese loans to a total of 24 countries have been renegotiated. Nearly all of the loans were issued during this decade and went to countries participating in BRI projects. The Chinese typically reschedule or forgive some of the troubled loan. The forgiven amount is usually tiny relative to the size of the loan, however. According to the note, asset seizures are actually a rare occurrence. China in total has forgiven about 50 billion dollars in loans.