China’s Belt and Road grapples with growing debt crisis

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Shanghai, August 6 (IANS): Like Sri Lanka, Kyrgyzstan also has growing public debt and has taken out billions in loans over the past decade from the China Export-Import Bank for a series of infrastructure plans under the Belt and Road Initiative (BRI), Chinese leader Xi Jinping’s signature policy. , which he once dubbed “the project of the century”, according to the media.

Kyrgyzstan’s debt currently sits north of $5.1 billion, according to the Foreign Ministry, 42% of which is owed to Beijing. But Bishkek is struggling to cope with a shrinking economy and has so far failed to generate a commercial return on projects backed by its huge Chinese loans. This has raised fears that the country may not be able to repay its loans or even pay the interest. Growing financial pressure has also raised fears that the country may have to divest lucrative assets if it fails to meet repayment obligations.

The warning comes as sovereign debt distress spreads to several countries along the BRI, sparking China’s first overseas debt crisis as it grapples with a growing pile of unsecured loans. performers and increased scrutiny of how Chinese lending has exacerbated economic pressures on vulnerable governments, RFE/RL reported.

“There’s no doubt that China’s finance ministry and central bank are looking at their dashboards and their red lights are going out right now,” Bradley Parks, executive director of the AidData lab at the College of William, told RFE. and Mary in Virginia. /RL.

The global scale of the BRI, which was launched in 2013 by Beijing as the largest infrastructure program undertaken by a single country, has left it with a list of risky debtors around the world, including Argentina, Pakistan, Russia, Tajikistan and Venezuela. , Zambia and Iran – which had hoped to profit from the surge in Chinese loans abroad, but now find themselves in the grip of a debt crisis which the World Bank has warned could trigger a series of defaults without precedent since the 1980s.

“China is increasingly concerned that it cannot be repaid, so we have seen a decline in lending which should accelerate,” said Alicia Garcia-Herrero, chief economist for Asia. -Pacific at the investment bank Natixis. RFE/RL. “China is also under increasing economic pressure at home and increasingly reluctant to lend to risky countries. (This) has (opened) a new phase of the BRI.”

The BRI has helped make China the world’s largest bilateral lender and has seen it lend totaling $932 billion since its inception eight years ago, according to data collected by the Green Finance and Development Center of China. Fudan University in Shanghai, RFE/RL reported.

Loans issued in recent years are deteriorating at an unprecedented rate, with research from Rhodium Group, a New York-based research consultancy, showing that the value of Chinese loans requiring negotiation soared to $52 billion in 2020 and 2021, i.e. a threefold increase over the previous two years.

Data compiled by William and Mary’s AidData Lab, which maintains one of the most comprehensive datasets on Chinese development finance, also shows the current scale of the debt crisis, with its research indicating that 60% of loans Chinese are destined for countries in financial difficulty, compared to only 5% in 2010 before the launch of the BRI. Other research by AidData shows that 35% of BRI infrastructure projects are currently facing major implementation issues.

Faced with such pressure, Beijing has begun issuing so-called ‘bailout loans’ to avoid defaults, with AidData showing that tens of billions of dollars have been issued by Chinese state institutions to countries such as the Pakistan, Belarus, Egypt, Mongolia, Turkey and Sri Lanka, to help service their loans and avoid defaults, RFE/RL reported.

“We are at a major turning point right now. The scale of this widespread debt pressure is something China has never faced before and it needs to reinvent the BRI on the fly,” said analyst Matthew Mingey. senior research fellow at Rhodium Group, at RFE. /RL.

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