China Outspends Major Powers In Overseas Development Finance Program, Have Spent $843Bn Across 165 Countries: Study

China is doing so with semi-concessional and non-concessional debt rather than aid, as per a study by AidData.

New Delhi: China outspends the United States and other major powers by at least 2:1 in its Belt and Road Initiative (BRI) with annual international development finance commitments hovering around $85 billion a year.

China is doing so with semi-concessional and non-concessional debt rather than aid, as per a study by AidData.

Introducing a uniquely comprehensive and granular dataset of international development finance from China, the study captures 13,427 projects worth $843 billion across 165 countries in every major world region over an 18-year period.

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“Since the introduction of the Belt and Road Initiative (BRI), China has maintained a 31-to-1 ratio of loans to grants and a 9-to-1 ratio of OOF to ODA,” the study adds.

The study said China’s state-owned commercial banks have assumed an increasingly important role during the BRI era by organizing lending syndicates and other co-financing arrangements that make it possible to undertake bigger-ticket infrastructure projects.

“The number of “mega-projects”—financed with loans worth $500 million or more—being approved each year tripled during the first five years of BRI implementation,” the study adds.

The study, titled, “Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development projects”,  said increasing levels of credit risk have created pressure for stronger repayment safeguards.

The study finds that 35% of the BRI infrastructure project portfolio has encountered major implementation problems such as corruption scandals, labor violations, environmental hazards and public protests, but the Chinese government’s infrastructure project portfolio outside of the BRI has encountered fewer implementation problems.

“We also find that BRI infrastructure projects are less likely to face problems during implementation when they are undertaken by host country organizations (or organizations that are neither from China nor host countries),” the study adds.

The study said although the implementation of the BRI has not prompted any major changes to the sectoral or geographical composition of the country’s overseas development finance program, it has marked an important transition in how China bankrolls infrastructure projects.

“The majority of its overseas lending was directed to sovereign borrowers (i.e., central government institutions) during the pre-BRI era, but nearly 70% is now directed to state-owned companies, state-owned banks, special purpose vehicles, joint ventures, and private sector institutions,” the study said.

“These debts, for the most part, do not appear on government balance sheets in LMICs. However, most of them benefit from explicit or implicit forms of host government liability protection, which has blurred the distinction between private and public debt and introduced major public financial management challenges for LMICs,” the study adds.

The study finds that Chinese debt burdens are substantially larger than research institutions, credit rating agencies, or intergovernmental organizations with surveillance responsibilities previously understood.

“42 LMICs now have levels of debt exposure to China in excess of 10% of GDP. These debts are systematically underreported to the World Bank’s Debtor Reporting System (DRS) because, in many cases, central government institutions in LMICs are not the primary borrowers responsible for repayment,” the study said.

“We estimate that the average LMIC government is underreporting its actual and potential repayment obligations to China by an amount that is equivalent to 5.8% of its GDP. Collectively, these underreported debts are worth approximately $385 billion,” the study adds.