Forty-two countries now have exposure levels of public debt to China to more than 10 percent of GDP.

AidData, an international development research lab based at William & Mary’s Global Research Institute, today released a wealth of new findings about China’s secret overseas development finance program, leveraging granular data unique projects that capture 13,427 projects in 165 countries worth $ 843 billion. These projects have been funded by more than 300 Chinese government institutions and public entities. This includes a particular focus on the Belt and Road Initiative (BRI).

These debts are routinely underreported to the World Bank’s Debtor Reporting System (DRS) because, in many cases, central government institutions in low- and middle-income countries are simply not the primary borrowers responsible for repayment. , according to a study by AidData.

According to Brad Parks, executive director of AidData and co-author of the report, “These unreported debts are worth around $ 385 billion and the problem of hidden debt is getting worse over time.”

He and his co-authors find that the average annual underreporting of repayment obligations to China was $ 13 billion before the BIS era, but $ 40 billion during the BIS era. The average government, they estimate, underreports its actual and potential repayment obligations to China by an amount equivalent to 5.8% of its GDP.

Parks explained that “the challenge of dealing with these hidden debts is less about governments knowing that they will have to repay undisclosed debts to China with known monetary values ​​than it is about governments not knowing the monetary value of debts to China whether they can or not. have to maintain in the future. “

35% of the BIS infrastructure project portfolio encountered major implementation problems, such as corruption scandals, labor law violations, environmental risks and public protests, but only 21% of the portfolio Chinese government infrastructure projects outside the BRI have encountered similar problems. .

BRI infrastructure projects also take significantly longer to implement than Chinese government-funded infrastructure projects undertaken outside the BRI, and Beijing has seen more project suspensions and cancellations during the year. BRI era than during the pre-BIS era.

“Host country policy makers are putting large-scale BRI projects on the back burner due to issues of corruption and overpricing, as well as major shifts in public opinion that make it difficult to maintain close relations with China. It remains to be seen whether “buyer’s remorse” among BRI participants countries will undermine the long-term sustainability of China’s global infrastructure initiative, but it is clear that Beijing needs to address the concerns of countries. host countries to maintain support for the BRI, ”said Brooke Russel, associate director at AidData and one of the report’s other co-authors.

“China has quickly established itself as the financier of first resort for many low- and middle-income countries, but its international lending and grant-making activities remain shrouded in secrecy,” said Ammar A Malik, research scientist. principal to AidData. Beijing’s reluctance to disclose detailed information about its overseas development finance portfolio has made it difficult for low- and middle-income countries to objectively assess the costs and benefits of participating in the BIS.

Malik and his colleagues found that in pre-BIS times, China and the United States were rivals when it comes to overseas spending. However, China now spends more than 2 to 1 than the United States and other great powers. In an average year during the BIS era, China spent $ 85 billion on its overseas development program, compared to $ 37 billion for the United States. Banking on the Belt and Road demonstrates that Beijing has used debt rather than aid to establish a dominant position in the international development finance market. Since the introduction of the BIS in 2013, China has maintained a loan-to-grant ratio of 31: 1.

The country’s “strategic banks” – the China Eximbank and the China Development Bank – have led a major expansion of foreign lending ahead of the BIS. However, since 2013, state-owned commercial banks, including Bank of China, Industrial and Commercial Bank of China, and Construction Bank of China, have played an increasingly important role in their lending activities. foreigner having quintupled in the first five years. of the implementation of the BIS. The number of “mega-projects” – funded by loans worth $ 500 million or more – approved each year also tripled during the BIS era.

The report finds that as China has funded larger projects and taken on higher levels of credit risk, it has also put in place more stringent repayment guarantees. 31 percent of the country’s foreign loan portfolio had credit insurance, collateral or a third-party repayment guarantee in the early 2000s, but that number is now close to 60 percent.

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Posted on: Wednesday, September 29, 2021, 2:20 p.m. IST