Where did the New Silk Road end up? – 12/18/2023 – Why? Economês in good Portuguese

The New Silk Road Initiative (or Belt and Road Initiative, BRI), launched by Xi Jinping, completed its tenth anniversary this year. It is currently in a third phase.

The initiative brought a seal to China’s financing and construction of infrastructure abroad, which had already exceeded US$400 billion in the previous ten years. Investment projects are part of Chinese soft power and use the country’s excess installed capacity. As we have already discussed in this space, the rebalancing of the Chinese economy was implemented gradually, with real estate and infrastructure construction bubbles allowing only a gradual slide in double-digit GDP growth rates to 6% in 2019, the last year before the pandemic. BRI fit like a glove.

In addition to being a source of investment for developing countries, the BRI presented itself as a platform with rapid implementation and without many environmental, social and governance standards.

Indeed, China has become the largest bilateral source of international development financing. By 2018, directed mainly at infrastructure and the energy sector, China’s development loans to Latin America and the Caribbean exceeded the sum of loans from the World Bank, the Inter-American Development Bank (IDB) and the Development Bank of Latin America ( CAF). The presence of such operations in the region came to be seen as a “competition for influence”. Something similar happened in Africa.

According to a survey by the Global Development Policy Center at Boston University, the volume of loans from Chinese public development banks –Eximbank and China Development Bank– surpassed those from the World Bank between 2008 and 2021, in areas such as oil extraction and pipelines, transportation, energy, telecommunications and others. The World Bank maintained leadership in health, education, governance and agriculture, in addition to direct budgetary support. In total for the period, loan commitments by the two public development banks reached US$498 billion, that is, 83% of the World Bank’s total (US$601 billion).

As of 2018, however, the BRI entered a phase that can be called “correction”, as pointed out in a report by the consultancy Gavekal on December 7. Strictly speaking, most of the resources since 2020 went to emergency loans to prevent several low- and middle-income countries from having to service debt on previous projects, not new ones.

As many borrowing countries enter “debt stress” situations, the country’s central bank also opened emergency lines of credit.

Total debt owed to China by low- and middle-income countries is between $1.1 trillion and $1.5 trillion. About 80% of China’s loan portfolio is in countries experiencing financial difficulties.

In 2021, 58% of Chinese loans were bailouts, with less than a third for new infrastructure projects. This year Argentina escaped defaulting on the IMF thanks to the credit line between its central bank and the Chinese one.

More than half of BRI loans have already entered their principal repayment periods; by 2030, the number should reach 75%. So China’s debtors are initiating large repayments at a time when interest rates have moved into a period of highs, the US dollar has appreciated and global economic growth is cooling. As a recent AidData report puts it, China is transforming from the world’s largest bilateral development creditor to “the world’s largest official debt collector.”

China’s insistence on bilateral debt restructuring processes on its own terms (which rarely include repayment of principal), not fully participating in multilateral processes, the debt resolution of developing countries grappling with stress is likely to drag on for years.

But after the “peak” (2014-17) and “correction” (from 2018) phases, the BRI entered a third phase. The focus will now be on “smaller, smarter” projects, in coordination with the country’s clean energy industrial policies.

The New Silk Road Initiative will seek to expand markets for Chinese solar and wind energy manufacturers, as well as ensuring access to critical minerals for its battery production value chain. Given the context of technological rivalry – including in clean energy – between China and the US and its allies, a comparable reaction to the BRI in its third phase has yet to be seen.

LINK PRESENT: Did you like this text? Subscribers can access five free accesses from any link per day. Just click the blue F below.