Xi Jinping's BRI raises risk of debt trap for 68 nations: US experts

NEW DELHI: Chinese President Xi Jinping’s mega Belt and Road Initiative (BRI) raises the risk of debt distress for 68 countries identified as potential borrowers if the programme follows Chinese practices for infrastructure financing, which often entail lending to sovereign borrowers, Washington, D.C. based think tank Center for Global Development said in a recent report.

BRI has come into sharper focus following the Chinese Communist Party’s decision to change the rules to allow Xi to potentially rule for life.

The report said that eight countries including Maldives, in India’s neighbourhood, and Djibouti, which hosts the lone Chinese military base overseas, are particularly at risk of debt distress based on an identified pipeline of project lending associated with BRI. According to experts, any debt crisis in neighbouring countries would increase India's political cost to deal with these states.


“During the 19th National Party Congress in 2017, China’s Communist Party formally adopted the Belt and Road Initiative (BRI) under its Party Constitution as part of a resolution to achieve ‘shared growth through discussion and collaboration’,” the report said.

“As a result, President Xi Jinping entered his second term with a strategy of international engagement defined by BRI, signalling a sustained commitment to an initiative that has already been heavily invoked by China’s leadership,” it said.

The party’s national congress may mark the point at which ambitious rhetoric shifted to an operational programme, said the American think tank.

As envisioned, BRI spans at least 68 countries with an announced investment as high as $8 trillion for a vast network of transportation, energy and telecommunications infrastructure linking Europe, Africa and Asia, the report said. The programme is an infrastructure financing initiative for a large part of the global economy that will also serve key economic, foreign policy and security objectives for the Chinese government, it said.

"Yet, important questions arise on sustainable financing of the initiative within BRI countries, and how the Chinese government will position itself on debt sustainability… And when the creditor itself is a sovereign, or has official ties to a sovereign as do China’s policy banks—China Development Bank (CDB), the Export-Import Bank of China (China Exim Bank), and the Agricultural Development Bank of China (ADBC)—these challenges often affect the bilateral relationship between the two governments,” the report said.

“It remains unclear the degree to which BRI, a Chinese-led bilateral initiative that seeks to employ some multilateral mechanisms to achieve its financing goals, will be guided by multilateral standards on debt sustainability,” it said.

The report suggested that BRI presents China an opportunity to embrace more sustainable lending practices in its bilateral engagements. “By adhering to widely accepted ‘rules of the road’ for sovereign creditors, this initiative could make great strides in spurring productivity growth through sound infrastructure investments in developing economies. The alternative will be an initiative that introduces new debt vulnerabilities in developing countries and risks growth setbacks in some of these countries,” it said.