By Hu Biliang
Since the Belt and Road Initiative was proposed in 2013, China’s total non-financial direct investment in countries along the Belt and Road routes has reached $104.72 billion, according to the Ministry of Commerce.
Despite the novel coronavirus pandemic, China’s non-financial outward foreign direct investment (OFDI) in these countries did not decline but went up 18.3 percent year on year in 2020 to reach nearly $18 billion. It accounted for 16.2 percent of the country’s total, up from 13.6 percent in 2019.
No ‘debt trap’
The increasing Chinese capital inflow into Belt and Road infrastructure projects did not cause any debt crisis in the host countries. This is because of the way the financing decisions are taken. The participation is entirely voluntary. All projects are implemented by companies following market rules. Government-to-government lending is rare; most of the financing arrangements are based on market mechanisms, such as public-private partnership financing.
Finally, all the projects pay close attention to the return on investment, linked closely with the economic development needs at the national level and of the regions they serve. Sri Lanka is a case in point. According to the Sri Lankan Government, Chinese loans account for only 12 percent of the country’s total foreign debt. The major part of the debt is composed of borrowing from the international market and loans from multilateral financial institutions.
The Hambantota International Port built in south Sri Lanka, a region that was among the poorest in the island nation, is often cited by critics as a project with negative implications for the country. The allegation stems from the arrangement that the port was leased out for management for 99 years. However, the operator, the Hambantota International Port Group, is a joint venture between the Sri Lankan Government and China Merchants Port (CMP).
CMP acquired majority stakes in the project following market rules and is developing the area by establishing an industrial park, creating jobs and bringing in investment.
The China-Pakistan Economic Corridor (CPEC) in Pakistan, a landmark project under the Belt and Road Initiative, has also been attacked by some Western media. But 80 percent of the investment comes from China-Pakistan joint ventures, overwhelmingly outnumbering the 20-percent share of debt-based financing.
The Chinese Government highlights debt sustainability in Belt and Road cooperation. In 2019, the Ministry of Finance issued a guideline on the procedures and standards for debt sustainability evaluation, risk analysis and management, and stress test to make the process clear and transparent.
When participating countries are unable to repay the debt to Chinese agencies, ways of resolution are sought through consultations.
Last year, to allay the debt tension in other developing countries due to the pandemic, China responded to the debt relief initiative undertaken by the Group of 20 (G20). It extended debt service relief, worth $1.35 billion, which benefited 23 countries. It was also the highest deferred amount among all G20 members, nearly 28 percent of the total debt relief of the bloc. Besides, the Chinese Government also waived interest-free loans that were due to mature that year for 15 African countries.
Debt is an issue that has been present long before the Belt and Road Initiative was launched. It happens to all countries. One typical example was many European countries suffered a protracted debt crisis after the global financial crisis of 2008.
Since 2010, there has been a fast growth in global debts mainly because many countries resorted to super-sized stimulus measures to cope with the fallout of the crisis. For instance, the quantitative easing by the United States and EU led to surplus liquidity in the international financial market, and a large amount of capital flowed into developing countries.
Energy sustainability
The electricity consumption per capita in Belt and Road countries is less than 2,000 kWh each year, which is far less than the global average, indicating exceptional energy indigence. China is promoting energy transition in partnership with other participants to build a green, low-carbon and sustainable Belt and Road. Its basic stand is to generate more renewable energy and reduce carbon dioxide emissions.
Pakistan is a prime example. Power plants constitute more than 60 percent of CPEC projects. They are a mix of hydropower, solar, wind, nuclear energy and some coal-fired facilities.
There are several hydropower plants, such as the Karot Power Project on the Jhelum River in east Pakistan, which was the first investment project of the Silk Road Fund created to finance Belt and Road projects. Many wind power projects have already been put into use.
–The Daily Mail-Beijing Review News Exchange Item
