China is allowing BRI lenders to take money from the foreign reserves of countries that owe them money without borrower consent and secretly.
Over 150 nations stretching from Uruguay to Sri Lanka have signed up Chinese President Xi Jinping’s pet project the Belt and Road Initiative (BRI). The countries who wanted to be part of this so-called global infrastructure push now owe Beijing more than a trillion dollars through projects under BRI.
Almost 80% of the BRI loans support countries in financial distress. This makes China the world’s largest debt collector.
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China is now seeking to “de-risk the BRI”, the report said, citing that it is “becoming an increasingly adept crisis manager”. It said that China is bringing its lending practices more in line with international standards.
However, it is also introducing “stringent safeguards” to ensure that it does not risk not being paid back. China is allowing key BRI lenders to pay themselves principal and interest due by “unilaterally sweeping” borrowers’ foreign currency reserves held in escrow.
“These cash seizures are mostly being executed in secret and outside the immediate reach of domestic oversight institutions… in low- and middle-income countries. The ability to access cash collateral without borrower consent has become a particularly important safeguard in China’s bilateral lending portfolio,” the report pointed out.
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The BRI was launched a decade ago, in 2013, and under BRI China distributed huge loans to fund the construction of bridges, ports and highways in low and middle-income countries.
A report by news agency AFP said much more than half of those loans have now entered their principal repayment period citing a report by AidData, a research institute which tracks development finance at Virginia’s College of William and Mary. They said that the figure will be 75% by the end of the decade.
The institute found out that Beijing committed aid and credit “hovering around $80 billion a year” to low and middle-income nations after collecting data compiled on Chinese financing of almost 21,000 projects across 165 countries.
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The US has provided $60 billion to such countries a year, their report said. “Beijing is navigating an unfamiliar and uncomfortable role — as the world’s largest official debt collector. Total outstanding debt — including principal but excluding interest — from borrowers in the developing world to China is at least $1.1 trillion,” AidData said in a report.
The report estimates that 80% of “China’s overseas lending portfolio in the developing world is currently supporting countries in financial distress”.
China claims BRI brought resources and economic growth to the Global South but criticism has risen regarding the pricing for projects built by Chinese companies. Malaysia and Myanmar have kickstarted discussions to renegotiate deals to bring down costs.
The report highlights that China also suffered reputational damage among developing countries. China’s approval rating fell from 56% in 2019 to 40% in 2021.
