China has become the worlds largest lender through its Belt and Road Initiative (BRI), also called the New Silk Road.This initiative, a cornerstone of leader Xi Jinpings foreign policy, supports about 21,000 global infrastructure projects.It has loaned over $1.3 trillion in the past decade, mainly for bridges, ports, and highways in low and middle-income countries.This approach draws parallels to the United States Marshall Plan post-World War II.The BRI revitalized ancient trade routes between China and the world, earning the nickname New Silk Road.This initiative boosts Beijings global influence, raising concerns in the United States and Europe.
Critics see it as a debt trap for developing nations, leaving a significant carbon footprint.Chinas strategy involves awarding construction contracts to its state-owned enterprises.This often leads to unclear construction costs, making future renegotiations challenging for borrowing countries.Chinas Rise as the Worlds Top Global Lender.
(Photo Internet reproduction)As China continues investing in new projects, nations are starting to repay their decade-old loans.A report by AidData shows that 80% of these loans are to financially struggling countries.
The total outstanding debt, excluding interest, is about $1.1 trillion.Although the exact number of defaulted loans isnt specified, theres a noted increase in delayed payments.AidData found that 1,693 BRI projects are at risk, with 94 canceled or suspended.Over half of BRI loans have entered their principal repayment period, coinciding with rising global interest rates.
This increases the repayment burden on debtor nations.In some cases, China has significantly raised interest rates for delayed payments, from 3% to 8.7%.Less than a fifth of Beijings projects were initially collateralized; now, almost two-thirds are.Earlier this year, the World Bank reported that China had to offer bailout loans to BRI countries.AidData suggests China is adopting a new strategy to avoid insolvency risks.
This includes bailout loans to support the finances of governments and central banks.In competition with the United States and Europe, China spends about $80 billion annually on these loans.The United States spends about $60 billion annually on similar development financing, largely through its International Development Finance Corporation (DFC).An example of United States financing is the construction of a deep-water container terminal in Sri Lanka.This half-billion-dollar project highlights Sri Lankas struggle with financial crises and BRI loan commitments.Beijing funded several projects in Sri Lanka, which havent generated enough revenue to repay the loans.Two years ago, the G7 launched the Build Back Better World (B3W) initiative to counter the BRI.Last month, the EU held its first Global Gateway summit, seen as an alternative to the BRI.This program aims to maintain Europes influence in the Global South.
Deals worth nearly 70 billion euros were signed across Europe, Asia, and Africa.EU Commission President Ursula von der Leyen stated that the Global Gateway offers a better choice for infrastructure financing.AidData notes that although the G7 cannot match Beijings investment levels, it spent84 billion more than China in 2021.AidData warns the United States and allies against trying to compete with the BRI as Beijing shifts focus from construction to debt collection.However, the failure of many BRI projects offers a chance to attract countries like Sri Lanka back to Western influence.