Washington – China’s annual average spending on overseas development projects showed “a dramatic expansion” to $85 billion in the five-year period from 2013, far outpacing the outlays by the United States, Japan and other major powers, a study by U.S. research lab AidData showed Tuesday.
The year 2013 is when Chinese President Xi Jinping advocated the Belt and Road Initiative to increase Beijing’s influence abroad by financing and building infrastructure projects across Asia, Europe and Africa.
The report, which described Beijing’s grant-giving and lending activities as “shrouded in secrecy,” also revealed that Chinese development projects have been financed with debt rather than aid, and that most Chinese overseas lending is provided on less generous terms than from traditional bilateral and multilateral creditors.
AidData studied more than 13,400 projects worth $843 billion across 165 countries over the past nearly 20 years.
The report was released at a time when the Group of Seven major industrialized nations, which includes the U.S. and Japan, is seeking to counter China’s BRI through the launch of its own version of infrastructure projects for the developing world. The initiative has been criticized for a lack of transparency, poor environmental and labor standards, and saddling developing countries with debt.
“For quite some time it has been known that China and the United States were overseas spending rivals. What was not known is that since the introduction of the Belt and Road Initiative, China is really no longer a rival of the United States, it’s now outspending the United States, as well as other major powers, on a two-to-one basis or more,” Bradley Parks, executive director of AidData, said.
Between 2000 and 2012, the average annual development finance commitments from Beijing amounted to $32 billion and those commitments from Washington were roughly on par at nearly $34 billion.
But during the five years from 2013, China’s spending in overseas development finance program stood at $85.4 billion a year on average while the U.S. spending was $37 billion and Japan’s $25 billion, the report said.
China also only provided 12% of its international development finance via official development assistance between 2000 and 2017 whereas the U.S. provided 73% via ODA — grants and highly concessional loans — during the same period.
While a typical loan from China has a 4.2% interest rate and a repayment period of less than 10 years, loans from countries such as Germany, France, and Japan carry just over a 1% interest rate and a repayment period of 28 years, Parks said.
The report also warned of a sharp increase of “hidden debt” which low- and middle-income countries owe to China, referring to debt that does not show up on government balance sheets but could become government repayment obligations in the future.
Such debt is accumulating because China’s overseas lending, which during the pre-BRI era was largely loans to government agencies, is now largely directed to state-owned companies, state-owned banks, private-sector institutions and other entities.
“The tricky thing about this is all these debts — even though they for the most part don’t show up on government balance sheets in developing countries — most of them do benefit from some type of liability protection from the host government,” Parks said.
“If the private company goes belly up… then it very quickly becomes a public debt,” he added.
Hidden debts are “problematic even in normal times, but they are particularly worrisome” during the coronavirus pandemic because the repayment capacities of poorer countries are “substantially weakened and China’s debtors are finding it increasingly difficult to engage in collective restructuring negotiations,” the report said.
It also found that 35% of the Chinese infrastructure projects have encountered “major implementation problems,” such as corruption scandals, labor violations, environmental hazards and public protests.
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