China’s Belt and Road tempts states, but comes with risks
China’s massive “Belt and Road Initiative” building push may create debt risks but is also responding to major infrastructure gaps in Asia and could boost global trade, World Bank officials say. The relatively upbeat assessment of a sometimes controversial programme comes despite the debt crisis now faced by Pakistan, a recipient of massive Chinese loans. China launched the ambitious plan in 2013 under President Xi Jinping, seeking to link Asia, Europe and Africa with a network of ports, highways and railways. It has dispersed tens of billions of dollars in loans, often to highly indebted countries, sparking criticism of Beijing for everything from “debt entrapment” to excluding local labour from projects funded by the plan.
But, meeting in Bali this week, officials from the World Bank and International Monetary Fund said the BRI filled important gaps, while acknowledging concerns.
“There are huge opportunities: improved infrastructure means more trade, more investments, higher growth, bringing in landlocked regions,” said Caroline Freund, the bank’s director of trade, regional integration and investment climate.
“But there are challenges as well... There are environmental and social risks, there are issues to do with public procurement, and sustaining public debt becomes an issue because these projects are expensive,” she added.
The World Bank estimates that Bri-funded infrastructure could boost trade among countries involved by 3.6 per cent, and global trade some 2.4 per cent. And officials say it is offering funding in areas where it is sorely needed.
“Several countries, especially in Central Asia and Caucasus have benefitted... in order to improve their infrastructure as well as also to promote additional interregional trade,” said Jihad Azour, the IMF’S director of the Middle East and Central Asia department.
“Central Asia will benefit from any additional investment that will lead to greater integration.”
He called however for “careful” spending, urged “transparent” procurement processes, and warned that countries should maintain “their debt sustainability”.
In the last five years, China’s direct investment under BRI has surpassed $60 billion, leaving several recipients vulnerable.
The Centre for Global Development, a think-tank, says BRI investments have “significantly” increased the risk of debt crises in eight countries: Mongolia, Laos, Maldives, Montenegro, Pakistan, Djibouti, Tajikistan and Kyrgyzstan.
But Freund said they were the exception, and Chinese loans remained a relatively small part of the total debt burdens of most countries involved in the BRI.