WHICH COUNTRIES DOES CHINA FAVOUR?

China gives aid mainly to Africa, but commercial interests are more geographically dispersed ($ bn) Top 5 recipients of development aid ($ bn) Cuba 6.7 Cote d'Ivoire 4.0 Ethiopia 3.7 Zimbabwe 3.6 Cameroon 3.4 of the US, not an economic one in the sense that each project will generate a return," said Michael Every, head of financial markets research at Rabobank Group in Hong Kong.

China has so far spent or committed more than $500 billion on the plan, Top 5 recipients of Chinese OOF* Russia 36.6 Pakistan 16.3 Angola 13.4 Laos 11.0 Venezuela 10.8 ($ bn) according to data compiled by Bloomberg from official statements and company releases. The figure is considerably higher if lending by China’s big commercial banks is included, though comprehensive data on their activities isn’t readily available.

The financing comes in various forms, including from dedicated institutions like the $40 billion Silk Road Fund and others that aren’t directly linked, such as state-owned banks and the $100 billion Asian Infrastructure Investment Bank. Even part of China’s 2 trillion yuan ($300 billion) National Pension Fund will be invested.

Though their official documents don’t give specifics, Bank of China said it has lent more than $80 billion to 470 projects along the Belt and Road route as of the end of June, and other big state-owned lenders including Industrial & Commercial Bank of China and China Construction Bank have also lent billions.

Where the government goes, companies follow. In the first nine months of 2017, domestic companies have invested $9.6 billion in 57 countries along the route.

"Most Chinese spending under One Belt, One Road will see no financial payoff," said Derek Scissors, resident scholar at the conservative-leaning American Enterprise Institute in Washington. "The firms and banks involved are quite aware of the high likelihood of financial losses in many OBOR countries, even if they will not admit to it publicly."

Sovereign debt ratings matter less than the financial stability of each specific project, said Cao Yuanzheng, chairman of BOCI Research Limited in Beijing. "Even in the poorest countries, projects like public water system, electricity grid and railway are all commercially viable as long as there is income generated from user fees," he said.

In the meantime, Chinese companies are more aware of country risks than in the past, according to Norman Sze, a partner at Deloitte China in Beijing. "They would factor in the risks, and take actions such as hedging against currency swings and buying insurance," he said.

China Export & Credit Insurance Corp., the state-owned insurer which covers government seizures, nationalisation, political violence and other risks, said it has insured $480 billion of exports and investments in Belt and Road nations, and paid out $1.73 billion in claims since 2013.

While the risks may be high, the investments could have long-term benefits for China if they succeed, and in the meantime could help utilise China’s excess industrial capacity and expand the use of the yuan abroad, according to Michael Taylor, Moody’s chief credit officer for APAC.