The financing of the BRI
The estimated overall cost of the Belt and Road Initiative (BRI) is, by nature, ill-defined as there are still projects being discussed and several of those agreed upon may not materialize for a variety of reasons. There are no official figures on the total amount of loans and investments in BRI projects, but according to data provider Refinitiv’s Infrastructure 360 BRI Database, by the end of 2020, the value of total BRI projects reached nearly $4.3 trillion. Of those, 2,193 projects - valued at $2.5 trillion - were BRI projects, while 2,100 other projects with a combined value of $1.8 trillion were classed as “projects with Chinese involvement.”
According to Bruce-lockart, in 2017 ongoing BRI projects, including significant infrastructure projects in Central Asia, Southeast Asia, and Africa, amounted to about one trillion dollars. The BRI is financed in several ways. The main source of financing for BRI projects are loans from China’s state-owned banks, in particular the China Development Bank (CDB) and the Export-import Bank of China (EIBC). The Chinese government has issued guidelines for the major state-owned commercial banks - the Bank of China, the Industrial and Commercial Bank of China, and the China Construction Bank - to also support projects embedded in the BRI, and that has taken place.
Another source of financing for projects in the BRI are loans provided by multilateral banking - from the Asian Development Bank (ADB), to the recently established Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB).
To bolster the funds available for BRI projects, the Chinese government has also created the Silk Road Fund with an initial allocation of $40 billion.
Depending on the project or set of projects included in a route or corridor, there is also funding from local banks and financial institutions via either debt or equity.
After 2016, the CDB and the EIBC began to cut new loans for projects into the BRI. In part, this is because the huge initial infrastructure spend is now coming to an end with the conclusion of the projects, and financing and construction has either completed or nearing completion. In addition, the pandemic crisis in 2020 led to a global drop of 42% in investments abroad (UNCTAD); in the projects included in the BRI this drop can also be observed – a total of -52% compared to 2019.
But in the case of the CDB this stems from two other factors: (i) on the one hand, a lower willingness to maintain a strong exposure in overseas projects as it faces a dilemma between supporting China’s global trade diplomacy and supporting the growth of the Chinese economy with new domestic loans; (ii) on the other hand, the need to improve credit risk analysis and monitoring project execution, due to the new policies of the Chinese authorities to increase efficiency in the allocation of credit and public funds and to combat corruption.