Troubled loans grew fourfold during pandemic as borrowers hit
hard times
A construction site for the Chinese-backed Nairobi Expressway, seen in 2021. China's Belt and Road Initiative has infrastructure projects from Asia to Africa and Europe. © Reuters
IORI KAWATE, Nikkei staff writerJune 1, 2023 03:13 JST
BEIJING --
Chinese overseas loans went sour at a far worse rate in recent years as
the COVID-19 pandemic and inflation took a toll on emerging economies involved
in Beijing's Belt and Road infrastructure initiative.
A total of $76.8 billion in debt
was renegotiated -- in some cases written off -- from 2020 to 2022,
data from the Rhodium Group shows. This figure is more than four times the $17
billion in problem debt for the preceding three years.
The first year of the pandemic,
2020, was the worst with $48.7 billion, but the $9 billion in
2022 was still nearly triple the 2019 figure.
Beijing has backed the construction
of ports, roads, railways and other infrastructure from Asia to Africa and
Europe for 10 years under President Xi Jinping's Belt and Road Initiative.
But this vast undertaking has slowed
as the problem debts have piled up. Investment came to around $100
billion a year until 2019, but declined amid the pandemic, falling to
roughly $60 billion to $70 billion a year from 2020 on, data from the American
Enterprise Institute shows.
Around 70% of the aid came through
currency swap lines, giving countries with low foreign exchange reserves access
to yuan to repay debts.
Countries receiving such support
include Sri Lanka, which was driven into default by swelling external
debt. When Sri Lankan creditors met recently to discuss debt
restructuring, China participated as an
observer. Whether it will get involved in negotiations remains to be
seen.
The financial risks are not just for
borrowers, but also for China.
Though Beijing has the world's
largest foreign exchange reserves, topping $3.2 trillion at the end of April,
much of this is tied up in lending to developing countries.
Chinese corporate and retail bank
accounts saw net outflows from overseas transactions for a second straight
quarter in the three months through March, amid a slump in exports. If the
trend continues, China could have less capital to lend overseas.
Beijing's push to develop industries
such as semiconductors to compete with the U.S. also could pull resources away
from Belt and Road lending.
This year marks a decade since Xi
proposed the Belt and Road concept. China plans to host its first Belt and Road
Forum since 2019 later this year. With bad debts rising, observers will be
watching for what messages Beijing sends on future investment and how it will
deal with borrowers.
"China will continue to use the
Belt and Road to expand its influence in developing countries and secure
resources, while being mindful of debt problems," said Yoshino Tamai of
Itochu Research Institute. "Its investment is expected to gradually
increase, but it's hard to see it returning to its pre-COVID peak."
Italy, the only Group of Seven
country involved in the initiative, is distancing itself. A senior official
told Reuters this month that Rome is unlikely to renew the agreement with China
when it expires in early 2024, but added that more time was needed for talks
with Beijing.
Critics say the deal has failed
to bring the anticipated boost to economic growth for Italy, with exports to
China seeing sluggish growth compared with imports.
China’s
S$31 trillion local debt mess is about to get worse
https://freedomvalue.blogspot.com/2023/05/chinas-s31-trillion-local-debt-mess-is.html
Struggling
with debt, local governments across China call for help from Beijing
https://freedomvalue.blogspot.com/2023/05/struggling-with-debt-local-governments_31.html
China's
Belt and Road plans losing momentum as opposition, debt mount -study
September 29, 2021
https://www.reuters.com/world/china/chinas-belt-road-plans-losing-momentum-opposition-debt-mount-study-2021-09-29/
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