Partner countries default on debts: Xi Jinping's Belt and Road in crisis
The economic downturn is hindering the recovery of debtor countries. Beijing forced to accept debt restructuring. Sixty per cent of Chinese foreign loans are to indebted nations. Turkey has no foreign exchange reserves to repay what is owed to China. Compared to 2018, in 2021 Belt and Road investments dropped by USD 50 billion.
Beijing (AsiaNews) - The debt problems of its partners are pushing China to reduce investments in its Belt and Road Initiative, Xi Jinping's mega-plan to strengthen China's trade centrality by building infrastructure and transit routes in different parts of the globe.
Debt-ridden nations are asking China (and other lenders) to lower interest rates, lengthen payment terms and discount the principal to be repaid. Yesterday, Ecuador announced that it had reached an agreement with Chinese banks to restructure its debt; in August, Beijing said it had forgiven the repayment of 23 interest-free loans to African countries that were due at the end of 2021.
According to data from Rhodium Group, China had 19 cases of debt renegotiations in 2021 and 21 in 2020: in 2019 there were only nine. The Covid-19 pandemic before and the global effects of the war in Ukraine undermined the economic development of the debtor countries.
As Nikkei Asia reports, a team of researchers led by the World Bank's chief economist Sebastian Horn calculated that 60 per cent of China's overseas loans have gone to nations with debt problems: in 2010 it was only five per cent. Not only that, Belt and Road partners such as Turkey, Nigeria, Ghana and Egypt have experienced a drastic drop in their foreign exchange reserves, limiting their ability to pay their debts to China.
In this complex debt framework, compounded by the economic crisis in China, Chinese investment in the Belt and Road is stagnating. Calculations by the Green Finance & Development Center show that in the first six months of 2022 they stopped at USD 28.4 billion, compared to USD 29.6 billion the year before. Saudi Arabia was the first recipient, while nations with economic instability such as Russia and Sri Lanka did not receive any investment.
Medium-term numbers point to a sharp decline in Chinese commitments in the 'New Silk Roads'. In 2021, Chinese investment and construction under the Belt and Road banner reached USD 70 billion: up from USD 60 billion in 2020, the first year of the pandemic, but a far cry from the USD 110 billion of 2019 and the more than USD 121 billion of 2018.
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