China is owed more than a trillion dollars through its Belt and Road Initiative, making it the biggest debt collector in the world, a report said this week. An estimated 80 percent of the loans support countries in financial distress.
Beijing says upwards of 150 countries worldwide, from Uruguay to Sri Lanka, have signed up to the Belt and Road Initiative (BRI), a vast global infrastructure initiative launched by President Xi Jinping in 2013.
The first decade of the project saw China distribute huge loans to fund the construction of bridges, ports and highways in many countries in the so-called Global South, Eastern Europe and the Balkans.
Today, an analysis of almost 21,000 projects across 165 countries shows that Beijing has committed aid and credit "hovering around $80 billion a year" to low- and middle-income nations.
More than half of those loans have now entered their principal repayment period, according to the "Belt and Road Reboot" report released on 6 November by AidData, a US-based research institute tracking development finance.
But according to Bradley Parks, AidData's executive director and responsible for the report: "China is not going to stand by and watch its flagship global infrastructure initiative crash and burn."
Chinese authorities have already launched "a far-reaching effort to de-risk Belt and Road," he told RFI.
According to Parks, Beijing is in the process of trying to "future-proof" the BRI, "by putting in place a set of loan repayment safeguards and project implementation guardrails".
China has made some 5,000 loans to developing countries worth nearly $1.3 trillion, most of them to big-ticket infrastructure projects such as railroads, airports or mines.
AidData's report found that 80 percent of China's overseas lending portfolio is currently supporting borrowers in financial distress.
China had already started to engage in overseas projects by the year 2000, more than a decade before the BRI was officially launched.
But, says Parks, at the turn of the century, there were only 17 "problem projects" with a value of around $450 million. Today the problem is a staggering hundred times that, with nearly 1,700 such projects worth more than $450 billion, spread over 125 countries.
"Those headaches are really far-flung," says Parks.
When China launched the BRI in 2013, it did so "to win friends and gain influence by doling out a lot of cheap credit for these large infrastructure projects," Parks says.
Initially, the strategy worked. Some 140 countries jumped on the BRI bandwagon, but within a few years, things started to falter.
"Beijing has seen its public approval rating in the developing world plunge from 56 percent to 40 percent," according to Parks.
"Projects that were supposed to be reputational assets became liabilities," he says.
Things got worse when the grace periods on Chinese loans starting to expire. Many countries were not able to service their debts and Beijing responded with heavy-handed tactics, trying to use its leverage as the world's largest official debt collector to muscle its way to the front of the repayment line.
"The thing about debt collectors is that they just don't win a lot of popularity contests," says Parks.
Alternatives to 'debt-trap diplomacy'
Yet Parks and AidData did not find evidence that Beijing pursued systematic "debt-trap diplomacy". According to that heavily disputed theory, China deliberately extended unsustainable loans in order to take collateral in the form of raw materials or infrastructure assets.
Although this may have happened in some isolated cases, "China is much smarter than that," says Parks.
Beijing is currently seeking to de-risk the BRI by imposing "increasingly stringent safeguards to shield itself from the risk of not being repaid," according to the AidData report.
That includes allowing key BRI lenders to pay themselves principal and interest due by "unilaterally sweeping" borrowers' foreign currency reserves held in escrow.
"These cash seizures are mostly being executed in secret and outside the immediate reach of domestic oversight institutions... in low- and middle-income countries," it said.
Parks estimates that some 50 percent of China's non-emergency lending portfolio in the developing world is now provided through collaborative arrangements with a group of banks known as a syndicate.
And 80 percent of China's syndicated loans to the developing world involve Western commercial banks, including French banks and multilateral institutions – a pivot that, Parks says, "has gone undetected until now".
But it means that Beijing is taking the BRI "off of a strictly bilateral track" while trying to spread repayment as well as reputational risk across a larger group of lenders, both inside and outside China.
"Think about this strategy as a de-risking shortcut," says Parks.
Many belts, multiple roads?
The BRI triggered a flurry of action among western countries, which suddenly woke up to the nightmare scenario that the world's roads, telecom infrastructure and transport networks might be dominated by China.
Against the backdrop of a deteriorating relationship with Beijing, the west – together with Beijing's arch-enemy India – launched a series of massive counter-initiatives.
They include Japan's Free and Open Indo-Pacific initiative; the Asia-Africa Growth Corridor, a joint project by India and Japan; Washington's Build Back Better World partnership; the EU's Global Gateway; the G7 initiative Partnership for Global Infrastructure and Investment; and the India-Middle East-Europe Economic Corridor.
But Parks thinks these projects can't really compete with the Belt and Road.
"There's a lot of talk," he says. "There's not a lot of action. And I think what we see in our analysis in this new report is that Beijing is really a step ahead of its competitors".