AidData’s New Dataset of $ 843 Billion in Chinese Development Projects Reveals Significant Increase in “Hidden Debt”

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  • Bank on the Belt and Road

    The AidData report details how spending patterns, debt levels and project implementation issues have changed over time, leveraging information from a granular data set that captures 13,427 projects in 165 country worth $ 843 billion.
    Image courtesy of AidData

by Alexander Wooley, AidData

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September 29, 2021

Problems with the implementation of the Belt and Road Initiative also revealed

AidData, an international development research lab based at William & Mary’s Global Research Institute, today released a wealth of new findings about China’s covert overseas development finance program.

The analysis, based on a massive new data set from four years ago, includes a particular focus on China’s Belt and Road Initiative (BRI). It comes at a time when the United States and its allies are seeking to develop a viable alternative to the BRI through the Build Back Better World (B3W) initiative, announced at the G7 summit in June 2021.

The AidData report, “Banking on the Belt and Road,” provides an overview of China’s geo-economic strategy before and after the introduction of the BIS in 2013. It details how spending patterns, levels debt and project implementation issues have changed. over time, leveraging information from a granular data set that captures 13,427 projects in 165 countries worth $ 843 billion.

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These projects have been funded by more than 300 Chinese government institutions and public entities. The new Global Chinese Development Finance 2.0 dataset covers projects approved between 2000 and 2017 and implemented between 2000 and 2021. It is the most comprehensive dataset of its kind.

“China has quickly established itself as the financier of first resort for many low- and middle-income countries, but its international lending and grant-making activities remain shrouded in secrecy,” said Ammar A. Malik, researcher principal to AidData. and co-author of the report. “Beijing’s reluctance to disclose detailed information about its overseas development finance portfolio has made it difficult for low- and middle-income countries to objectively assess the costs and benefits of participating in the BIS. It has also made it difficult for bilateral aid agencies and multilateral development banks to determine how they can compete – or coordinate and collaborate – with China to resolve issues of global concern.

Results

Malik and his colleagues found that in pre-BIS times, China and the United States were rivals when it comes to overseas spending. However, China now spends more than twice as much as the United States and other great powers.

In an average year during the BIS era, China spent $ 85 billion on its overseas development program, compared to $ 37 billion for the United States. “Bank on the Belt and Road” demonstrates that Beijing has used debt rather than aid to establish a dominant position in the international development finance market. Since the introduction of the BIS in 2013, China has maintained a loan-to-grant ratio of 31 to one.

The country’s “political banks” – the China Eximbank and the China Development Bank – have led a major expansion of foreign lending ahead of the BIS. However, since 2013, state-owned commercial banks, including Bank of China, Industrial and Commercial Bank of China, and Construction Bank of China, have played an increasingly important role in their lending activities. overseas having quintupled in the first five years. of the implementation of the BIS. The number of “mega-projects” – funded by loans worth $ 500 million or more – approved each year also tripled during the BIS era.

The report finds that as China has funded larger projects and taken on higher levels of credit risk, it has also put in place more stringent repayment guarantees. Thirty-one percent of the country’s foreign loan portfolio had credit insurance, collateral, or third-party repayment guarantee in the early 2000s, but the figure is now rising. ‘hui at nearly 60%. When the stakes are particularly high, the report’s authors find that the guarantee is Beijing’s “go-to” risk mitigation tool: 40 of the 50 largest loans from Chinese public creditors to foreign borrowers are secured.

China's overseas development spending includes 13,427 projects in more than 165 countries around the world since 2000. (Image courtesy of AidData)

Another key finding is that Beijing’s loans to low- and middle-income countries are made on less generous terms than loans from the OECD-DAC (the Development Assistance Committee of the Organization for Cooperation and Development economic) and multilateral creditors. A typical loan from China has an interest rate of 4.2% and a repayment period of less than 10 years. For comparison, a typical loan from an OECD-DAC lender like Germany, France or Japan carries an interest rate of 1.1% and a repayment period of 28 years.

The rise of hidden debts

The report also chronicles the rise in “hidden debt” and the fall in sovereign debt during the BIS era. Most of China’s overseas loans went to sovereign borrowers – central government institutions – in the pre-BIS era. But a major transition has taken place since then: nearly 70% of Chinese loans abroad are now directed to public enterprises, public banks, reception structures, joint ventures and private sector institutions in beneficiary countries.

These debts, for the most part, do not appear on their governments’ balance sheets. However, most of them benefit from explicit or implicit forms of host government liability protection, which has blurred the distinction between private and public debt and created major public financial management problems for developing countries. .

China’s debt burden is considerably higher than that of research institutes, credit rating agencies or intergovernmental organizations whose supervisory responsibilities were previously understood. The report’s authors find that 42 countries now have levels of public debt exposure to China above 10% of GDP. They also find that these debts are consistently underreported to the World Bank’s Debtor Reporting System (DRS) because, in many cases, central government institutions in low- and middle-income countries are simply not the primary ones. borrowers responsible for repayment.

“This unreported debt is worth around $ 385 billion and the hidden debt problem is getting worse over time,” said Brad Parks ’03, executive director of AidData.

He and his co-authors find that the average annual underreporting of repayment obligations to China was $ 13 billion before the BIS era, but $ 40 billion during the BIS era. The average government, they estimate, underreports its actual and potential repayment obligations to China by an amount equivalent to 5.8% of its GDP. Parks explained that “the challenge of dealing with these hidden debts lies less in the fact that governments know they will have to repay undisclosed debts to China with known monetary values ​​than because governments do not know the value. monetary debts to China they can or not. will have to maintain in the future.

Implementation issues

With the support of a team of 130 research assistants at William & Mary, the authors of the report made another important discovery: 35% of the BRI infrastructure project portfolio encountered major implementation problems – such as corruption scandals, labor violations, environmental hazards and public protests – but only 21% of the Chinese government’s infrastructure project portfolio outside of the BIS encountered similar problems.

BRI infrastructure projects also take significantly longer to implement than Chinese government-funded infrastructure projects undertaken outside the BRI, and Beijing has seen more project suspensions and cancellations during the year. BRI era than during the pre-BIS era.

“Host country policy makers are putting large-scale BRI projects on hold due to corruption and overpricing issues, as well as major shifts in public opinion that make it difficult to maintain close relations with China,” he said. said Brooke Russell, Associate Director of AidData and one of the report’s other co-authors. “It remains to be seen whether ‘buyer’s remorse’ among BRI participating countries will undermine the long-term sustainability of China’s global infrastructure initiative, but it is clear that Beijing needs to address the concerns of the BRI. host countries to maintain support for the BIS. “

“China will soon face higher levels of competition in the global infrastructure finance market due to the Build Back Better World initiative and the recently announced Global Gateway initiative by the EU,” Parks said. “As we enter this new era of strategic rivalry, it will be more important than ever that policymakers in the G7, China and host countries rely on hard evidence rather than opinions or guesswork.”

For more information on the report and its methodology, visit aiddata.org.


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