China may be reining in its trillion-dollar investment initiative, aimed at spreading Chinese influence across the global south, The Wall Street Journal reported Monday.
Under the Belt and Road Initiative (BRI), Chinese authorities have pressured banks to give out loans with generous conditions to poorer countries mostly for infrastructure projects that help cement ties between China and participating nations, the WSJ reported. Now policymakers are deliberating a “Belt and Road 2.0” that would implement more stringent conditions for new projects amid growing risk of default by the recipient countries, people involved in the policymaking told the WSJ.
“China is attempting a course correction,” Weifeng Zhong, a senior research fellow who tracks Chinese government propaganda at George Mason University, told the WSJ.
In 2010, before China rolled out the BRI, countries that could be considered in financial distress held just 5% of Chinese loans, according to research from economists Sebastian Horn, Carmen Reinhart and Christoph Trebesch, the WSJ reported. Today, up to 60% of Chinese debt is in the hands of economically burdened countries.
For example, Sri Lanka’s economic collapse and default this summer jeopardized China’s ability to recover that debt, and the small island country is working with the International Monetary Fund on a restructuring agreement, Reuters reported. China holds about $5 billion in Sri Lankan debt.
Economists said China’s position as a financier may have contributed to Sri Lanka’s downfall, according to the WSJ.
As the global economy cools down, China has lost tens of billions in loan repayments and seen infrastructure projects fall through, the WSJ reported.
Chinese President Xi Jinping told senior officials in November the project had grown “increasingly complex” and required a more cautious approach to investment and vetting of potential projects.
China’s Foreign Ministry told the WSJ “we will work with the international community to promote high-quality development of Belt and Road cooperation.”
One way China has already changed its BRI policy is by opening up to international institutions, such as the Paris Club of major sovereign creditors like the U.S., to help resolve debt crises, the WSJ reported.
Chinese banks will have to take losses, the WSJ reported, amid an ongoing banking crisis. Xi’s immovable stance on “Zero Covid” has also stifled post-pandemic recovery, with the country seeing growth far below its target of 5.5% for 2022.
BRI investments fell by roughly half after the onset of the COVID-19 pandemic and have remained steady since, according to the Green Belt and Road Initiative Center.
Wang Xiaolong, director-general of the Chinese Foreign Ministry’s economics division, said economic strains following COVID-19 had negatively influenced 50% to 60% of BRI projects, Hindustan Times reported in 2021.
The BRI has received widespread criticism for its allegedly exploitative practices since launching in 2013. Chinese state-operated companies typically own the infrastructure projects in developing countries, importing Chinese labor while saddling host countries with predatory debt.
Western observers call the phenomenon “debt-trap diplomacy,” spurring an attempt from the West to provide alternatives to BRI.
The Chinese Foreign Ministry did not immediately respond to the Daily Caller News Foundation’s request for comment.
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