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On July 13th, Nikkei Asian Review reported that Pakistani government had “launched a rare dialogue with separatists opposing China’s Belt and Road Initiative”. This move is made in response to a growing number of attacks on government installations and security forces in the first half of 2021, and in anticipation of US withdrawal from Afghanistan, which analysts expect will increase instability which could lead to even more attacks. On July 14th, a bus explosion in Pakistan killed 13 people, including 9 Chinese workers on their way to the construction site of the Dasu hydropower plant. This explosion is not the first occasion of an attack on Chinese workers and interests in Pakistan (attacks in 2018 on the Chinese consulate in Karachi and on a Gwadar hotel used by Chinese nationals and the 2020 attack on the Pakistan Stock Exchange are other examples), but it does underscore the necessity for the Pakistani government to negotiate with groups opposing the BRI if it wants to successfully continue the China-Pakistan Economic Corridor (CPEC). The Chinese Foreign Ministry said the construction on the Dasu hydropower dam is suspended and the Chinese government also postponed an important CPEC meeting that was scheduled to be held a few days after the attack. Both the Pakistani and the Chinese government want BRI projects in Pakistan to succeed, but how the Initiative develops in Pakistan will also depend on the security on the ground and the ability of the Pakistani government to ensure a safer environment. by Vera Kranenburg from Clingendael Institute

Recently, the Chinese Ministry of Commerce and the Ministry of Ecology and Environment jointly issued the “Green development guidelines for overseas investment and cooperation”. These guidelines aim to motivate Chinese businesses to make green development a part of their foreign investment and foreign cooperation. The new guidelines go beyond previous practices and include climate, biodiversity, and pollution. If these new guidelines are implemented by Chinese businesses, they could greatly improve green standards in the Belt and Road Initiative. One instruction in the new guidelines will stand out to anyone who has read about the BRI and environmental practices before. The guidelines state that businesses should not only adhere to local environmental standards, but instead, when those are insufficient, they should “follow international green rules and standards”. Until now, adhering to local environmental laws was always considered doing enough in terms of greening BRI projects. This was a problem because many countries that take part in the BRI do not have very high environmental standards or strict rules. If Chinese businesses investing abroad will in the future adhere to international green standards, then environmental conditions could improve in many places. Provided by Vera Kranenburg from Clingendael Institute

Last Wednesday, AidData, based at the College of William and Mary in the US, released a new report entitled “Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development projects”. The report provides new insights into BRI funding and Chinese development finance worldwide. The dataset used for the report includes 13,427 projects worth $843 billion across 165 countries from 2000 to 2017.

AidData’s researchers present five major observations. Firstly, China’s overseas development finance has expanded phenomenally in the 21st century. China outspends the US and other larger powers, mostly using semi-concessional and non-concessional (profit-making) loans rather than aid. Secondly, Chinese state-owned commercial banks have gained a larger role, and they make it possible to fund mega-projects. Thirdly, due to higher levels of credit risk, the need for repayment safeguards increased. Collateralization has become the most common way to increase this safeguard. Fourthly, BRI has changed the way China finances infrastructure projects. Previously, most overseas lending went to central government institutions, but now the large majority goes to “state-owned companies state-owned banks, special purpose vehicles, joint ventures, and private sector institutions” and most of these debts do not appear on government balance sheets. Fifthly, a third of BRI infrastructure projects have encountered implementation problems, but the Chinese government’s infrastructure projects outside of BRI have encountered fewer implantation problems.

Particularly interesting is the fourth finding. For example, in the case of Pakistan, the report says that Chinese loans are expensive (average interest rate of 3.76%) compared to other lenders (loans from OECD-DAC lenders like Germany, France or Japan carry 1.1% interest rate). The possibility of not having these loans in their balance sheet makes them attractive to lower-middle income countries, even though the interest rates are higher.

provided by Vera Kranenburg from Clingendael Institute

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