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BRI Newsletter on Oct. 8. 2021

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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