The Belt and Road Initiative, since its proposal in 2013, has boosted regional investment and benefited countries along the routes. Among the investment, capital from China has the largest share. Statistics from China Banking Association show that loans from China's government and banks to countries and regions along the Belt and Road have reached $200 billion.
Nevertheless, the Chinese investment, which is important and beneficial to regional development, has been criticized by some Western media as having raised the debt burden of these countries.
However, has such investment really increased the debt burden of those countries? It seems that this question is not worth considering, as it totally goes against market behavior.
Capital is one of the necessary factors for the development of a country. Since the outbreak of the global financial crisis in 2008, even some developed European countries have aspired to receive funding support from China. And most countries along the Belt and Road are developing countries, and their needs for funding with which to promote their national economic and social development are actually more urgent. Through increasing investment and providing loans with no political conditions attached, China has shown its willingness as a responsible, large nation to share its own development achievements with countries along the Belt and Road.
The Chinese loan projects along the Belt and Road mainly focus on economic cooperation, infrastructure construction, energy and resource cooperation, and industry investment in Southeast Asian, South Asian and Central Asian countries. With the support of Chinese funds, many significant projects have started construction.
Facts also prove that Chinese loans have promoted local economic development. For instance, the China Development Bank (CDB) has provided $384 million to an Indonesian 300,000-ton nickel iron smelting project, which was put into operation in April 2015. By April this year, the project had created 11,000 local jobs, contributed $110 million in revenue and generated more than $130 million worth of exports.
As two major financing institutions supporting the building of the Belt and Road, CDB and Export-Import Bank of China had offered loans surpassing $160 billion to countries along the Belt and Road by the end of 2016, with the loan balance exceeding $110 billion.
In a press conference in May, CDB Vice President Ding Xiangqun told media that the repayment of CDB loans relies on the profitability of the projects they fund; therefore they will not increase the fiscal burden of the project host countries.
Like other financing institutions in the world, Chinese banks attach much importance to credit risk. When offering loans to construction projects concerning the Belt and Road Initiative, CDB conducts feasibility studies, assesses credit risk based on market rules and international practice, and chooses projects that can bring about economic benefits. By far, most Belt and Road Initiative-related projects that CDB funds can generate healthy cash flow and repay the capital and interest smoothly.
When issuing sovereign loans, Chinese financial institutions strictly assess the fiscal condition and sovereign credit rating of the host countries. For heavily indebted poor countries, China offers them loans on IMF-permissible terms.
Most countries along the Belt and Road are developing countries or emerging economies. They have huge and long-term capital needs for their social and economic development, including infrastructure improvement. Chinese banks have contributed most of the loans they need since the Belt and Road Initiative was launched, while few international financial institutions or banks from developed countries have become involved. Does that mean international financial institutions worry about increasing the debt burden of these countries? The answer is obviously not.
It is laudable that the international community pays high attention to the sovereign debt problem of poor countries. The Chinese Government has announced debt relief to other developing countries many times. But China will not refuse to offer loans to other developing countries due to concerns about their debt. The sustainability of a nation's debt is based on the sustainability of its economic growth. If we don't help these countries to develop their economies, they cannot sustain their debts. At their initial stage of economic development, developing countries often face the problem of a funding shortage. Under these circumstances, Chinese investment and loans can play the role of catalyzer of economic growth. Along with the construction of projects using such funding, social and economic benefits will arise for local people, improving their livelihoods. Thus, when developing economies grow healthily, should we still worry about their debt problems?
Copyedited by Chris Surtees
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