Since the Belt and Road Initiative was proposed in 2013, China's total non-financial direct investment in countries along the Belt and Road routes has reached $104.72 billion, according to the Ministry of Commerce. 

Despite the novel coronavirus pandemic, China's outward foreign direct investment (OFDI) in these countries did not decline but went up 18.3 percent year on year in 2020 to reach nearly $18 billion. It accounted for 16.2 percent of the country's total OFDI, up from 13.6 percent in 2019. 

The increasing Chinese capital inflow into Belt and Road infrastructure projects did not cause any debt crisis in the host countries. This is because they are based on well-conceived investment decisions.  

The participation is entirely voluntary. None of the participating countries are forced into Belt and Road cooperation, or coerced into borrowing money from Chinese lenders. 

All investment projects are implemented by businesses following market rules. Thus government-to-government lending is rare; most of the financing arrangements are based on market mechanisms, such as international market financing and public-private partnership financing. 

Finally, all the projects are selected based on calculation of the return on investment, linked closely with the economic development needs at both the national level and the regions the projects serve. 

Sri Lanka is a case in point. According to the Sri Lankan Government, Chinese loans account for only 12 percent of the country's total foreign debt. The major part of the debt is composed of borrowing from the international market and loans from multilateral financial institutions. The Hambantota International Port built in south Sri Lanka, a region that was among the poorest in the island nation, is often cited by critics as a project with negative implications for the country. The allegation stems from the fact that the port was leased out for management for 99 years. However, the operator, the Hambantota International Port Group, is a joint venture between the Sri Lankan Government and China Merchants Port (CMP).  CMP acquired majority stakes in the project following market rules and is developing the area with an industrial park, creating jobs and bringing in investment.  

The China-Pakistan Economic Corridor in Pakistan has also faced criticism. But 80 percent of the investment comes from China-Pakistan joint ventures, only 20 percent is from debt-based financing.  

The Chinese Government highlights debt sustainability in Belt and Road cooperation. In 2019, the Ministry of Finance issued a guideline on the procedures and standards for debt sustainability evaluation, risk analysis and management, and stress test to make the process clear and transparent.  

Participating countries unable to repay the debt to Chinese agencies are never forced to do so; instead, ways of resolution are sought through consultations.  

Last year, to allay the debt tension in other developing countries due to the pandemic, China responded to the debt relief initiative undertaken by the Group of 20 (G20). It extended debt service relief, worth $1.35 billion, which benefited 23 countries. It was also the highest deferred amount among all G20 members, nearly 28 percent of the total debt relief of the bloc. Besides, the Chinese Government also waived interest-free loans that were due to mature that year for 15 African countries. 

Debt is an issue that has been present long before the Belt and Road Initiative was launched. It happens to all countries. One typical example was after the global financial crisis of 2008, when many European countries suffered a protracted debt crisis. 

Since 2010, there has seen a fast growth in global debts mainly because many countries resorted to super-sized stimulus measures to cope with the fallout of the crisis. For instance, the quantitative easing by the United States and EU caused a huge injection of capital into the international financial market, and a large amount of capital flowed into developing countries. 

The author is executive dean and professor of the Belt and Road School, Beijing Normal University  

Copyedited by Sudeshna Sarkar  

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