Tag Archives: international development

Another BRI Challenger Enters The Lists

US President Joe Biden announces the Partnership for Global Infrastructure and Investment at the G7 summit in Germany, June 26, 2022; Photo: Federal Government/Balk

FORGIVE THIS BYSTANDER’S world-weariness, but the Partnership for Global Infrastructure and Investment (PGII), the $600 billion plan for infrastructure and investment to challenge the Belt and Road Initiative (BRI) launched at the G7 summit in Bavaria, seems a bit old hat.

The US government’s statement that President Jo Biden (seen above announcing the PGII at the G7 summit) would announce flagship PGII projects ‘along with additional projects that have been undertaken over the past year’ — and links to a list of ten of them — is a bit of a giveaway.

Not that this would be the first time for governments to wrap up existing initiatives and past promises, tie a bow around them and announce a shiny ‘new’ package.

The PGII intends:

…to develop a values-driven, high-impact, and transparent infrastructure partnership to meet the enormous infrastructure needs of low- and middle-income countries and support the United States’ and its allies’ economic and national security interests.

What worthier and worth-laden circumlocution of intent to counter Beijing’s growing poured-concrete diplomacy could one imagine?

In one sense, the PGII is no more than a rebranding of the Build Back Better World (BBBW) plan rolled out at the G7 meeting in the UK a year ago. BBBW was a play on Biden’s domestic infrastructure plan.

The PGII’s four major categories for investment — clean energy, health systems, gender equality and information and communications technology — will sound familiar from his 2020 election campaign. Cynics might say that having failed to get much traction domestically with his infrastructure plans, the US president is now trying his luck internationally beyond the obstructivism of Congress.

The BRI has had at least a decade’s head start on the PGII. Its investment total is in excess of $1 trillion, although how much in excess is moot as there has been a tendency until recently to slap the BRI label on any overseas Chinese investment.

In many cases, the transparency and effectiveness of that investment and the loans supporting it have not been of the highest standards. However, Western criticism has not been accompanied by much by way of an alternative that does not come with the conditionality typically required by multilateral institutions such as the IMF, the World Bank and the IFC.

The $600 billion over five years that the G7 is now offering will not all be government money. The intention is to combine government funding with private capital from long-term investors such as pension funds, private equity funds and insurance funds — much as large companies augment China’s government overseas direct investment in BRI.

Those large Chinese companies can be state-owned, such as Zijin Mining, CNOOC, China Three Gorges and China Railway Construction, or private such as Alibaba, Boyu Capital and the metals and mining group Tsingshan.

In 2021, 560 new BRI projects worth at least USD100mn were signed, according to Ministry of Commerce data. The average value was USD355mn, compared to USD585mn in 2015. BRI activities are shifting to smaller, less costly and more creditworthy projects that are easier to manage and are less likely to concern recipient countries about the risks of taking on what turns out to be unmanageable and politically contentious debt.

This Bystander assumes that the PGII will subsume the EU’s standalone counter to BRI, its Global Gateway project announced late last year and which we described as ‘at least half a decade late and more than a euro short’. That would give needed financial buklk to the PGII.

Yet, how well the PGII competes with the BRI will depend on its implementation and how well the G7 governments can rally private capital to their cause to give substance to the headline number of $600 billion.

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A Trail Of Hidden Debt Along The Belt And Road

A REPORT ON Belt and Road Initiative (BRI) funding crosses our desk. It comes from AidData, a development aid research centre at the US university William and Mary, which has compiled a database of China’s international development finance covering 13,427 projects approved between 2000 and 2017 worth $843 billion across 165 countries, of which some 140 have signed onto the BRI.

Among its findings are that China has used debt rather than aid to establish a dominant position as a provider of international development finance, and the political sway that comes with it. That is less of an eye-opener than the estimates that the loans extended to recipient countries — primarily low- and middle-income nations — are far more extensive than generally realised, to the tune of $385 billion of ‘hidden debt’.

The reason for this hidden debt — hidden in the sense that it is not captured by institutional debt monitoring mechanisms such as the World Bank’s Debtor Reporting System (DRS) — is that Beijing’s loans are increasingly going to state-owned companies, banks or other entities that benefit from implicit or explicit, host government guarantees. 

Thus the debt does not show up in counts of sovereign debt, yet the liabilities for the recipient governments do not magically disappear.

The true magnitude of the debt is one concern. By AidData’s estimates, 42 low and middle-income countries now owe China the equivalent of more than 10% of their GDP.

Factoring in their hidden debt could cause reassessments of credit ratings, potentially raising borrowing costs.

A third concern is that hidden dent complicates debt management. Recipient governments may not have a good handle on their debt service requirements. That may complicate making the interest payments and debt restructuring where necessary.

Five key points emerge from the report:

  • the sheer growth of China’s overseas development finance since 2000, outspending traditional Western and multilateral providers by 2-to-1 or more (an average of $85 billion a year for China against the United States’ $37 billion, for example), and doing so with semi-concessional and non-concessional debt rather than aid;
  • a transition from direct sovereign lending pre-BRI to lending to state-owned companies, state-owned banks, special purpose vehicles, joint ventures, and private sector institutions, which, as already noted, keeps the loans off the balance sheets of the governments in the recipient countries but still provide explicit or implicit host government guarantees;
  • the increasingly central role of China’s state-owned commercial banks — including Bank of China, the Industrial and Commercial Bank of China, and China Construction Bank — have played in the transition, including organising lending syndicates and other co-financing arrangements that make it possible to undertake BRI mega-infrastructure projects (financed with loans worth $500 million or more);
  • the growing use of collateralisation to offset increasing credit risk, allowing Beijing to pursue a high-risk, high-reward credit allocation strategy to secure energy and natural resources, with the loans secured against future export receipts, or, for infrastructure loans, physical assets; and 
  • masking from international institutional monitoring, eg, the DRS, the extent of Chinese debt burdens on some recipient countries, estimated to be underreported by an average equivalent to 5.8% of their GDP, which is complicating international debt restructuring talks, which have become as much competitive as collaborative between China and Western donors and creditors of late as Chinese state-owned policy banks can restructure loans on their own terms outside the well-established forums of sovereign debt renegotiations.  

Nor do China’s loans come cheap. The average interest rate is 4.2%, with a repayment period of less than ten years, AidData says. By comparison, a lender like Germany, France or Japan would typically charge 1.1% with a repayment period of 28 years.

A further intriguing point to emerge is that more than a third of BRI infrastructure projects have encountered significant implementation problems—corruption scandals, labour violations, environmental hazards, public protests and the like. In contrast, non-BRI infrastructure projects are less troubled, as are BRI projects undertaken by the host country rather than China. That fits with widespread anecdotal evidence of local resentment when China ships in everything from raw materials to labour.

Whether such concerns amount to a tipping point in a BRI backlash is moot, and may provide only a slither of an opening for the two new Western counters to the BRI, the United States’ Build Back Better World Initiative and the EU’s Global Gateway Initiative.

China may well now have a sufficiently firm foothold in development finance that it will not be dislodged by rival and not necessarily wanted offers of sustainable and transparent financing and good governance. A tweak to Beijing’s messaging,already being rehearsed — no vanity projects and cleaner and greener projects — may suffice.


Filed under Banking, Belt and Road Initiative

China Half-Heartedly Falling In Behind Kim To Head World Bank

Kim Yong Jim, U.S. nominee for President of the World Bank, March 2012One way to look at Jim Yong Kim (left), the U.S.’s surprise nominee to be the next president of the World Bank, is that he represents a transition from the leadership of the multilateral development agency being a Washington sinecure to a merit-based selection from developing countries. That is how it seems to be being seen in Beijing. Kim’s nomination “demonstrated that [U.S. President Barack Obama] has begun to take heed of the demands from the developing world for an expanded role within the global institution,” Xinhua said in a commentary.

Kim, though a U.S. citizen, is Korean-born. Currently president of one of American’s elite Ivy League universities, Dartmouth College, he is a health professional with long experience in the developing world, including running the HIV/AIDS department at the World Health Organization. More importantly, he is neither a Washington nor Wall Street retread.

One reason for the post-World War II gentleman’s agreement between the U.S. and Europe that the former would get to put an American in as head the World Bank and the later a European as managing director of the IMF, was that the Bank needed to secure the confidence of Wall Street, then its primary supplier of capital. That world has changed. Washington’s gift of the Bank’s presidency, along with Europe’s of the IMF’s managing directorship, is a 20th century convenience but a 21st century anachronism.

Kim is one of three candidates. Nigeria’s finance minister, Ngozi Okonjo-Iweala, and Colombia’s former finance minister, Jose Antonio Ocampo, are the other two. Such is the voting structure of the Bank that it would take a broad-based European veto to block Kim. Even in the highly unlikely event of that happening, the U.S. could, in turn, veto either of the other two candidates. A new Bank president needs a supermajority of the Bank’s executive directors, 25 representatives of its member nations with voting power weighted in accordance to the capital they subscribe to the Bank.

Beijing has yet to tip its hand publicly. The decision it has to take is whether to get behind what looks to the winning horse, in the expectation that Kim may introduce further reform in the governance of the Bank from which China would be a beneficiary, perhaps the big winner, or to stand by one of the other two candidates in a show of developing-nation solidarity, though that would force it to make a choice between its friends in Africa and those in Latin America. We expect Beijing to go, along with the Europeans, with the first choice. The biggest hint in that direction came earlier this month from central bank governor Zhou Xiaochuan. He said that it wasn’t worth paying much attention to the selection of a new head of the Bank as the job had always gone to an American. Coverage in state media has been correspondingly light and scarcely more interested.

As others have pointed out, the World Bank matters less to China now than China does to the World Bank. It may also matter less to the world than China. The commentator and academic, Martin Jacques, captures the point succinctly: “in 2009 and 2010 the China Development Bank and the China Exim Bank lent more to the developing world than the World Bank”.

It is telling that Beijing didn’t put a candidate of its own forward, nor was one of its own, save perhaps for Zhou, much talked about even as an outside possibility. The prize Beijing has its eye on is the top job at the IMF.

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