How China’s New Silk Road is becoming a debt trap
by Ralph T. Niemeyer
When most African nations fought for their independence about 60 years ago, they might have won on paper, but immediately thereafter were subject to neo-colonialism and until today are suffering under dictates from IMF, World Bank or European Partnership Agreement (EPA). Now, it is highest times for the African continent to really become sovereign and find it’s rightfully deserved place as a major player in the world order that is currently newly created and which will probably look quite different from what think-tanks in Washington, tech-firms in California or elitists in Davos had been dreaming of.
The real New World Order, not to be mistaken by the neo-liberal globalist’s “NWO”, will be formed by the BRICS and more and more nations are currently negotiating joining. But how to avoid being under the shoe of some new kid on the block like China?
Ten years after the start, the ambitious “New Silk Road” trade project is costing China dearly. Many developing countries that have received loans from Chinese banks for the construction of infrastructure cannot service them – Beijing has to rescue them with emergency loans.
The Chinese President Xi Jinping (69) described the ambitious trade project “New Silk Road” as the “project of the century” when it started in 2013. Now, a decade later, the ambitious infrastructure project is losing momentum and the loans granted by Chinese banks for it are preparing more and more for Beijing problems. The Silk Road was the most important trade link between China and Europe in ancient times and the early Middle Ages.
China announced ten years ago that it wanted to revive it. Critics fear that the People’s Republic wants to expand its influence.
“Beijing has issued thousands of loans worth nearly $1 trillion for major infrastructure projects in 150 countries over the decade,” Bradley Parks, executive director of research and innovation lab AidData, told CNBC. “Now, many borrowers are struggling to repay their debt to Beijing for infrastructure projects,” Parks said. For example, the leadership in Beijing has drastically expanded the granting of bailout loans in recent years.
Parks is one of the authors of the study, which AidData, the World Bank, the Harvard Kennedy School and the Kiel Institute for the World Economy (IfW) published jointly in March. According to this, as of the end of 2022, 60 percent of all Chinese foreign loans are now at risk of default. In 2010, this share was only five percent.
“Beijing faces a major loan repayment challenge and is responding with a strategic shift,” Parks said. “It’s cutting back lending for infrastructure projects and increasing emergency bailout loans.” By the end of 2021, the authors counted 128 bailout loans to 22 debtor countries totaling $240 billion. A large part of this – $170 billion – will therefore be granted via central bank loans. These are particularly difficult for international organizations and rating agencies to understand.
The future of the New Silk Road is in question
According to the information, these are mostly refinancing loans – i.e. the extension of terms or payment terms and the granting of new loans to finance due debts. “Debts are only waived extremely rarely,” says the IfW.
According to the analysis, the future of the New Silk Road is in question because Chinese banks have now drastically reduced regular lending for new infrastructure and energy projects.
The Chinese Embassy confirmed the increase in debt to CNBC. It is true that the debt risks for developing countries have increased significantly recently, but there are various external factors. No one is forced to borrow money from China and no obligations are attached to loan agreements for political reasons.
The mammoth project is losing momentum amid the impact of debt sustainability, the coronavirus pandemic and China’s economic downturn, noted researcher Xue Gong of the Carnegie China research center in March. China’s cost of the New Silk Road has totaled $962 billion since its inception, according to a report by Shanghai’s Fudan University. About $573 billion is spent on construction contracts and $389 billion on non-financial investments.
Now, after a first Russia-Africa Summit held in Sochi in 2019 which had more symbolic meanings and had been criticized widely for being not more than a PR stunt, President Putin appears determined to re-launch the Russian initiatives in Africa but is said to avoide repeating mistakes by others, and may step in an areas where China is struggling now to complete the task, even though he is a close partner of Chinese President Xi Ji-ping. Maybe President Putin will act a bit wiser than the Chinese bulldozers and this way really gets a mutually beneficial and sustainable relationship between Africa and Russia on the road.
The next Russia-Africa Forum will be held from 26th to 29th July 2023 in Sankt Petersburg and this time around, one expects more businesswomen and businessmen, especially also from the younger generation to participate rather than old diplomats and leaders.
