China's Belt and Road tempts states, but comes with risks


Nusa Dua, Bali: China's massive "Belt and Road Initiative" building push may create debt risks but is also responding to major infrastructure gaps in Asia and could boost global trade, World Bank officials say.

The relatively upbeat assessment of a sometimes controversial programme comes despite the debt crisis now faced by Pakistan, a recipient of massive Chinese loans.

It has dispersed tens of billions of dollars in loans, often to highly indebted countries, sparking criticism of Beijing for everything from "debt entrapment" to excluding local labour from projects funded by the plan.

"But there are challenges as well ... There are environmental and social risks, there are issues to do with public procurement, and sustaining public debt becomes an issue because these projects are expensive," she added.

And officials say it is offering funding in areas where it is sorely needed.

"Central Asia will benefit from any additional investment that will lead to greater integration."

In the last five years, China's direct investment under BRI has surpassed US$60 billion, leaving several recipients vulnerable.

But Freund said they were the exception, and Chinese loans remained a relatively small part of the total debt burdens of most countries involved in the BRI.

But for a small number of countries, there are "serious concerns," he acknowledged. Among them is Pakistan, which relied heavily on BRI funding for a US$54-billion project linking its Gwadar port to China.

Rising US interest rates are likely to make the situation worse for many countries, because BRI loans are mostly denominated in US dollars.

In August, Malaysia acted preemptively, shelving three China-backed projects, including a US$20-billion railway line, that it said it could no longer afford.

"We fully respect Malaysia's decision-making, based on their sustainability situation," Chinese Finance vice-minister Zou Jiayi told a panel at the Bali meeting.

"The Chinese government attaches great importance to the sustainability, we are the creditor," she added. But, she emphasised, the initiative is not an aid programme.

"It's not like the Marshall plan, it's a development initiative based on the market mechanisms, and driven by market forces," she said.

Beijing's commitment to market forces has been questioned by some, however, with most projects financed with BRI money awarded to Chinese companies and built with Chinese labour. A French treasury report released this week praised the BRI for contributing to areas with serious infrastructure shortfalls, but noted just 3.4 per cent of projects financed by China were awarded to foreign companies.

And in Pakistan, it said, 91 per cent of the revenue generated by the Gwadar port project over the next 40 years will benefit China.

Zou said the overwhelming reliance on Chinese labour was simply "cost-effective", but acknowledged Beijing could encourage Chinese companies to "take more advantage of the local labour."

The programme has also been criticised for funding politically-driven "white elephants" that are structurally unsound or largely useless.

Speaking in Beijing earlier this year, IMF Chief Christine Lagarde praised the "early indications of progress" under the initiative, but also warned of the need to ensure "that Belt and Road only travels where it is needed".



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