Economic setbacks make it difficult for debtor countries to recover. Beijing is forced to agree to debt restructuring. 60% of Chinese loans abroad correspond to indebted countries. Turkey does not have foreign exchange reserves to pay what it owes to China. Compared to 2018, Belt and Road investments fell $50 billion in 2021.
Beijing () – The problems with the debt of its own partners force China to reduce investments in the Belt and Road Initiative, Xi Jinping’s megaproject to strengthen China’s commercial centrality by building infrastructure and transit routes in different parts of the globe.
The indebted countries ask China (and other lenders) to lower interest rates, extend payment terms and discounts on the principal to be repaid. Yesterday Ecuador announced that it had reached an agreement with Chinese banks to restructure the debt; in August, Beijing said it had forgiven the repayment of 23 interest-free loans, granted to African countries, that expired at the end of 2021.
According to Rhodium Group data, China had 19 cases of debt workouts in 2021 and 21 in 2020: in 2019 there were only nine. The Covid-19 pandemic first and the global effects of the war in Ukraine have hindered the economic development of the debtor countries.
As Nikkei Asia reports, a team of researchers led by World Bank Chief Economist Sebastian Horn calculated that 60% of Chinese loans abroad went to countries with debt problems: in 2010 it was just 5%. Not only that, Belt and Road partners such as Turkey, Nigeria, Ghana, and Egypt have seen their foreign exchange reserves decline drastically, limiting their ability to repay debts to China.
In this complex scenario of debt, to which is added the economic crisis in China, Chinese investments in the Belt and Road are in a phase of stagnation. Calculations by the Green Finance & Development Center show that in the first six months of 2022 they stood at $28.4 billion, up from $29.6 billion a year earlier. Saudi Arabia was the first recipient, while economically unstable countries like Russia and Sri Lanka did not receive any investment.
If medium-term figures are considered, we can see the sharp drop in Chinese commitments in the “New Silk Roads”. In 2021, Chinese investment and construction under the banner of the Belt and Road reached 70 billion dollars: above the 60 billion dollars of 2020, the first year of the pandemic, but far from the 110 billion dollars of 2019 and the more than 121,000 million in 2018.
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