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China’s Belt and Road Initiative Is About Profit, Not Development, Study Finds

FILE - A woman checks her mobile phone next to a poster promoting a project of the Belt and Road in Colombo, Sri Lanka at China International Fair for Trade in Services in Beijing, China, May 28, 2019.
FILE - A woman checks her mobile phone next to a poster promoting a project of the Belt and Road in Colombo, Sri Lanka at China International Fair for Trade in Services in Beijing, China, May 28, 2019.

A new report on China’s international development projects initiated between 2000 and 2017 demonstrates that extensive high-interest lending by China’s state-backed banks has left countries across much of the developing world struggling under onerous debt loads, even as some of the development projects those loans funded face major implementation problems.

The study conducted by AidData, a research lab at the College of William & Mary in Virginia, provides a clearer picture than had previously been available of the extent to which China has invested its enormous foreign currency reserves in loans to the developing world.

Unlike funds provided by many Western governments, those loans are designed, first and foremost, to turn a profit for China, Parks said.

The Belt and Road Initiative is a major element of Chinese President Xi Jinping's plan to move his country into a commanding position at the center of the global economy. It is designed not just to cement new trading relationships with countries around the world, but to lock in China's access to natural resources and other commodities that it does not produce internally, the authors conclude.

Over the course of four years, 135 people associated with AidData scoured public records around the world to assemble documentation on 13,427 Chinese development projects in 165 countries. The researchers reviewed $843 billion in Chinese government loans to low-to-medium income countries (LMICs).

Of the 165 countries where China has made development loans since 2000, the study finds that 42 now carry debt to China equal to or greater than 10% of gross domestic product.

‘A banker, not a benefactor’

Brad Parks, executive director of AidData, said the information reveals that Beijing’s approach to funding projects in the developing world reflects a “fundamentally different orientation” toward the process than, for example, countries that belong to the Organization for Economic Cooperation and Development.

“China is a banker, not a benefactor,” said Parks.

Since 2000, most OECD countries have moved toward providing grants and low-interest loans to developing nations.

And in the case where they do lend money, the focus is on furthering economic development in the host country. China, by contrast, lends with an eye to earning an economic return, Parks said.

“The average loan from an OECD creditor has a 1% interest rate,” said Parks. “The average loan from an official Chinese creditor is over 4%. It’s the same with repayment. The average repayment period is 28 years for the Western powers, and it's less than 10 years for a Chinese loan.”

He added, “China’s state-owned banks are profit-maximizing surrogates of the state. They are hunting for revenue-generating, profitable projects. There may be some ancillary economic development or social welfare benefit for host countries, but that's not the primary motivation.”

Excessive debt

In recent years, that drive for profit has left many of the countries that were initially eager to borrow from China more deeply in debt than they expected.

AidData found that in the years since the advent of China’s Belt and Road initiative in 2013, China’s lending practices changed. Loans that had once been made directly to foreign governments were instead parceled out across various state-owned companies, state-run banks, joint ventures and other borrowers.

One result of this is that it is often unclear, even to the debtor governments themselves, exactly how much money they owe to China. That means their actual debt burden is not accurately reported to other lenders such as the World Bank or to global credit-rating agencies.

The authors estimate that on average, the LMICs where China has done most of its lending under-report their total debt to China by an amount equal to 5.8% of their GDP.


While China’s development lending is spread across the globe, the largest concentration by the number of projects is in Africa, where 47% of China-financed individual development projects accounting for $207 billion in loans are located. Asia accounts for just 26% of projects by number, but the largest share by value, at $246 billion.

A number of countries face especially high debt burdens to China.

According to the study, Laos, Angola, Kyrgyzstan, Djibouti, Suriname, the Maldives, the Congo and Equatorial Guinea all have debt to China that totals more than 30% of GDP.

This week, the Chinese Foreign Ministry issued a statement to The Wall Street Journal that said in part, “China attaches great importance to the issue of debt sustainability of the countries jointly building the ‘Belt and Road.’”

The foreign ministry described the BRI as the “largest international cooperation platform in the world today.”

‘Debt trap’ debunked

Parks said that his group’s research ought to put to rest the widely held idea that China is purposely setting up “debt traps” for poor countries. The debt trap hypothesis suggests that China is making loans that it knows borrowers cannot repay, in order to gain diplomatic leverage over debtor governments, or to simply seize possession of major infrastructure projects that haven’t been paid off.

China, he said, has a demonstrably strong preference for collateralizing its loans with liquid assets rather than physical infrastructure.

“It was extremely rare to see Beijing collateralizing on a physical illiquid asset,” Parks said. “They are savvier than that. What they prefer to do is to collateralize on cash, fully liquid, grab-and-go assets.”

One common repayment arrangement, Parks said, involves contracts for delivery of a country’s natural resources. At the same time that it issues a loan, Beijing will arrange a parallel agreement for ongoing purchases of resources produced by the host country. However, when it takes delivery of the resources, Beijing “pays” for it by depositing money in an account that it controls, and uses those funds to collect scheduled loan payments.

‘Buyer's remorse’ plaguing BRI

The change in lending strategy that China implemented when the Belt and Road Initiative was announced in 2013 appears to have resulted in projects that are less successful than those outside the program.

For example, 35% of BRI projects have run into serious implementation problems, including corruption scandals, labor violations, environmental hazards and public protests, according to the study. That compares to 21% of non-BRI projects.

BRI projects take 36% longer to implement than non-BRI projects, and face a higher probability of being shut down by host countries because of “corruption and overpricing concerns, as well as major changes in public sentiment that make it difficult to maintain close relations with China,” the report finds.

Competition coming

The United States and some Western powers have used the dissatisfaction among some BRI borrowers to promote competing initiatives, such as the Biden administration’s Build Back Better World (B3W) proposal being pushed by the G-7, or the European Union’s recently announced Global Gateway program.

Speaking to the United Nations earlier this month, U.S. President Joe Biden appeared to criticize the BRI, saying, “infrastructure that is low quality or that feeds corruption or exacerbates environmental degradation may only end up contributing to greater challenges for countries over time.”

How the combination of spreading dissatisfaction among its existing borrowers and new competition from the West will affect BRI is unclear at this point, said Parks.

“The jury's out on whether this buyer's remorse dynamic that's taking hold among borrower countries is going to undermine the long-run sustainability of Belt and Road,” said Parks. “But if Beijing wants to sustain support for the initiative, it needs to move quickly and decisively to address this kind of rising discontent among Belt and Road participant countries, and it needs to watch its flank, because there’s soon going to be greater choice in the infrastructure financing market.”