Xi tightens belt over global bid to build influence

Since President Xi Jinping made it the centrepiece of his foreign policy, the so-called Belt and Road Initiative has become a symbol for many of the new China’s imperial ambitions.

According to its proponents, it is a benign attempt to increase ‘‘connectivity’’ by helping countries in Asia, Africa and across the developing world by building ports, roads and railways to enable them to sell into the massive and ever-expanding Chinese market.

To others, it is a thin disguise for ‘‘debt diplomacy’’, a sinister effort to inveigle susceptible countries into borrowing money that they can never repay, on impractical and over-ambitious projects, thus putting them at the mercy of China and its political agenda.

Unlike the aid programmes of many western countries, and institutions such as the International Monetary Fund and World Bank, China’s bounty was dispersed with little concern for such niceties as environmental and labour standards.

When borrowers defaulted, debts may be extended, but they were almost never written off, and negotiations were conducted behind closed doors.

But, almost 10 years after it began the BRI, as it is known, appears to be undergoing an evolution.

This northern summer, for the first time, China joined western countries in collectively restructuring the debts of Zambia, which went broke in 2020 with US$17 billion (NZ$60b) of debt, some US$6b of it owed to Chinese institutions.

Beijing has always declined invitations to join the Paris Club, the organisation of rich countries that co-operate in organising and alleviating the debts of struggling and insolvent governments. But in Zambia, it joined them as part of the Common Framework, an arrangement based on similar principles intended to help the poorest debtor nations.

It was the most striking among other recent signs that China is adjusting the BRI to take account both of Western pressure to establish common rules on loan reduction, and the realities of a post-pandemic world in which many countries are struggling with debts, lower growth and rising prices.

In August, Beijing announced that it would forgive 23 interestfree loans to 17 African nations (although it did not say what the write-off amounted to). It is taking part in negotiations with other creditors under the Common Framework with the indebted governments of Chad and Ethiopia.

By its own reckoning, the Chinese government has disbursed US$1 trillion in loans and other development funds in close to 150 countries, since the BRI began in 2013. Having for years been the recipient of foreign aid, China is now the world’s biggest lender.

The programme has always been a cause for reproach and controversy. Its projects are diverse, from a railway in Kenya to an oil pipeline across Myanmar.

Many of them bring obvious benefits to the countries which host them, in the form of employment and increased efficiency of transportation and commerce. But in other cases, the main beneficiaries appear to be the Chinese companies that often end up doing much of the construction work – and the Chinese government whose long-term loans, rather than the outright grants more common among Western aid givers, put its recipients in debt to Beijing, both literal and political.

The port of Hambantota was built in Sri Lanka with money lent by China, one of what Beijing calls the ‘‘string of pearls’’ of maritime bases constructed across Asia, Africa, the Middle East and the Caribbean. Studies suggested that it would struggle to be profitable. They were correct – five years ago, the Sri Lankan government was forced to lease it to a Chinese company for 99 years.

Despite being commercially unviable, it is in a strategically crucial position, close to China’s rival, India. Sri Lanka, meanwhile, defaulted on its debts and slid into an economic crisis that has left many people short of food, fuel and medicine. Its president, Gotabaya Rajapaksa, was driven from power by huge demonstrations in July.

In a remarkable reversal, China has gone from being the victim of European imperialists, such as the opium wars inflicted by the British, to being accused of an aggressive expansionism of its own.

‘‘The Belt and Road Initiative is intended to develop strong economic ties with other countries, shape their interests to align with China’s and deter confrontation or criticism of China’s approach to sensitive issues,’’ the US defence department said in 2018.

As interest rates and inflation rise and economies slow across the world, China seems to be reevaluating the sustainability of its BRI tactics. In the past, the country’s state banks would ease loan terms but rarely write them off, even when there was little chance of repayment, a practice cynically known as ‘‘extend and pretend’’.

The point of the BRI has been to focus on developing countries and many of its debtors are in trouble. Some 60% of money owed to China is from countries in economic ‘‘distress’’, a category that includes those at war – Russia, Ukraine and Belarus collectively hold a fifth of Chinese loans from the past two decades. Economic self-interest in itself is reason for China to scrutinise its lending policies more carefully.

After years of spending on infrastructure projects, China has increasingly made a different kind of loan – fast emergency bailouts to countries unable to meet other debt obligations. This is the role of the IMF, which typically imposes tough and politically unpalatable conditions before disbursing money, including tight control of spending, tax rises and even the laying off of civil servants to cut government costs.