Why China’s Belt and Road Initiative is Failing

this video is brought to you by nebula for the last decade or so China has been lending hundreds of billions of dollars to developing countries as part of its Belton Road initiative commonly known as the Bri the Bri was intended as the centerpiece of XI jinping's foreign policy and while it originally looked like a great way to improve China's Global Soft power in the last few years loads of these countries have told China they don't have the money and China has had to renegotiate or write off hundreds of billions of dollars so in this video we're going to look at what the Bri is why it's not working and what might happen next [Music] let's start by looking at the Belton Road initiative itself first announced by Xi Jinping in 2013 the Belton Road initiative basically involves China lending loads of money to developing countries to build trade-related infrastructure connecting China to the rest of the world the Bri is a truly massive project probably the largest ever transnational infrastructure project involving something like 800 billion dollars worth of loans and infrastructure projects spread across over a hundred countries in the developing world largely thanks to the Bri China has quickly become the largest single creditor in the world and Chinese lending to developing countries is bigger than all other bilateral lenders combined now in theory the Bri is a great idea infrastructure projects are often a really great investment for developing countries and successful Bri projects include new hydropower dams in Uganda a new network of gas and oil pipelines in Central Asia and a 750 kilometer railway from Addis Ababa to Djibouti it's also good news for China because well China is sitting on tons of cash thanks to its export heavy economy and this is a pretty good way to spend it it's also good for Chinese soft power because developing countries are grateful for the loans and the help that Chinese construction companies often provide with the projects in the 2010s lots of commentators criticized the West for not offering similar loans to these developing countries and allowing China to essentially replace the West as the main lender for developing countries in general the West is wary about giving money to developing countries Western loans often come with more conditions and more bureaucracy which is why developing countries prefer Chinese loans now when the global economy was in good shape China's relaxed lending practices made sense most of the countries were paying back their loans and China was steadily establishing a foothold in the world economy however in the last couple of years as Global Financial conditions have deteriorated more and more countries have essentially told China that they can't pay back their loans according to a recent study since 2013 China has had to bail out at least 20 countries by essentially delaying or restructuring something like 232 billion dollars worth of loans there were basically two mechanisms by which China bails out these countries new loans and so-called swap lines swap lines are basically when the Chinese Central Bank tells another country's Central Bank that they can convert as much of their local currency into Chinese renminby as they want for example China has a swap line with Argentina so when Argentina is in trouble which is basically all the time it can bolster its foreign reserves by converting a whole load of Pesos into renminby which is something it's done eight times in the past eight years this is good news for Argentina because it bolsters its foreign currency reserves and because Argentina can more easily convert this Renminbi into dollars to pay off International creditors China has set up swap lines with 40 countries nominally because they want to promote the use of Renminbi in international trade but they're only really used by countries struggling to pay back their Bri loans anyway the number of bailouts has increased massively in the past couple of years going from one billion dollars in 2011 to over 40 billion dollars in 2021. these bailouts are pretty astonishing and it implies that something like a quarter of all China's Bri loans have gone bad now we don't have the data for 2022 but the number is probably even higher than in 2021 given how high interest rates have put further strain on developing countries finances so why have so many loans failed well as well as the general Global slowdown there were at least two other reasons first a lot of Chinese loans had variable interest rates this isn't common practice in international lending and it means that as interest rates have gone up more and more countries have been unable to pay second a lot of these loans were just well silly for example Montenegro borrowed one billion dollars to build a road to nowhere that remains unfinished and dogged by corruption allegations Sri Lanka borrowed billions to build its Lotus Tower a ridiculous vanity project which was never going to make its money back and in Ecuador more than seven thousand cracks were found in a Dam built by Chinese contractors near an active volcano so what happens next well things don't look good for China they've tried to recoup as much money by delaying repayments and issuing new loans but history suggests that this rarely Works in fact usually when this happens the extra debt makes debtor countries less not more able to repay their original debts this has already happened with Sri Lanka Pakistan and Zambia who have all sought IMF help after their Chinese debts became unmanageable eventually China will probably have to accept writing off a significant fraction of these loans and when this happens China will also have to sit down with the IMF and other Western lenders like the US this is because Sri Lanka owes money to loads of different creditors so when Sri Lanka defaults everyone needs to get around and agree a new debt structure for Sri Lanka which is both sustainable for Sri Lanka and fairly divided among its original creditors this is what the Paris Club was created for it's basically a forum for the world's biggest creditors to discuss debt restructuring but because it was created in the 50s it doesn't include China which is now the world's largest single lender so far China has proved relatively unwilling to get involved in these multilateral debt restructuring negotiations and this is bad news both for the debt-ridden countries and the global economy because the longer their debt crises go on the worse they get and the more likely these crises are to have international repercussions another consequence of all this is that China is probably going to lend less money in the future in retrospect China's massive lending to all these developing countries looks a bit Reckless and the CCP will probably be a bit weary in the future similarly developing countries might be wary of accepting Chinese loans both because of their experience this time around and because electorates in 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Channel: TLDR News Global

Views: 753,652

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Id: Fk-G5Xni6L4

Length: 8min 48sec (528 seconds)

Published: Fri Mar 31 2023