China’s Belt and Road Initiative (BRI) will soon celebrate its first decade. Wikipedia lists September 2013 as the start of Xi Jinping’s historic project, although China’s loans and investments around the world long predated that date, and his name was not even used in 2013. The project was never well defined and almost all of his international initiatives were protected under with the flag of the Belt and Road. Perhaps the best description of the investment and infrastructure package is simply globalization with Chinese characteristics.

What has become clear over the past year is that the BRI is not a simple win-win arrangement between China and its participants, as the Chinese side likes to claim. In fact, the all-too-common Chinese formulation of “win-win” is often seen as China winning twice. The drivers behind the BRI project were the export of China’s excess manufacturing capacity, as well as the countries’ political association with Beijing in the belief that the economy and trade would overcome political friction. Much of the lending and investment was made through Chinese state-owned companies that used Chinese supplies—and even Chinese labor—to build infrastructure in the recipient country.

The effects of nearly a trillion dollars worth of loans can be seen around the world in shiny new airports, bridges and multi-lane highways. This “build it and they will come” model worked when China became the world’s factory, but it has not worked to the same extent in other, less attractive investment destinations abroad. Many host countries now realize that the six-lane highway to the airport is not justified by the number of visitors and that its pilot projects are in fact “white elephants” with little prospect of repaying the debts that financed such arrogance.

It would be wrong to characterize BRI loans as debt traps, but there are a number of factors that came into play when the deals were done. There was a general lack of transparency in terms. China has always liked to hide terms from the public and act bilaterally, rightly believing that it has more influence over the host country. This ambiguity has made it unclear how much of a country’s debt burden it is, as China’s debt is hidden or the Chinese side insists on clauses that ensure they will be paid first in the event of a debt restructuring. In the context of Latin America, Venezuela and Ecuador are good examples of this.

Much of the debt associated with the BRI was often owed to a Chinese state-owned company rather than directly to the Chinese state. To those unfamiliar with China, a state-owned company sounds a lot like the Chinese state, but the reality is much more confusing. China’s state-owned companies function as independent fiefdoms, and it is often difficult for the central government to influence operations or exercise control over the companies themselves.

BRI was never a charity or aid, but commercial loans, often on relatively high terms. But the cost of borrowing was often understated, as the Chinese were quite willing to lend money and build projects with seemingly no strings attached. The loans guaranteed China’s penetration of markets rich in natural resources, such as Latin America.

As interest rates and inflation have risen in recent years, many BRI countries have found themselves in financial difficulty and in need of debt restructuring or bailouts. Unlike previous crises, China is the most important creditor. The scale of Chinese lending means that Chinese involvement must be part of the solution, but the opacity of the deals and their pattern means that China is also very much part of the problem.

Beijing has never gone through such a debt restructuring cycle. Developed market countries and banks cooperated within the established framework of the Paris Club and with the IMF or the World Bank to solve the rescue issue, but China opposes working in such a multilateral approach and prefers a bilateral approach.

Beijing does not like to discuss these debts in multilateral forums because that would require them to be completely honest and forthright about the terms of the contracts and the size of the loans. They also believe they might be pressured into taking a part they don’t want.

Due to the risk of non-payment in full, China has had to restructure more than 200 billion dollars of previous operations in recent years. They chose to follow the model preferred in China itself and limit themselves to extending the terms of the loan, thus dragging out the issue without actually solving the problem. But domestically, the problem is as pressing as ever, with economic growth falling due to years of underinvestment in infrastructure and consumer spending falling.

The BRI is not going away, it is too politically important for Xi Jinping to ignore, but the Chinese state simply does not have the same ability or willingness to engage in such large-scale activities abroad when it has such a wide range of problems. internal economy. This is something Latin American governments should think about.

China will continue to be a lender for years to come, but governments need to be more assertive in working with it. Demand transparency and openness in your relationships, ensure that local suppliers and labor are not left out of the bidding and construction process, and ask tough questions about project feasibility. The days of China’s miracle economy are over, and the BRI is not a magic wand that can solve the country’s infrastructure problems. Recipient countries need to be bolder in ensuring that they get a share of the benefits. (OR)

* Fraser Howie is an independent analyst, co-author of “Red Capitalism, the Fragile Financial Foundations of China’s Extraordinary Rise” and contributor to Análisis Sínico in cadal.org