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Executive Summary / 执⾏摘要 (PDF)
Full Report / 完整版报告 (PDF)
Over the last two decades, China has provided record amounts of international development finance and established itself as a financier of first resort for many low- and middle-income countries (LMICs); however, its grant-giving and lending activities remain shrouded in secrecy.
Our paper introduces a uniquely comprehensive and granular dataset of international development finance from China. It captures 13,427 projects worth $843 billion across 165 countries in every major world region over an 18-year period.
Five key insights emerge from the dataset.
First, we document an extraordinary expansion in China’s overseas development finance program during the first two decades of the 21st century. With annual international development finance commitments hovering around $85 billion a year, China now outspends the U.S. and other major powers on a 2-to-1 basis or more. It is doing so with semi-concessional and non-concessional debt rather than aid: since the introduction of the Belt and Road Initiative (BRI), China has maintained a 31-to-1 ratio of loans to grants and a 9-to-1 ratio of OOF to ODA.
Second, China’s state-owned commercial banks have assumed an increasingly important role during the BRI era by organizing lending syndicates and other co-financing arrangements that make it possible to undertake bigger-ticket infrastructure projects. The number of “mega-projects”—financed with loans worth $500 million or more—being approved each year tripled during the first five years of BRI implementation.
Third, increasing levels of credit risk have created pressure for stronger repayment safeguards. Chief among these safeguards is collateralization, which has become the linchpin of China’s implementation of a high-risk, high-reward credit allocation strategy. In the interest of securing energy and natural resources that it lacks in sufficient quantities at home and maximizing investment returns on surplus dollars and euros, China has rapidly scaled up the provision of foreign currency-denominated loans to resource-rich countries that suffer from high levels of corruption. These loans are collateralized against future commodity export receipts to minimize repayment and fiduciary risk and priced at relatively high interest rates (nearly 6%).
Fourth, although the implementation of the BRI has not prompted any major changes to the sectoral or geographical composition of the country’s overseas development finance program, it has marked an important transition in how China bankrolls infrastructure projects. The majority of its overseas lending was directed to sovereign borrowers (i.e., central government institutions) during the pre-BRI era, but nearly 70% is now directed to state-owned companies, state-owned banks, special purpose vehicles, joint ventures, and private sector institutions. These debts, for the most part, do not appear on government balance sheets in LMICs. However, most of them benefit from explicit or implicit forms of host government liability protection, which has blurred the distinction between private and public debt and introduced major public financial management challenges for LMICs. We find that Chinese debt burdens are substantially larger than research institutions, credit rating agencies, or intergovernmental organizations with surveillance responsibilities previously understood: 42 LMICs now have levels of debt exposure to China in excess of 10% of GDP. These debts are systematically underreported to the World Bank’s Debtor Reporting System (DRS) because, in many cases, central government institutions in LMICs are not the primary borrowers responsible for repayment. We estimate that the average LMIC government is underreporting its actual and potential repayment obligations to China by an amount that is equivalent to 5.8% of its GDP. Collectively, these underreported debts are worth approximately $385 billion.
Fifth, we find that 35% of the BRI infrastructure project portfolio has encountered major implementation problems—such as corruption scandals, labor violations, environmental hazards, and public protests—but the Chinese government’s infrastructure project portfolio outside of the BRI has encountered fewer implementation problems. We also find that BRI infrastructure projects are less likely to face problems during implementation when they are undertaken by host country organizations (or organizations that are neither from China nor host countries).