SPOTLIGHT ON CHINA FINANCE RECORD
September 2021, AIDDATA, a research entity embedded in a US university, and financed by various sponsors, published the study Banking on the Belt and Road, which contains an analysis of China’s international development finance, with specific attention paid to the fi nancing of Belt and Road (BRI) projects.
The study is based on a very detailed dataset of 13,000 Chinese development finance transactions. The report provides empirical evidence that substantiates some widely shared assertions: China has substantially expanded overseas development finance and indeed has become the largest provider of development finance, especially for infrastructure. China’s state-owned banks play a key role and often finance SOE’s or special purpose vehicles, not governments. This leads to an underreporting of ‘official’ debt levels. For instance, this is the case in Namibia, Angola, and Laos. Especially in the latter two countries debt levels create high risks and China’s approach to debt relief for distressed countries is less generous than that of G7 countries.
In addition, China’s development financing is less attractive (i.e. the grant element is lower) than that of the OECD countries or the World Bank. Finally, China has been more willing to provide loans to countries where good governance is missing.
With regard to ports, China has financed huge amounts in countries such as Sri Lanka, Algeria, Sierra Leone and Angola. The ‘value for society’ of some of the port projects (such as Hambantota in Sri Lanka) is debatable.
Thus, there is a compelling logic for the ‘counter initiative’ as announced by the G7 and part of the Build Back Better World (B3W) initiative. The G7 claims their new global infrastructure financing initiative will be guided by the principles of transparent financing, good governance and adherence to social and environmental standards and is aimed to provide an alternative source of development finance.
Overall, we may enter an era with more competition between China and the G7 for the provision of development finance. For developing countries with port expansion challenges this could create an opportunity to finance projects in more attractive ways. This would definitely be a positive development but also raise the importance of capabilities to develop (and select) port projects that truly create value for society.
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