Belt and Road countries’ external debt and China’s new strategies

ABSTRACT

Since the Belt and Road (B&R) initiative was put forward in 2013, China has signed cooperation documents with more than 150 countries and more than 30 international organizations. The Chinese government and banks have lent a large amount to B&R countries for infrastructure development, and China’s foreign contracted projects and trade with these countries have increased significantly. However, many B&R countries face severe debt repayment problems, and China has actively engaged in debt relief. To avoid debt crises, China needs to adopt new B&R development strategies, including putting B&R development firmly on commercial principles, reducing government loans to B&R countries and restructuring debt, expanding trade with B&R countries, increasing imports from debtor countries, and encouraging private enterprises’ direct investment in these countries.

KEYWORDS:

• Belt and Road countries
• external debt
• China’s loans
• new strategies

JEL CLASSIFICATION:

• E62
• F34
• H87
• 057

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. According to the official data of the Belt and Road Network, there are 152 participating countries. Asian 41 countries: Afghanistan, United Arab Emirates, Jordan, Oman, Azerbaijan, Pakistan, Palestine, Bahrain, Timor Leste, Philippines, Georgia, Kazakhstan, South Korea, Kyrgyzstan, Cambodia, Qatar, Kuwait, Laos, Lebanon, Maldives, Malaysia, Mongolia, Bangladesh, Myanmar, Nepal, Saudi Arabia, Sri Lanka, Tajikistan, Thailand, Türkiye, Turkmenistan, Brunei, Uzbekistan, Singapore, Syria, Armenia, Yemen, Iraq, Iran, Indonesia, Vietnam. African 52 countries: Algeria, Egypt, Ethiopia, Angola, Benin, Botswana, Burkina Faso, Burundi, Equatorial Guinea, Togo, Eritrea, Cape Verde, Gambia, DRC, Congo, Djibouti, Guinea, Guinea Bissau, Ghana, Gabon, Zimbabwe, Cameroon, Comoros, Côte d’Ivoire, Kenya, Lesotho, Liberia, Libya, Rwanda, Madagascar, Malawi, Mali, Mauritania, Morocco, Mozambique, Namibia, South Africa, South Sudan, Niger, Nigeria, Sierra Leone, Senegal, Seychelles, Sao Tome and Principe, Sudan, Somalia, Tanzania, Tunisia, Uganda, Zambia, Chad, Central Africa. European 27 countries: Albania, Estonia, Austria, Belarus, Bulgaria, North Macedonia, Bosnia and Herzegovina, Poland, Russia, Montenegro, Czech Republic, Croatia, Latvia, Lithuania, Luxembourg, Romania, Malta, Moldova, Portugal, Serbia, Cyprus, Slovakia, Slovenia, Ukraine, Greece, and Hungary. North American 13 countries: Antigua and Barbuda, Barbados, Parama, Dominican Republic, Dominica, Granada, Costa Rica, Cuba, Honduras, Nicaragua, El Salvador, Trinidad and Tobago, Jamaica. South American 9 countries: Argentina, Peru, Bolivia, Ecuador, Guyana, Suriname, Venezuela, Uruguay, Chile. Oceania 11 countries: Papua New Guinea, Fiji, Kiribati, Cook Islands, Micronesia, Niue, Samoa, Solomon Islands, Tonga, Vanuatu, New Zealand. https://www.yidaiyilu.gov.cn/dataChart

2. For a detailed discussion of motivation of the B&R initiative, see Huang (2016).

3. Mihalyi and Trebesch (2023).

4. World Bank (2024).

5. The Editorial Board of New York Time (2023).

6. Horn, Parks, Reinhart, and Trebesch (2021).

7. The impact of foreign debt on economic growth has been an important issue of debate. Using time series and cross-country data from 1970 to 1988, Fischer (1991) showed that the ratio of foreign debt to GDP and economic growth rate are significantly negatively correlated, while in cross-country studies, there is no obvious correlation between the two. Lin and Sosin (2001) showed that in African countries there is a clear negative correlation between foreign debt-to-GDP ratio and economic growth, while in developed countries, developing Asian countries and Latin American countries, there is no obvious correlation between the two. Efficiency in the use of debt funds is the key. If foreign debt is utilized efficiently, foreign debt will promote economic growth; otherwise, foreign debt will hinder economic growth.

8. Nafziger (1993).

9. Nellis (1989).

10. National Bureau of Statistics of China (2024).

11. World Bank (2023b).

12. National Bureau of Statistics of China (2024).

13. National Bureau of Statistics of China (2022).

14. Statista (2023).

15. Horn, Parks, Reinhart, and Trebesch (2023).