China seeks to allay belt and road ‘debt trap’ concerns with standard for assessing financial risk
- Document is based on similar measures used by the World Bank and International Monetary Fund, Finance Minister Liu Kun says
- Countries will be classed as low, medium or high risk, document says
China moved on Thursday to allay widely held concerns about the financial drawbacks of its “Belt and Road Initiative” by publishing a debt sustainability framework for participating nations.
Presented by Finance Minister Liu Kun on the opening day of the second Belt and Road Forum in Beijing, the 15-page document was, he said, based on similar standards used by the World Bank and the International Monetary Fund.
He said its aim was to “prevent and solve debt problems” associated with projects under the trade and infrastructure development plan devised and championed by Chinese President Xi Jinping.
By publishing the framework, Beijing was trying to address claims that some countries involved in the scheme had been drawn into debt traps and that China was using that financial dependency to take possession of their assets and enhance its influence overseas.
According to people involved in the drafting of a joint communique – which is set to be approved by the visiting officials on Saturday – Beijing is keen to quash charges that it engages in so-called debt-trap diplomacy.
Wei Jianguo, a former vice-minister for commerce, said that China was highlighting debt sustainability to generate consensus among countries involved in the initiative and to “hit back” at those determined to discredit it and Beijing.
In all, 37 foreign leaders are set to attend the three-day event – up from 29 at the inaugural event in 2017 – although one of the belt and road’s biggest critics, the United States, has snubbed the event, not sending any delegation from Washington. Xi is expected to deliver his keynote speech on Friday morning.
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Liu said the new framework document would be a guide for assessing the debt risks of countries involved in the scheme by classifying their potential liability as “low, medium or high”.
“It should be noted that even if a country is assessed as being ‘high risk’ or even ‘in debt distress’, it does not automatically mean that its debt is unsustainable in the long term,” he said.
Yi Gang, the governor of the People’s Bank of China, said long-term debt sustainability should also take into account indicators such as improvements to infrastructure, people’s living standards, productivity and poverty reduction.
While Beijing is keen to attract alternative sources of finance for the belt and road scheme, Chinese financial institutions have to date contributed the lion’s share of its funding, with the PBOC putting the total figure at US$440 billion.
Chinese money has been readily accepted across Asia and Africa, and to Gerhard Papenfus, chief executive of the National Employers’ Association of South Africa, the allegations levelled against Beijing are unfair.
Countries taking part in the scheme need to be aware of the financial risks involved and take responsibility for their own financial affairs, he said.
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“If African countries just want to borrow money and squander it, that’s their problem,” he said.
“Money is money, whether you borrow it from the Americans, the British or elsewhere … You repay, you never get into a debt trap.”
Meanwhile, Xiao Yaqing, the head of China’s state-owned assets watchdog, said that although projects under the belt and road scheme were driven by Chinese firms and money, they created huge job opportunities in host nations.
More than 85 per cent of the people employed in the overseas branches of Chinese state-owned enterprises were locals, he said.
In Pakistan, for example, Chinese companies helping to build a motorway between Peshawar and Karachi had so far created 23,000 jobs and helped train 2,300 local management and technical workers, he said.
Additional reporting by Zhenhua Lu
