New Delhi: China’s reach for the Belt and Road Initiative (BRI), the crown jewel of President Xi Jinping’s foreign policy, may slow down as it faces a $23 trillion local debt crunch says experts.
India has opposed joining the BRI – a grand project that aims to connect nations and continents with mega highways, road and rail connectivity projects, boosting trade and investment. At the summit of the Council of Heads of Government of the Shanghai Cooperation Organization (SCO) in November 2022, External Affairs Minister S Jaishankar had said that “connectivity projects must respect the sovereignty and territorial integrity of member states and respect international law.”
Over the past two decades, local provincial governments in China began building mega-projects, especially infrastructure, such as roads, airports, and ports. These projects were debt-financed and were generating revenue while the Chinese real estate market was booming. However, a real estate crisis that began in 2021 led to a drop in revenue, leading to the current unsustainable debt situation in local provincial governments.
Goldman Sachs Group, a global financial institution, estimates the total Chinese government debt at $23 trillion. This includes debt accrued by hidden financial institutions and companies set up by provincial governments and cities to fund development over the past two decades.
According to a Bloomberg report, the city of Hegang, a remote coal town in northeast China, was forced into financial restructuring about 18 months ago and has a debt of more than double its financial income. Hegang was the first city to officially take emergency measures to deal with credit risk after the State Council of the People’s Republic of China unveiled new regulations in 2016.
Meanwhile, Guizhou, a province in China’s southwest, could become the first province to receive a bailout from the country’s central government because of its unsustainable debt burden, according to The Economist.
“The Chinese government has been involved in building mega infrastructure projects, such as the Three Gorges Dam. Now they are building connectivity links through airports, ports and expressways through loans,” Jawaharlal Nehru University’s Center for East Asian Studies Ritu Agarwal, an associate professor at the IIT, told ThePrint.
He pointed out how various local governments in China have focused on infrastructure corridors over the years – such as the Coastal Development Strategy enhancing foreign investment and free trade zones, or the Western Development Plan – and always on infrastructure between provinces is focused.
“The Belt and Road Initiative is a continuation of this trend, which focuses on connecting China with South Asia and Southeast Asia,” Agarwal said.
A joint statement issued by the Quad leaders of India, the US, Australia and Japan during the G7 summit in Japan last week reiterated that the Quad will support access to infrastructure investment that does not impose an “unsustainable debt burden”.
India is seeking to counter Chinese influence in the Indo-Pacific region, along with Pacific island nations at the Forum for India-Pacific Islands Cooperation (FIPIC) summit earlier this week, and an extension of a $1 billion line of credit doing. To help Sri Lanka through its economic defaults.