Executive summary

Over the last two decades, China has provided record amounts of period of less than two years, and a maturity length of less
international development finance and established itself as a than 10 years.
financier of first resort for many low-income and middle-income
countries (LMICs); however, its grant-giving and lending activities How has the Belt and Road Initiative (BRI)
remain shrouded in secrecy. Beijing’s reluctance to disclose
detailed information about its overseas development finance altered China’s overseas development nance
portfolio has made it difficult for LMICs to objectively weigh the program?
costs and benefits of participating in the Belt and Road Initiative
(BRI). It has also made it challenging for bilateral aid agencies and Three key takeaways
multilateral development banks to determine how they can
compete—or coordinate and collaborate—with China to address
● Beijing’s “policy banks”—China Eximbank and China
issues of global concern.
Development Bank—led a major expansion in overseas
lending during the pre-BRI era. However, the country’s state-
Banking on the Belt and Road introduces a uniquely
owned commercial banks—including Bank of China, the
comprehensive and granular dataset of international
Industrial and Commercial Bank of China, and China
development finance from China, which captures 13,427 projects
Construction Bank—have played an increasingly important
worth $843 billion across 165 countries in every major world
role during the BRI era. Their overseas lending activities
region over an 18-year period. The report reveals new insights
increased five-fold during the first five years of BRI
about the BRI, and it comes at a time when the U.S. government
implementation.
and its allies are seeking to develop a viable alternative to the
BRI, under the auspices of the Build Back Better World (B3W)
● The number of “mega-projects”—financed with loans worth
initiative that the G7 announced in June 2021.
$500 million or more—approved each year tripled during the
first five years of BRI implementation. In order to share credit
What is the true scale, scope, and composition risk and support projects that they would not otherwise
of China’s overseas development nance finance on their own, China’s state-owned policy banks and
commercial banks are increasingly coordinating and
program? collaborating via lending syndicates and other co-financing
arrangements. The percentage of Beijing’s overseas lending
Four key takeaways portfolio that is co-financed has soared and now stands at
approximately 32%.
● With annual international development finance commitments
hovering around $85 billion a year, China now outspends the ● Despite larger loans and expanded loan portfolios, BRI has
U.S. and other major powers on a 2-to-1 basis or more. not led to any major changes in the sectoral or geographical
composition of China’s overseas development finance
● China has used debt rather than aid to establish a dominant program. These sources of continuity suggest that BRI is an
position in the international development finance market. extension and expansion of the “Going Out” strategy that
Since the introduction of the BRI, China has maintained a 31- was adopted more than two decades ago.
to-1 ratio of loans to grants and a 9-to-1 ratio of Other Official
Flows (OOF) to Official Development Assistance (ODA).1 How are Chinese state-owned lenders
● Beijing’s international lending program has soared to record balancing risk and reward?
levels because of domestic challenges—specifically, an
oversupply of foreign currency, high levels of industrial Four key takeaways
overproduction, and the need to secure natural resources that
the country lacks in sufficient quantities at home. It has ● As Chinese state-owned lenders have taken on bigger
responded by ramping up dollar- and euro-denominated projects and higher levels of credit risk, they have put in place
lending at or near market rates; contractually obligating its stronger repayment safeguards. Whereas 31% of China’s
overseas borrowers to source project inputs (like steel and overseas lending portfolio benefited from credit insurance, a
cement) from China; and allowing countries to secure and pledge of collateral, or a third-party repayment guarantee
repay loans with the money they earn from natural resource during the early 2000s, this figure now stands at nearly 60%.
exports to China.
● When the stakes are especially high, collateralization is
● Chinese state-owned lenders act as yield-maximizing Beijing’s “go-to” risk mitigation tool: 40 of the 50 largest
surrogates of the state. Consequently, most of Beijing’s loans from Chinese state-owned creditors to overseas
overseas lending is provided on less generous terms than borrowers are collateralized. Beijing also favors
loans from OECD-DAC and multilateral creditors. The collateralization when it is transacting with risky borrowers.
average loan from China has a 4.2% interest rate, a grace 83% of collateralized lending from Chinese state-owned

1Based upon OECD-DAC definitions and measurement criteria, AidData categorizes each project in its dataset as Official Development Assistance (ODA)
or Other Official Flows (OOF). ODA projects are financed by official sector institutions on highly concessional terms (with a minimum grant element of 25
percent) and with development intent. OOF projects are financed by official sector institutions on less concessional terms (with a grant element below 25
percent) and/or without development intent.

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 creditors supports countries that fall within the bottom undisclosed debts (with known monetary values) to China
quartile of a global measure of fiduciary risk. than it is about governments not knowing the monetary value
of debts to China that they may or may not have to service in
● Collateralization has become the linchpin of China’s the future.
implementation of a high-risk, high-reward credit allocation
strategy. To secure energy and natural resources that the What types of problems are BRI infrastructure
country lacks in sufficient quantities at home and maximize
investment returns on surplus dollars and euros, Chinese projects encountering during implementation?
state-owned creditors have rapidly scaled up the provision of
foreign currency-denominated loans to resource-rich countries Four key takeaways
that suffer from high levels of corruption. These loans are
collateralized against future commodity export receipts to ● 35% of the BRI infrastructure project portfolio has
minimize repayment and fiduciary risk and priced at relatively encountered major implementation problems, such as
high interest rates (nearly 6%). corruption scandals, labor violations, environmental hazards,
and public protests. By comparison, only 21% of the Chinese
● China Development Bank has implemented Beijing’s high-risk, government’s infrastructure project portfolio outside of the
high-reward credit allocation strategy more aggressively than BRI has encountered similar implementation problems.
any other official sector lender in China. By comparison, the
country’s state-owned commercial banks have lower levels of ● BRI infrastructure projects are taking substantially longer to
risk appetite, which has led to some rebalancing of risk in implement than Chinese government-financed infrastructure
Beijing’s overseas lending portfolio during the BRI era. projects undertaken outside of the BRI. On average, it takes
1,047 days to implement a BRI infrastructure project and 771
How much debt to China have low-income and days to implement a Chinese government-financed
infrastructure project outside of the BRI.
middle-income governments accumulated?
Are these governments fully disclosing their ● Beijing has witnessed more project suspensions and
cancellations during the BRI era than it did during the pre-BRI
repayment obligations to China via era. Host country policymakers are mothballing high-profile
international reporting systems? BRI projects because of corruption and overpricing concerns
as well as major changes in public sentiment that make it
Four key takeaways difficult to maintain close relations with China.

● However, the implementation obstacles that Beijing has

● During the pre-BRI era, the majority of China’s overseas
encountered are not equally prevalent across its overseas
lending was directed to sovereign borrowers (i.e., central
project portfolio. BRI infrastructure projects are less likely to
government institutions). However, a major transition has
face major problems during implementation when they are
since taken place: nearly 70% of China’s overseas lending is
undertaken by host country organizations. They are also less
now directed to state-owned companies, state-owned banks,
likely to face major problems when they are implemented by
special purpose vehicles, joint ventures, and private sector
organizations that are neither from China nor host countries.
institutions. These debts, for the most part, do not appear on
government balance sheets in LMICs. However, most of them
It remains to be seen if “buyer’s remorse” among BRI participant
benefit from explicit or implicit forms of host government
countries will undermine the long-run sustainability of China’s
liability protection, which has blurred the distinction between
global infrastructure initiative. However, it is increasingly clear that
private and public debt and introduced major public financial
Beijing will need to address the concerns of host countries in
management challenges for LMICs.
order to sustain support for the BRI. In the not-too-distant future,
China will also face higher levels of competition in the global
● Chinese debt burdens are substantially larger than research
infrastructure finance market. The U.S. government and its allies
institutions, credit rating agencies, or intergovernmental
are coalescing around a new infrastructure initiative (B3W) that
organizations with surveillance responsibilities previously
will be guided by the principles of sustainable and transparent
understood: 42 countries now have levels of public debt
financing, good governance, public sector mobilization of private
exposure to China in excess of 10% of GDP.
capital, consultation and partnership with local communities, and
strict adherence to social and environmental safeguards. As such,
● These debts are systematically underreported to the World
a set of difficult choices lie ahead for policymakers in Beijing.
Bank’s Debtor Reporting System (DRS) because, in many
They could: (1) try and win to over the general public in BRI
cases, central government institutions in LMICs are not the
participant countries and hope that their efforts will result in
primary borrowers responsible for repayment. We estimate
electoral success of pro-Beijing political parties; (2) curry favor
that the average government is underreporting its actual and
with incumbent leaders in BRI participant countries and bank on
potential repayment obligations to China by an amount that is
their loyalty to Beijing and political survival; or (3) take a different
equivalent to 5.8% of its GDP. Collectively, these
tack and “multilateralize” the BRI by co-financing, co-designing,
underreported debts are worth approximately $385 billion.
and co-implementing infrastructure projects with OECD-DAC and
multilateral development finance institutions and subjecting these
● Managing “hidden debts” that benefit from implicit forms of
projects to international standards and safeguards. Only time will
host government liability protection has become a major
tell which path they choose.
challenge for LMICs. The “hidden debt” problem is less
about governments knowing that they will need to service