WSJ What’s News - China Reins In Its Infrastructure Strategy But Not Its Global Ambition

Episode Date: March 2, 2025

The early years of the Belt and Road Initiative left China with tens of billions of dollars in soured loans, making it a costly way of building global influence. Now Beijing is reworking its flagship infrastructure lending program to shield itself from financial risk and focus on projects that support its evolving ambitions, including securing critical supply chains for things like green-tech minerals and positioning itself as a leader that developing nations can unite behind. In the second episode of our three-part series, “Building Influence,” AidData’s Bradley Parks, SOAS University of London’s Steve Tsang and the WSJ’s Chun Han Wong discuss Belt and Road 2.0 and how even though China is reducing its spending, it is no less ambitious when it comes to pursuing Xi Jinping’s strategic goals. Kate Bullivant hosts. Further reading: China’s Belt and Road Plan Is Down, Not Out China Reins In Its Belt and Road Program, $1 Trillion Later China Is Starting to Act Like a Global Power  Learn more about your ad choices. Visit megaphone.fm/adchoices

TD Direct Investing offers live support. So whether you're a newbie or a seasoned pro, you can make your investing steps count. And if you're like me and think a TFSA stands for Total Fund Savings Adventure, maybe reach out to TD Direct Investing. If you were sitting in Beijing right now and you were looking at a global dashboard of China's overseas infrastructure project portfolio, you would see a lot of flashing red lights. That is Bradley Parks, the executive director of ADATA, the development research lab at William & Mary's Global Research Institute that tracks how much China spends on its Belt and

Road infrastructure program. In the early years of Belt and Road, China went on a spending spree in pursuit of its economic and strategic goals, financing bold engineering projects from mines and highways to ports and pipelines, in addition to growing its influence around the globe. But as the journal's chief China correspondent Lingling Wei pointed out at the end of the first episode in this special What's New Sunday series, those loans that China handed out to developing countries around the world weren't free money. Eventually, the debt would have to be repaid, and when it started coming due, signs of strain

began to show. I'm Luke Vargas for The Wall Street Journal and in today's episode, my colleague Kate Bullivant will be taking a look at how Beijing is trying to dig itself out from the financial hole it created in the Belt and Road's early years and shield itself from risks going forward, all while keeping the wheels turning on its goal of building up its influence around the globe. Here's Kate. When China started Belt and Road back in 2013, its economy was growing fast, expanding by nearly 8% that year. That made it easy for Beijing to lavish investments on a wide range of large

infrastructure projects. Since then, China's faced a lot of challenges. The Covid-19 pandemic, the meltdown of its property sector, mounting local government debt, even public frustration about Beijing's decision to channel investments abroad when there were still needs at home. As we heard last week, China's Belt and Road investments started to drop off in 2018, and even today, its overseas lending remains a lot lower than its peak though it is still around 80 billion dollars a year. Brad Parks from ADATA says China

is still nursing a hangover from the excesses of the program's first years. Beijing went on a lending spree and now its borrowers are having difficulty repaying their debts. So 80% of China's overseas lending portfolio is currently supporting countries in financial distress. And with the grace periods on many Chinese loans expiring, Beijing now finds itself in an uncomfortable position as the developing world's largest official debt collector. So I mean, here's the thing, Beijing is not going to stand by and watch its flagship global infrastructure initiative crash and burn.

The Chinese authorities have already launched a far reaching effort to de-risk Bellen Road and they call it BRI 2.0. Beijing is scanning its global portfolio and firefighting in response to crises. So it's refocusing its time and its money on distressed borrowers, on troubled projects, and on sources of public backlash. But at the same time it's playing the long game. It's putting in place new safeguards to future-proof the BRI. And it's making course corrections that address three different types of risk in its portfolio, repayment risk, project performance risk, and then finally, reputational risk.

So what's China doing to cut down on risk? For starters, let's look at who's doing the lending. Remember how we said in episode one that in the early years of the program, Chinese development banks were spraying money across the world to open new markets? Well, state-backed commercial banks are doing a lot more of the financing these days. And they're spreading the risk around by teaming up with other lenders to underwrite loans, a practice called syndicated lending. We're increasingly seeing Western commercial banks, Deutsche Bank, ING Bank, HSBC,

participating in these larger loan syndicates with Chinese banks, as well as multilateral institutions like the European Bank for Reconstruction and Development in London. So yes syndicated lending is becoming a feature rather than a bug in Belt and Road 2.0 about 50% of the project loan portfolio is now occurring through syndicates. Beyond the partners involved the terms of the loans themselves have changed. Beijing's been lending on commercial terms from the start, but now the interest rates of those loans are getting higher. They average 4.2 per cent, according to ADATA, which is significantly

higher than competitors. Meanwhile, the repayment periods are getting shorter. And China's putting extra safeguards in place to make sure it won't be stuck with unsustainable debt, effectively passing on more of the risk to poor countries. The so-called good borrowers are not governments, you know, because there's so much debt distress in the developing world. So what's happening is big Chinese state-owned companies are first securing loans from Chinese state-owned commercial banks, then they're saying, I'm going to issue a subsidiary loan to the government of Nicaragua as an example. And so when the company essentially becomes the bank, they want extra protections in place. They're doubling up or tripling up on safeguards.

And they're saying, look, cash collateral is not enough. I need that. Plus, I need you, the borrower, to buy a credit insurance policy. And that additional credit insurance policy might be worth 5% to 7% of the nominal value of the loan. So the price of debt is going up for borrowers in the developing world.

So China is becoming more careful with its money. But what is it actually investing in now and have efforts to shield itself from risks linked to the Belt and Road paid off? We'll look into that after the break. As China continues to adapt the Belt and Road, the types of projects it's investing in are changing too. In recent years, Beijing has been keen to highlight a shift away from massive infrastructure projects. All those dams, ports and highways at the centre of Belt and Road 1.0 and instead is touting what it calls small and beautiful builds like solar and wind power facilities. Southeast Asia's green revolution has been driven by innovative Chinese technology and projects. Construction of another solar plant is

also underway, this time with the support from China. Chinese company Howey recently opened an experimentation center in Sao Paulo, an investment of about 6.5 million dollars to showcase its technology. Brad Parks from Aid Data told me that while Beijing hasn't abandoned traditional larger scale projects, this rebrand is an answer to Beijing's evolving needs. We are seeing a market shift towards projects that are focused on the extraction and export of a small set of critical minerals that are necessary to fuel the clean energy transition.

So we're talking about copper, cobalt, lithium, rare earth minerals, and a couple of others. So that is a key feature of Belt and Road 2.0. And Chinese companies are also trying to gobble up market share in a variety of renewable energy sectors, whether that's solar, wind, hydro. There's a concerted effort by the banks and the companies to cement the competitiveness of Chinese companies around the globe in these clean energy sectors. Those sorts of course corrections help the Belt and Road Program invest in the industries and supply chains that Beijing sees as the future. And as we heard before the break,

China has changed the way it cuts deals, charging higher rates and asking countries to put up more collateral. They have also tried to muscle their way to the front of the repayment line by requiring something that their competitors do not require. And that is that governments keep cash collateral in lender controlled escrow accounts that Beijing can unilaterally debit with a key stroke, right? They could just grab that cash and pay themselves in the event of default. But as we talked about last week, China isn't, for the most part, going around the world grabbing collateral from countries that are struggling to repay their debts. So does this mean that China's portfolio is out of the woods?

Could Beijing actually be about to reap a financial windfall as those loans start getting repaid? Here's what Brad had to say. So on paper I would say that China appears to be well positioned to reap a big windfall but I think in practice the likelihood that it's gonna play out the way that they think it's going to play out is not quite that high. When China first got into the emergency rescue lending business, it was operating under the optimistic assumption that some of its biggest borrowers needed short-term bridge financing to weather a storm that would soon pass.

But I think it's now learning that some of its biggest Belt and Road borrowers are actually insolvent. I would say that they are still actively firefighting and they're gonna be firefighting for many years to come. They're doing serial bailouts year after year. So ultimately to get out of this, China may have to take financial losses. The big question for China is how quickly it will learn

and adapt to what it's seeing in its portfolio. We reached out to China's Ministry of Foreign Affairs for comment on their debt portfolio and how many of their borrowers are insolvent. They didn't address this specifically, but they did say they provide developing countries financing at preferential interest rates and with longer maturities. Up next we take a look at how all these changes to Belt and Road set up Beijing to continue gathering global influence. That's after the break. The jury is still out on whether China will take an economic hit from the Belt and Road. But how do the changes to its signature lending project that we've been talking about support Beijing's strategic goals, especially when it comes to boosting China's standing on the world stage. The whole idea of BLI has been changed to serve a very clear specific purpose,

which is to support the three global initiatives Xi Jinping announced back in 2021, 2022, 2023. That's Steve Tsang. He's the director at the SOAS China Institute, a leading research center based in London. And those three initiatives he just mentioned are the Global Development Initiative, the Global Security Initiative, and the Global Civilization Initiative. And the three global initiatives were introduced

to support the even grander idea Xi Jinping had, to forge a common destiny for humankind, primarily in the global south countries. In a nutshell, the three initiatives seek to position China as a partner to developing countries, largely in Africa, Asia and Latin America, often referred to as the Global South, a partner that nations wary of US dominance can do business with and seek national security guarantees or energy, finance and food security. The BLI provides that additional material advantages to autocrats in the global South to have the capacity to have some development projects which they cannot get from the IMF, World Bank or European countries or for that

matter the United States because for those there are always conditionalities. BLI combined with the three global initiatives may well put China at the centre but still bring a lot of political advantages to the more autocratic leaders of countries in the global South. And Sang says this focus from Beijing on lower-income countries is meant to make China nothing less than the world's number one power. The BLI is primarily intended for China to engage with the global South and gain support in the global South for China's wider agenda globally, including at the United Nations.

So if China pushes for changes in the way the United Nations operates in the name of the global South, then it is much more difficult for the in quotation marks elitist small democratic West to try to block it from doing so. The BLI has in fact increased in its geostrategic significance, even though its economic value to China has clearly declined. China is spending less on Belt and Road loans today than it was a few years back, almost half what it did at the programme's peak. But there's one more change we've seen from Beijing that supports its broader ambitions. It started issuing more debt in its own currency instead of in dollars. China does want the Chinese yuan to be more accepted as an international currency.

There's a limit to what it can do. But reducing the significance of the dollar, increasing the importance of the yuan in global trade is something which is in line with what Xi Jinping or China would like to do in terms of how to enhance China's global standing and reduce Chinese dependence on the United States. Since the birth of Belt and Road back in 2013, the geopolitical landscape has changed dramatically, with both the start of the war in Ukraine and escalating conflict in the Middle East. Journal reporter Chun Han-Wong

covers Chinese politics and foreign policy. He told me that in this new world, China wants to present itself as an honest broker, a contrast to the US, which it criticises for prolonging and exacerbating conflict by supplying arms in Ukraine and the Middle East. Xi Jinping is trying to present China as a benign, responsible, positive force in global affairs. The BRI actually supports this in the sense that they are bringing investments, they are bringing economic cooperation, they're bringing trade.

They are the ones who help people develop, provide you with the tools, the expertise, the sort of global connections that are necessary for developing whether it's green technologies or building connections between markets. That's the benign and positive force that China represents. China's foreign ministry told us that the Belt and Road is an economic cooperation initiative, not a geopolitical tool, and that China provides financing to developing countries

without attaching any political conditions. China's National Defense Research Committee and the State Council Information Office didn't respond to our request for comment for this episode. Despite the challenges, Beijing is showing no signs of giving up on Belt and Road, quite the opposite. China is learning from its experience, and while it's had to rein in its spending, it's lending more cautiously in an effort to ensure that the programme will continue to advance Xi Jinping's strategic goals for years to come. So what does Washington make of this more focused and streamlined version of the Belt

and Road and the role it plays in challenging the US-led global order. And is the Trump administration prepared to respond to it? Those questions will be the focus of our next episode, the final one in this special series. But for now, that's it for What's New Sunday. Today's show was hosted and produced by Kate Bulevent. Our sound designers are Jessica Fenton and Michael Laval. Michael wrote this series' theme music. Our supervising producer was Christina Rocca. We had editorial support from Chris Sinsley and Falana Patterson.

And special thanks to Jonathan Cheng and James Aradie. We will be back tomorrow with a new show. Until then, thanks for listening.