The initiative is simple enough. China lends money to poor countries that use the funds for massive infrastructure programs such as dams, roads, bridges, ports, highways, and rail lines. In return, the nations pay back the loans, employ Chinese design, engineering, and construction firms, and develop increased trade relations with China.
Through the program, called One Belt, One Road, to signify a continuous trade route around the world, several countries have built massive structures, but they aren’t generating much income, which leaves the countries heavily indebted to China, with their infrastructure as collateral.
Sri Lanka handed control of its new, $8 billion port in Hambantota to the Chinese when it couldn’t pay its debt, leading many outside observers to think the Belt and Road initiative is nothing more than a way to create a debt trap for developing nations.
The Chinese see it otherwise.
Jin Liqun, AIIB’s president, said during an investment conference panel discussion that debt problems associated with China’s massive infrastructure drive were often the result of long-standing fiscal mismanagement.
“The debt problems of these poor countries were accumulated over the years. I don’t think it’s fair to put it down to the Belt and Road initiative.”
Maybe not, but China enticing leaders of financially struggling countries with massive spending certainly hasn’t helped them make good financial decisions.
Jin defended the program’s purpose as being aimed at upgrading infrastructure to improve the growth and development potential of many countries.
“You need to look at the debtor. The debtor will speak for themselves.”
It looks like China has examined the borrowers, and determined which ones would be a win for China either way. If the country repays the debt, then China earned income on the loan and was able to get thousands of Chinese workers employed abroad. If the debtor defaults, well, the Chinese still did the work and now they have the asset.