China is overhauling the way it lends to developing nations, a strategy that may help their largest official creditor maintain a narrowing lead over the US and its Group of Seven allies.
Beijing has begun moving away from the big bilateral deals it was eager to strike a decade ago—when it first launched its flagship Belt and Road Initiative that mainly lends to infrastructure projects—in favor of collaborative lending that reduces its exposure to financial risk, according to a new report published by AidData at William and Mary, a public university in Virginia.
A lot has changed in the decade since President Xi Jinping launched Belt and Road. As several recipients of its funding declare sovereign default, Beijing has faced accusations of being an irresponsible lender. Xi’s close diplomatic relationship with Russian President Vladimir Putin and geopolitical tensions with the West have added to strains, contributing to waning interest from Europe in the Belt and Road program.
Around 80 percent of Beijing’s lending to the developing world goes to supporting nation in financial distress, according to AidData. The researcher’s database covers some $1.34 trillion in financial instruments across 165 countries from 2000 to 2021. That includes some projects committed to in that time frame that may not have been started until this year.
The report also noted a shift in the structure of deals Beijing is pursuing. Half of China’s non-emergency lending portfolio in low- and middle-income countries is now provided via syndicated loan arrangements. More than 80% of those involve Western commercial banks and multilateral institutions, according to AidData.
Beijing’s public approval rating in the developing world plunged from 56% in 2019 to 40 percent in 2021, the AidData report said, citing Gallup World Poll data.
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