The Belt & Road Initiative (BRI) of China, especially its infrastructure construction in participating countries involving Chinese state-owned enterprises, has repeatedly been questioned. Voices are emerging in Asian and African countries, such as Malaysia, Sri Lanka and Sierra Leone claiming that China caused some countries to fall into debt-trap through the BRI. Western media have also embraced this idea and accused China of letting some countries fall into the debt-trap.
The issue of debt-trap is not something new to developing countries. Historically, some developing countries in Latin America, Africa and Asia have experienced debt crises. External debt is a double-edged sword. If it is not utilized well, it will cause debt burden and even lead to crisis. Some international financial institutions' research on the debt problems of developing countries show that in countries with debt crisis, in addition to the excessive debt scale, excessive growth rate, short-term debt ratio, exchange rate changes, an important factor is the improper use of external debt. Many of them are used as recurring expenditures without forming effective assets. Therefore, for developing countries, the key to avoiding the debt-trap is to measure their debt sustainability, and to transform debt investment into profit-generating assets in order to improve their ability to sustain development. China's BRI provides long-term capital and infrastructural capabilities for the participating countries, and this can actually mitigate and avoid the risk of debt-trap in the host countries.
Regarding the so-called debt-trap problem of BRI, Anbound's Chief Researcher Chan Kung believes that from the perspective of big finance, infrastructure itself is a materialized debt. As long as there is infrastructure construction, there will be the need to bear the debt, and this is true anywhere in the world. Many countries are carrying out infrastructure projects and are burdened with debts. China cannot be solely blamed in this matter. Borrowing external funds and developing the domestic economy is a common way for many countries in the world to develop their economies. Most of the BRI's participating countries are underdeveloped. These countries have huge demands for infrastructure construction, but they lack construction funds. China's infrastructure construction projects are costly, and they are there for the long-term. These countries that undertake these projects have to maintain them by borrowing from China. For China, loans to the BRI participating countries are also a form of investment. This is mutually beneficial for both parties.
However, in the construction and development of the BRI, for China to avoid being accused of creating "debt-trap", its development ideas need to be changed according to the situation. This refers especially to the need to change the existing "major infrastructure + large state-owned enterprises" mode, as such infrastructure investment construction model lacks the participation of private enterprises and foreign capital. It also has insufficient participation of local enterprises and labor. It is not only lacking in efficiency, but also prone to misunderstanding. In addition, under said mode it is quite difficult for BRI to be integrated into local society, making China have a lack of support from the local people. By encouraging private enterprises, foreign companies, and especially financial capital to participate in investment, it will not only expand the sources of capital, technology and labor employment. It will also reduce the responsibility of government and help the projects to gain wider social and public support.
From a developmental perspective, Anbound believes that with the completion of the infrastructure projects and with infrastructure facilities starting to become functional, it is necessary to promote the construction of the BRI market, thereby transforming "debt" into "market". The infrastructure that has been built with huge sums of money can make a difference. On the other hand, this will also provide room for sustainable growth in the economic development of the host countries and this actually resolves their "debt" burden. Chinese Foreign Minister Wang Yi also said that the BRI is by no means a debt-trap, but it is a "pie" that benefits the people. It is not a "geopolitical tool" but an opportunity for common development. Therefore, infrastructure is not the ultimate goal, nor is it to transfer excess capacity. To change the people's perspective, the next step is to promote the construction of the BRI market and turn the opportunity into actual benefits.
Anbound has previously pointed out that from the market point of view, the 64 BRI participating countries have abundant natural resources and energy reserves and possess solid foundation for economic development, yet they do not have sufficient development. This is in line with the demand for China's external production capacity, where BRI projects can create space for international capacity cooperation. It provides a good opportunity for Chinese enterprises, local enterprises and private enterprises to "go global", and for such enterprises to change the space for time and accelerate their transformation and upgrading. At the same time, it also provides a potential investment platform for foreign companies. In fact, Chinese enterprises investing overseas will choose their own investment fields. Many of them choose industries related to consumption, electronics, finance, and the sharing economy. Due to the close proximity to the consumer market and people's livelihoods, this type of Chinese investment generally enjoys higher level of local acceptance.
Final analysis conclusion:
The construction of the BRI is a long-term strategic concept. The realization of this initiative depends not only on infrastructure and debt, but also on building the "market space" of relevant countries. It needs the participation of dynamic private enterprises. China should take the initiative to adjust the "major state-owned enterprises + large infrastructure" model in order to clear up to be cleared of the accusations of it being the culprit of "debt-trap".
