Does Risk Mean Anything to China?

According to this piece in the Financial Times by James Kynge and Jonathan Wheatley China’s ambitious “Belt and Road” developing world infrastructure lending program has flopped and China is retrenching:

What was conceived as the world’s biggest development programme is unravelling into what could become China’s first overseas debt crisis. Lending by the Chinese financial institutions that drive the Belt and Road, along with bilateral support to governments, has fallen off a cliff, and Beijing finds itself mired in debt renegotiations with a host of countries.

“This is all part of China’s education as a rising power,” says Mr Hillman, a senior fellow at Washington-based think-tank CSIS. “It has taken a flawed model that appeared to work at home, building large infrastructure projects, and hubristically tried to apply that abroad.”

and

China’s retreat from overseas development finance derives from structural policy shifts, according to Chinese analysts. “China is consolidating, absorbing and digesting the investments made in the past,” says Wang Huiyao, an adviser to China’s state council and president of the Center for China and Globalisation, a think-tank.

Chen Zhiwu, a professor of finance at Hong Kong university, says the retrenchment in Chinese banks’ overseas lending is part of a bigger picture of China cutting back on outbound investments and focusing more resources domestically. It is also a response to tensions between the US and China during the presidency of Donald Trump, when Washington used criticisms of the Belt and Road as a justification to contain China, Prof Chen adds.

“In domestic Chinese media, the frequency of the [Belt and Road] topic occurring has come down a lot in the last few years, partly to downplay China’s overseas expansion ambitions,” says Prof Chen, who is also director of the Asia Global Institute think-tank. “I expect this retrenchment to continue.”

One of the things I noticed about the piece is that it fails to mention one of the earliest debacles in the program, the Hambantota port project in Sri Lanka. If you don’t remember it, the Chinese lent more than $1 billion to the project and built it with Chinese contractors, the Sri Lankans were unable to meet their interest payments, so the Chinese repossessed the port. Now it’s operating under a 99 year lease to the Chinese. This has been condemned as “colonialism” or scorned as “debt-trap diplomacy”.

My only observation is that there are reasons that the developing world is struggling and they’re not limited to low capital investment, that people will love you as long as you’re doling out cash, and that it’s just a short step from there to becoming “the Ugly Chinese”. Many countries do have infrastructure problems but the infrastructure issues most in need of remediation aren’t roads, bridges, or ports but social, legal, and political infrastructure. Those can’t be solved just by handing out money. In some cases big, showy infrastructure projects will create roads, bridges, or ports that can’t be financed and won’t be maintained. In others the money will just disappear.