- “Many countries under the (Belt and Road) initiative have borrowed heavily from China to invest in new projects, but the pandemic is disrupting economies and will complicate repayment plans,” said Kaho Yu, senior Asia analyst at Verisk Maplecroft.
- Yu told CNBC that currently, low-income countries under the BRI are already asking China for debt relief.
- China has had a track record of taking over assets when countries indebted to it go under.
- It will be “under pressure” to extend those loans or even write them off, analysts say.
China could find itself having to write off massive loans as countries that owe Beijing money under its massive infrastructure project struggle with mounting debts in the coronavirus fallout, analysts say.
It is an ambitious project that aims to build a complex network of rail, road and sea routes stretching from China to Central Asia, Africa and Europe. It is also aimed at boosting trade. Chinese financial institutions have provided hundreds of billions in funding to countries involved in the BRI projects.
“Many countries under the BRI initiative have borrowed heavily from China to invest in new projects, but the pandemic is disrupting economies and will complicate repayment plans,” Kaho Yu, senior Asia analyst at Verisk Maplecroft, told CNBC.
The coronavirus pandemic has spread to more than 180 territories and countries in the world, and has infected more than 4.1 million people so far, according to data from Johns Hopkins University. At least 282,694 deaths related to Covid-19 have been reported since it first emerged late last year in China.
Several major BRI projects — such as those in Indonesia, Malaysia, Cambodia, Sri Lanka and Pakistan — have been stalled by lockdowns, according to Simon Leung, a banking and finance partner at law firm Baker McKenzie.
The outbreak has also led to disruptions in BRI projects which often depend heavily on labor and supplies — but both were prevented from reaching the sites as a result of the lockdowns, Leung pointed out.
“The drop in export revenues, coupled with increasing domestic spending as a result of the outbreak, have led to significant depreciation of local currency and in turn adversely affected the ability of borrowers to meet forex-denominated debts owing to Chinese banks,” said Leung, referring to increased spending in terms of stimulus packages. Less demand for a country’s goods typically also means less demand for its currency, causing it to weaken.
All that has affected the ability of debtor countries to repay their dollar-denominated loans from China.