China’s trans-national Belt and Road Initiative (BRI) has hit a roadblock as the Covid-19 pandemic continues to flare. Al Jazeera reports that most construction has been halted to stop the spread of the virus, with 20 percent of projects being seriously impacted. Now, many countries fear they may not be able to pay back their loans to China or meet their deadline obligations.
The BRI is a large-scale development plan to fund and construct infrastructure in nations across the world. Many countries have joined in this initiative, taking loans from China to fund these massive projects in the fields of transport, power, and utilities. The loans are often backed by collateral, such as land or resources, according to The Economist. Before the pandemic, many nations had scrutinized the program as a “debt trap” towards developing countries.
With the pandemic stalling the global economy, many nations are attempting to renegotiate their debts. The looming financial commitment is not the only issue many are facing; some nations have begun cancelling or postponing projects entirely. China has responded by restructuring some debts but has been mostly silent on what other plans it has. The massive debt taken on has been a burden on nations as they face high interest rates.
This has been especially hard on African nations, with the LA Times explaining that “Ethiopia, South Africa and Kenya have all had their credit downgraded, making it harder for those governments to borrow more to get through the recession.” The Economist reports that even with loans from western powers and the World Bank, many African nations are still struggling. The focus of the BRI is in Africa, creating a large problem for the continent. According to the New York Times, nations banding together to demand debt relief is not out of the realm of possibility.
Questions remain over how big of an impact this will have on future expansions as nations continue to seek debt forgiveness and suspend projects. The BRI, which, according to the Council on Foreign Relations, is viewed as a way to gain diplomatic influence and possible assets, now faces its biggest challenge. China’s lack of immediate response coupled with a global economic downturn has made many nations weary of working with China. The New York Times states that calls for debt forgiveness have been pushed aside as projects continue to stall.
Many feel China is not doing enough to control its debt at home. China has spent over one trillion dollars on funding the BRI already and now faces the possibility of mass default. The suspension of debt payments for the remainder of this year previews what actions China will take. Whether China seizes assets, forgives debt, or renegotiates terms is still unclear. With the pandemic still on the rise, especially in BRI nations, the possibility of more projects being postponed looms as well.