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China has spent nearly five years directing a flow of hundreds of billions of dollars to a bold plan to gain greater global influence by funding large projects in Asia, Europe and Asia. East and Africa.
Now, Beijing is starting to brake.
The value of transactions that Chinese companies are hitting as part of the country's overall grand plan – called the Belt and Road Initiative – is weaker than it was a year ago, according to new data. The Chinese authorities themselves are issuing a cautious note, expressing their concern that Chinese institutions must pay attention to what they lend under the program – and ensure that their international borrowers can repay .
"Current international conditions are very uncertain, with a lot of economic risks and large interest rate fluctuations in emerging markets," said Hu Xiaolian, president of the China Export-Import Bank, a lender controlled by the state. a big role in financing projects, at a forum this month in Shanghai. "Our companies and countries of the" belt and road "initiative will face funding difficulties."
China has launched a major inter-agency review on the number of transactions already made, the financial conditions and with which countries, say people close to Chinese economic policy, who have asked to speak under the guise of the government. ;anonymity. not been made public.
US and European officials have long been concerned that Belt and Road represents a diplomatic and economic takeover by Beijing, fueled by its vast government wealth and helped by the Communist Party's laser focus on realignment. long-term goals.
As part of this initiative, lenders controlled by the Chinese government are offering huge sums of money – usually in the form of loans or financial guarantees – to other countries to build major infrastructure projects such as highways, railways and power plants. This money often comes with the requirement that Chinese companies be heavily involved in planning and building, throwing a lot of business at them.
But even with its financial firepower, China has its limits. Its economy is showing signs of slowing down, and it is in full trade war with the United States. Beijing is struggling to control the problems of domestic debt – problems that a wave of international lending has certainly not helped.
Too much activity abroad may create unnecessary white elephants that can bring down Chinese companies and local partners. All types of offers are now fishing to be associated with the Belt and Road Initiative as a theme park in Indonesia and a brewery in the Czech Republic.
In addition, excessive loans can worsen relations with other countries rather than help them. New governments in places like Malaysia and Sri Lanka wondered why their predecessors had borrowed a lot in Beijing.
This year, some Chinese officials have expressed concerns about loans under the program.
"Ensuring debt sustainability – it's very important," said Yi Gang, the new governor of the Chinese central bank, at a conference in Beijing late April.
While belt and road activity remains huge, it has certainly become more restricted, according to official data. In the first five months of 2018, Chinese companies signed contracts worth $ 36.2 billion, down nearly 6% from the same period a year ago.
Contract signatures were down at this time last year from 2016, but less significantly. Much of this slowdown is due to the fact that big companies and governments have saved their powder for a big belt and road forum in May 2017 in Beijing, in the presence of Xi Jinping, President of China, Vladimir Putin and other political figures. After the forum, the activity exploded.
"I felt that the level of enthusiasm for the BRI had certainly dropped a few notches compared to last year," said Eswar Prasad, Cornell's economist and former chief of the Chinese division of the International Monetary Fund. conversations with Chinese policymakers.
The project activity could resume later this year, of course. But the uncertain global economic outlook has given Beijing even more reasons to be cautious.
A protracted trade war between the United States and other countries, especially China, could undermine confidence and curb growth. The United States has pushed up interest rates in the short term, making it more expensive to loan money. In the past, interest rate increases in the United States have sometimes caused financial turmoil elsewhere, particularly in emerging markets.
The loan of the belt and the road seemed a certain thing when the effort began under Xi in 2013. The loans would be long-term, giving borrowers time to pay them back. China also tends to lend mainly to countries with significant natural resources. If a resource-rich developing country struggled to repay its loans, it could offer goods such as oil, iron ore or even food.
But part of the problem is that no one – not even the Chinese government – has a global vision of credit so far. The Ministry of Finance and the state-controlled banking system have poured money into projects ranging from the Czech Republic to Laos and from South Africa to Kazakhstan. China's Banking and Insurance Regulatory Commission estimated this spring that Chinese banks had lent $ 200 billion to 2,600 projects.
Various government agencies have also issued export guarantees, loan guarantees and other important financial arrangements under the initiative, although some of them overlap bank loans.
A slowing down of the belt and the road can also be natural. The official data shows that Chinese companies are completing projects at about the same pace as signing agreements for new projects, suggesting that the initiative could simply fit into a sustainable rhythm. .
"They are still actively promoting Belt and Road," said Andrew Mackenzie, managing director of BHP Billiton, an Australian mining giant that is among the largest iron ore exporters of Chinese steelmakers, which are among the most important beneficiaries of belt and road.
Yet, some Chinese officials are looking more closely at the purpose of money.
For example, they re-evaluated the country's financial exposure to Africa, a continent with immense natural resources that attracted a wide range of Chinese energy and energy companies. construction, said people close to Chinese politics.
Belt and Road has also been viewed with growing skepticism by multilateral institutions. They warned that developing countries should not incur excessive debts.
"The first priority," said Christine Lagarde, executive director of the International Monetary Fund, at the Beijing conference in April, "is that Belt and Road only goes where it's really needed ".
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