Asian Property Review examines the impact from the fallout of unprofitable megaprojects financed and built by the Chinese under the auspices of the Belt & Road initiative.

Text by Benjamin K. Yong.

Sri Lanka was the first country to get a taste of what happens when big Chinese-funded infrastructure projects don’t get enough returns and you still have a big loan to service for the project – so big that it spans two generations to pay off. What’s the solution? The country decided to lease the port for 99 years to the Chinese thus giving effective control of the port to a foreign entity.

Following that, a number of other ASEAN countries which have many similar projects funded and built by the Chinese under the Belt and Road initiative, got worried. “From Malaysia to Myanmar, the Chinese have been bankrolling national projects across Southeast Asia – the Philippines is no exception. But, with minimal information available to the public and Congress of what the loan conditions might be, there are serious concerns that [President] Duterte is taking the Philippines headfirst into a debt crisis,” an online portal warned.

It is estimated that with an interest rate of between 6 and 14% for a US$167 billion loan from the Chinese, “the Philippines could end up in a debt bondage to China”. “Without releasing all the details of the loans to the Philippine Congress and the general public, it becomes impossible for Congress to conduct a full cost-benefit investigation and vote for the loan to proceed,” it says.


Robert Wihtol, Adjunct Faculty at the Asian Institute of Management and former Asian Development Bank Country Director for China and Director General for East Asia has this to say about what he calls ‘Asia’s Debt Trap”: “China is using the region’s appetite for infrastructure as a vehicle for its geopolitical ascendancy. Under the Belt and Road Initiative, China is working hard to attract infrastructure investments in the region and beyond, to improve its access to markets in Asia, the Middle East, Africa and Europe. BRI projects are being financed by its stateowned policy banks, China Development Bank and China Exim, a dedicated Silk Road Fund, and local governments and state-owned enterprises. China is also encouraging public and private financiers in the 64 OBOR countries to chip in.”

Having said that, he notes: “The race to finance Asian infrastructure has many upsides. The push to lend increases the total financing available for infrastructure and encourages lenders to streamline their procedures and make funds more accessible for borrowers. Having numerous financiers increases the scope for joint financing, which can help to spread the risk inherent in large projects.

“However, the race also has downsides. Increasing financing does not in itself address the shortage of bankable projects. On the contrary, it may actually increase the likelihood of unjustified projects being financed. Geopolitical and economic rivalries can see projects of questionable value get pushed through on political grounds, without proper assessment of their financial and economic viability, and cutting corners in technical, environmental and social due diligence. There is a growing risk that countries will borrow for white elephant projects, saddling them with hard-toservice debt and lenders with nonperforming loans or default.

Wihtol continues: “The current glut of international financing risks triggering a repeat performance (of a financial crisis) at the regional or global level. The first casualties are already apparent. CDB and China Exim lend on largely political grounds, do not have clear-cut debt sustainability limits and have recently incurred major losses in risky countries such as Sudan, Venezuela and Zimbabwe. In Venezuela, for example, loans were secured against oil reserves, before prices – and the economy – collapsed. The losses have forced China’s policy banks to reassess their approach to sovereign risk and their country lending priorities.










” There is a growing risk that countries will borrow for white elephant projects, saddling them with hardto-service debt and lenders with nonperforming loans or default. ” — ROBERT 

“Indonesia’s high-speed railway market, again, demonstrates the downsides of political competition. Throughout Southeast Asia, Japan and China are competing fiercely for high-speed rail projects, supported by state-owned banks and occasional political arm twisting. The Jakarta-Bandung link has been a particular bone of contention. Following years of positioning by the two competitors, last year the contract was awarded to China. Many suspect political intervention. Over a year later, rather than moving ahead quickly, the project is mired in bureaucracy, rising costs and undermining its financial viability.”

Wihtol concludes that financing Asia’s infrastructure gap is essential for the continued prosperity of the region. “But the current politically-driven race to provide funding entails major risks. The spectre of bad debt has reared its head.”


Oliver Nicoll, Director of Research, Asia Pacific Investment Partners (APIP) observes two striking characteristics of OBOR: the scale of its ambition, but the lack of anything approaching a clear plan for delivery. “Endless summits are arranged with regional and global partners, where positive sentiments are dutifully recorded by reporters, but little eventuates. So, in terms of a negative effect, I think we are still lacking clarity.

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