I'm Robert Lawrence Kuhn and here's what I'm watching: China's visionary Belt and Road Initiative, BRI, building essential infrastructure in the developing world – its challenges, criticisms, and mid-course corrections. According to The Wall Street Journal, nearly 60% of China's overseas loans in 2022 were held by countries in financial distress, compared with 5% in 2010 – so that after galvanizing nearly a trillion dollars, having established more than 3,000 cooperation projects, Beijing is working on a policy overhaul.

A slowing global economy, rising interest rates and higher inflation, exacerbated by the pandemic and natural problems of new programs, have left developing countries struggling to service their debts. China's nonperforming BRI loans have ballooned to tens of billions of dollars, while various projects have stalled. Some Western officials and media have accused China of deliberately structuring its lending practices to seize assets in a calculating "debt-trap diplomacy," a charge that Western analysts have debunked. In 2019, after reviewing 40 cases of China's external debt renegotiations, the Rhodium Group, a leading research provider, found that while debt renegotiations and distress among borrowing countries were common, asset seizures were a rare occurrence, and despite its economic weight, China's leverage in negotiations was limited.

Nonetheless, China's lending has contributed to debt crises, which have multiple causes and multinational creditors, such as in Sri Lanka and Zambia. Moreover, between 2017 and 2021,China's sources had to provide Pakistan with around $23 billion in fresh loans – financing that was needed to prevent the country's credit rating from falling and its debt-servicing costs from rising. In 2020, after some challenges, China joined an international debt-relief effort, labelled the Common Framework and endorsed by the G20 that coordinates creditors in debt negotiations. A 2022 analysis from the Centre for Economic Policy Research found that China has become the most important official player in international sovereign debt renegotiations. Since 2008, Chinese creditors arranged at least 71 distressed debt restructurings – more than three times the number of sovereign debt restructurings with private creditors, and higher than the total number of Paris Club restructurings. China's crisis resolution approach often requires serial debt restructurings.

Southeast Asia is central to China's BRI vision. Major projects include a 1,035km high-speed railway in Laos; the just-opened 142km Jakarta-Bandung high-speed railway in Indonesia; and the 665km East Coast Rail Link project in Malaysia under construction. According to South China Morning Post, China's big BRI plans for Southeast Asia "hit a 10-year speed bump." Though projects have brought economic benefits, fears are that gains will be "marginal" while debt risks grow and "political side effects" mount. Points of contention, which all foreign investors face, include land ownership, labor rights, corruption, and environmental impact, fueled in part by ethnic tensions.

New methods of financing BRI projects, especially via the China-founded Asian Infrastructure Investment Bank and the Silk Road Fund, bring world-class financial standards, including rigorous due diligence and sophisticated financing structures tailored for each project's projected cash flows.

Chinese officials are determined to learn lessons from early BRI projects to improve future BRI projects – tightening the selection process, making projects more productive; adjusting financial structures, making projects more conservative; and controlling diverse risks, making projects more viable. The only thing not subject to mid-course correction is President Xi Jinping's BRI vision itself, which he has called "a project of the century." Significantly, the BRI has been written into the Party Constitution.

China's mid-course corrections focus on recognizing, assessing, managing, and preventing risks, including political uncertainty and deteriorating security conditions, with kidnapping and robbery, armed attacks and terrorist attacks becoming more frequent. It also includes China's heightened sensitivities to local issues, such as cultural differences and indigenous industrialization. BRI officials are admonished to conduct comprehensive risk assessments before "going global" and commencing projects: they must pre-set risk monitoring and control systems to achieve "early detection, early warning, and early prevention."

I'm keeping Watch. I'm Robert Lawrence Kuhn.

Script: Robert Lawrence Kuhn

Editors: Xiao Qiong, Hao Xinxin

Designer: Qi Haiming

Producer: Wang Ying

Chief Editor: Li Shouen

Supervisors: Xiao Jian, Adam Zhu

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