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Hong Kong CNN
The inauguration of two new electricity-generating units in Zimbabwe's Hwange power station last month was not an unfamiliar scene when it comes to major infrastructure projects in Africa.
In a rural area of southern Africa, officials from the government and the Chinese ambassador met to cut the ribbon and celebrate the expansion of a coal-fired power plant that will reduce power outages in the nation - as well as Beijing's funding of it.
The project is backed by approximately $1 billion in Chinese loans, years before Beijing ceased funding new coal-powered overseas projects. It's one of many big-ticket projects on the continent that are financed by Chinese lenders as part of Xi Jinping’s Belt and Road Initiative.
These funds are now being felt in Africa. Residents of major cities such as Lagos, Nairobi, and Addis Ababa travel daily on railways, highways, and airports that were built with Chinese loans in the last few years, often by Chinese construction companies.
As the global infrastructure building spree enters the second decade, there are questions as to how Beijing will direct the initiative over the next few years - and if it will reduce funding in light of new challenges and signs that a recalibration is underway.
Beijing's financial problems are escalating, and there is a growing need to address environmental concerns.
Researchers from Boston University Global Development Policy Center, in the US, have tracked what they call a steady decline of new loan commitments by Chinese entities to African governments borrowers. This decline has intensified in the last two years.
The new loans dropped from $28.5 billion to $1 billion, the second consecutive year lending has fallen below $2 billion. Researchers say that the drop may not be due solely to the pandemic but could also be due to a shift in lending which would see fewer large loans.
Oyintarelado Moses, the author of the report, told CNN that 'the Belt and Road Initiative appears to be in a recalibration phase'.
This phenomenon is not limited to Chinese finance in Africa.
Moses, a data analyst with the Global China Initiative at the Center, said that based on global loan averages decreasing, this new phase of Belt and Road financing will likely be marked by less overall funding.
Understanding how much money flows out of China to global development can be difficult, as Beijing does not share these data publicly and many financial institutions play a role.
Data from the Global Development Policy Center focuses, for instance, on African government borrowers, or loans with sovereign guarantees, and excludes Chinese lending to private borrowers on the continent.
Experts say that the main motivations for Beijing's rise to the top of the bilateral lending list remain the same. They believe it will continue to finance both large-scale and smaller-scale projects in the future, but it is unclear on what scale.
The way this all plays out will have a major impact on the ability of developing countries to access much needed infrastructure funding.
Next month, policymakers will be watching a major forum in Beijing that is devoted to the initiative for clues as to what comes next.
During a trip to Kazakhstan in 2013, Xi began the initiative that was to become a cornerstone for his foreign policy.
The Chinese leader called there for a revamping the ancient Silk Road in order to bring countries' "economic ties closer and mutual cooperation deeper, as well as a broader space of development."
Since then, China's commercial and development banks have invested billions of dollars in railroads, power stations, highways, port facilities, and telecoms throughout the developing world.
The initiative gave China an outlet to its excess industrial capacities and funds and also allowed China to increase its global footprint. Beijing claims that more than 150 countries have signed up to participate in the initiative.
The new infrastructure has benefited many of its partners.
The Belt and Road initiative has been accused of lax labor and environmental standards as well as of risky lending. Critics claim that China has burdened governments of low and middle income with excessive debt levels relative to their GDPs.
Beijing has rejected these claims and has instead hailed this initiative as a way for people to'make the 'cake,' bigger and more evenly share it' and foster new engines of economic development.
New economic realities are now at play, as countries still recovering from the pandemic are being hit by rising interest and commodity prices due to the war in Ukraine.
The era of low-interest rates and cheap money coming out of China to these countries is over. Ammar A.Malik, a senior researcher scientist at AidData Research Lab at William & Mary’s Global Research Institute, a US-based research institute that tracks Chinese overseas development financing, said: 'China is now the largest debt collector in world.'
He said: "The challenge for China is to make sure these countries have enough liquid assets and that the projects are functional enough that China can collect these repayments on time and with interest."
China has been a major creditor in recent years. Beijing issued bailout loans to troubled borrowers like Zambia and Ghana and joined other lenders for joint debt negotiations.
Malik said that debt distress issues could mean that some low- and middle-income countries are currently not in a place to take on additional debt.
He said that many developing countries are still'very interested in receiving funding for large infrastructure projects which are so crucial to their economies'. There are also a number of factors that encourage both China and recipient nations to work together, which may not result in a reduction in the financing in the future.
China also navigates the Belt and Road in the second decade despite the stark economic challenges that it faces at home.
The expected economic recovery post-Covid has not materialized, and local governments struggle with mounting debt tied to a real estate crisis.
Moses, from the Global Development Policy Center, says that it is still unclear how Beijing's domestic economic problems will affect its overseas lending over the long term. However, there are already signs of an impact, he said.
Beijing's decision on how to channel the foreign exchange reserves it holds and its calls for more liquidity to deal with domestic challenges "show a recent shift in lenders having a greater focus on domestic funding needs," she said.
Austin Strange, assistant professor at University of Hong Kong, says that while China's economic woes may have caused financiers to become more circumspect, the original economic priorities driving China's global construction spree remain. These include the desire to generate new investment opportunities for a slowing economic environment.
He said that 'this basic intuition' is still valid, especially as geopolitical conflicts make it harder for Chinese companies in certain sectors, to invest in advanced economies.
A Beijing gathering
Next month, when representatives from over 100 countries are expected to meet in Beijing for the Belt and Road Forum, policymakers will be closely watching for signs of the future development of the initiative.
Analysts say that China is also watching the decline in the size of the loans, and may place greater emphasis on environmental concerns, social protection and due diligence, especially after Beijing and its banks have learned lessons from the first decade of the project.
AidData's 2021 report revealed that 35% of Belt and Road Projects solely operated by Chinese companies from 2013 to 2017 had 'implementation issues', including environmental incidents and corruption scandals.
In 2017, China released guidelines on the promotion of a "green" Belt and Road. The guidance called for sustainable development and strengthened environmental protection. Recently, officials began calling for "small and beautiful" projects that they believe will appeal to the local population.
China will not build any coal-fired projects overseas in 2021.
According to AidData’s Malik who stated that this could limit Beijing’s ability to achieve its green goals, China, unlike Western lenders, has allowed recipient countries to determine the nature of projects.
Researchers at the Global Development Policy Center believe that future lending to Africa could include fewer large loans exceeding $500 million, and more loans of smaller value under $50 million. They also say that loans with a more positive social and environmental impact would be more common.
China is likely to continue funding its overseas development programs in accordance with its geopolitical goals, particularly in areas in which it wants to gain influence over the United States. The United States has launched its own initiatives in recent months to compete with Chinese funding.
Strange said that despite the fact that China's funding for large infrastructure projects has peaked globally, there is'still considerable enthusiasm (for the Belt and Road Initiative) on behalf of China and its counterpart governments in China's region.
He said that if Chinese policymakers and leaders of projects have invested in improving how they manage their projects over the last decade, then new ones should 'in theory' benefit from lessons learned. He said that hindsight could be a benefit.