OBOR and the Growing Chinese Debt Trap

The United States recently termed China's One Belt One Road (OBOR) initiative as being "characterized by poor quality, corruption, environmental degradation, a lack of public oversight or community involvement, opaque loans, and contracts generating or exacerbating governance and fiscal problems in host nations," in the United States Strategic Approach To The People's Republic of China Report.

Why it matters?

The report comes at a time when countries benefitting from Chinese aid and relying highly on OBOR initiatives are being starved of workforce and funds for infrastructure development. The loss of global prestige for China after it deliberately hid data related to COVID-19, and a severe GDP decline due to the pandemic has made uncertain the future of the Asian giant's $1 trillion infrastructure initiative. China’s economic slowdown directly affects countries, including Pakistan, Myanmar, Indonesia, Sri Lanka, Cambodia, Italy, and Iran, where all work related to OBOR has been completely stopped. China is, however, expected to bounce back by increasing manufacturing volumes and returning to growth by the end of 2021.

Ballooning Debt Amidst Global Slowdown

Notably, China's ambitious OBOR project has already had adverse effects on smaller economies, who are struggling to repay loans taken from China for infrastructure development. In 2018, Sri Lanka handed over operations of its Mattala Rajapaksha International Airport (MRIA), built with $190 million in assistance from China, after being unable to pay back dues to Beijing's EXIM bank.

Source: Center for Global Development

A 2018 report by the Center for Global Development sates that eight OBOR countries  - Mongolia, Montenegro, Pakistan,  Maldives,  Djibouti,  Laos, Kyrgyz Republic, and Tajikistan - are currently vulnerable to debt crises. Furthermore, the Belt and Road Tracker from the Council on Foreign Relations states that China has already provided infrastructure loans totaling over $120 billion. So, a halt in OBOR projects would mean more debt burden for countries, drastically slowing down their economic development.

New Roads to Recovery

Chinese exports currently contribute nearly 20% of its GDP and account for over 12 % of total global goods imports. A significant portion of these exports has been dedicated to the OBOR project. Chinese exports are expected to take a substantial hit owing to the global travel bans following the COVID-19 outbreak and the rise of anti-China sentiment across the world.

Economically marginalized countries depending on China, are more likely to open up their economies to investments from countries like the US, which is the highest contributor towards foreign aid, Germany, and India. Furthermore, initiatives like India's proposed One Sun One World One Grid (OSOWOG) are likely to gain in popularity in weaker economies as they provide a political and financial counterweight to China.


We help you make sense of change. If you wish to collaborate or share feedback then email us today!