IMF's Lagarde warns of debt risks in China’s Belt and Road initiative
IMF Managing Director Christine Lagarde and Chinese President Xi Jinping meeting at the Boao Forum for Asia 2018 in Hainan, China. IMF FlickrCC BY-NC-ND 2.0
China’s Belt and Road initiative should fill true infrastructure gaps and avoid financing deals that may lead to debt problems in partner countries, International Monetary Fund Managing Director Christine Lagarde said on Thursday.
Lagarde was speaking at a conference in Beijing organised by the IMF and the People’s Bank of China to discuss the macroeconomic and financial frameworks needed for the implementation of the Belt and Road initiative.
The initiative was proposed by Chinese President Xi Jinping in 2013 to boost trade among more than 65 countries from Asia to Europe and Africa through massive investments in railroads, ports, telecommunication links and other infrastructure.
Lagarde said that some projects, including the Thailand-China high-speed railway and the China-Kazakhstan cross-border free trade zone, were signs that the Belt and Road initiative was progressing.
But while the initiative could provide much-needed infrastructure financing to partner countries, wasteful investment projects and problematic financing deals were its two main challenges, she warned.
“The first challenge is ensuring that Belt and Road only travels where it is needed. […] selecting projects that fill true infrastructure gaps and implementing them in the most efficient ways should be top priorities moving forward,” Lagarde said.
“In countries where public debt is already high, careful management of financing terms is critical. This will protect both China and partner governments from entering into agreements that will cause financial difficulties in the future,” she said, before adding that China’s leadership were “fortunately” aware of these risks.
The IMF chief also called for transparency and suggested that China’s newly-announced International Development Cooperation Agency could provide clarity to stakeholders by becoming a “one-stop shop” for the Belt and Road initiative.
“Not a Chinese plot”
Lagarde’s remarks follow recent concerns among the United States and its allies in Asia and Europe that China’s new Silk Road project is aimed at expanding Beijing’s economic, political and military influence abroad while making some countries heavily indebted to China.
Last month, a study by the Centre for Global Development, a Washington-based non-profit think tank, found that the Belt and Road initiative elevates debt risks in eight countries, including Pakistan, Djibouti, the Maldives, Laos, Mongolia, Montenegro, Tajikistan and Kyrgyzstan.
China’s share of Kyrgyzstan's and Djibouti’s debt, for instance, will rise to 71 percent and 91 percent, respectively, because of Belt and Road infrastructure funding, according to the study.
Meanwhile, Australia, India, Japan and the United States are planning to establish an alternative regional infrastructure financing scheme to the Belt and Road initiative.
President Xi said on Wednesday that his signature policy is “not a Chinese plot, as some people internationally have said.”
“It is neither the post-World War Two Marshall Plan, nor is it a Chinese conspiracy. If you had to (call it something), it’s an ‘overt plot’,” he said according to Reuters at the annual Boao Forum in Hainan, China.
Chinese investment in 59 countries covered by the Belt and Road initiative totalled US$14.4bn last year, according to the Chinese Ministry of Commerce