China eases restrictions on foreign lending as BRI loans increase

China's flagship Belt and Road Initiative (BRI) has hit a snag, with many loans to emerging economies defaulting, forcing Beijing to reduce lending.

The COVID-19 pandemic, which was followed by the Russia-Ukraine conflict, harmed emerging economies. As countries struggle to meet their debt obligations, China is likely to face more problem loans, according to Nikkei Asia.

According to the US think tank Rhodium Group, China reported 19 cases of interest payment waivers and other loan conditions in 2021, a significant increase from previous years.

According to the report, these renegotiations totalled USD 52 billion for 2020 and 2021, as emerging economies were hard hit by the COVID-19 pandemic. The most recent renegotiation figure is more than triple the USD 16 billion for the previous two-year period.

According to a report released in April by a group of researchers, nearly 60% of China's foreign loans are now to countries in debt crises, up from 5% in 2010. Estimates from World Bank economist Sebastian Horn were included in this report.

In August, Chinese Foreign Minister Wang Yi told African countries that Beijing would waive the principal repayment on 23 interest-free loans that were due by the end of 2021.

According to the Japanese newspaper, Beijing is taking precautions with its massive lending programme.

China's new loans to lower-middle-income countries totalled USD 13.9 billion in 2020, down 58% from the record high in 2018, according to the Nikkei report, citing World Bank data.

"With the economy slowing, China's economic focus has shifted to domestic demand," said Yusuke Suzuki of Mitsui & Co. Global Strategic Studies Institute. Loans are unlikely to increase significantly in the future, according to Yusuke.

Even the Group of Seven (G7) leaders called out China in their June statement on the issue of mounting loans to a number of countries. They urged Beijing to release low-income countries from debt.

According to Kai Kajitani, a professor at Kobe University, there is a risk that Chinese loans to Russia will default due to Western sanctions.

"China could compensate for this by suspending new loans to low-income economies or collecting debts," he said, according to Nikkei.