1. China’s Belt and Road Initiative and Implications for GVCs
August 2018
David Dollar, Senior Fellow
John L. Thornton China Center, Brookings

2. In 2013 Xi Jinping proposed the Belt and Road Initiative

3. China’s Belt and Road Initiative
China has become a major funder of infrastructure through CDB/EXIM/AIIB
China’s initiative is global and demand-driven – BRI countries get a minority of the funding
While infrastructure financing is welcome, the initiative raises issues:
Risk and debt sustainability
Weak link with GVCs
Environmental and social safeguards
AIIB is a promising innovation and points the way towards reform

4. Belt and Road countries take a small share of CDB/EXIM outstanding loans, end-2016

5. China’s development finance: Data issues and options
CDB/EXIM do not report detailed data on countries and terms
Updated AidData through 2014 based on media reports and follow-up covers 131 countries
SAIS China-Africa Research Initiative covers lending to African countries through 2015

6. Half of China’s $40 billion annual lending has gone to BRI countries

7. McKinsey 2017 study of infrastructure gaps
Infrastructure will be a crucial input into sustaining growth and poverty reduction
Infrastructure financing needs for the developing world (excluding China) are on the order of $1 trillion per year until 2035
60% of that is needed in developing Asia
Power and roads together account for more than half the need

8. Where infrastructure finance is needed per McKinsey

9. Where China lends,

10. China’s finance, 2012-2014, by sector

11. China’s development finance 2012-14:
Regression analysis
Only population is significant
No favoring of landlocked Asia or Maritime Asia
Uncorrelated with indices of political stability and rule of law

12. Partial scatter of CDF and rule of law

13. GVC participation is highly correlated with rule of law

15. Rising external debt raises sustainability issues

16. Environmental safeguards in two Cameroon hydro projects
Project Memve’ele Lom Pangar Financier China EXIM World Bank Loan terms Euribor+3.1% 0.5%, 40 years, 15 years, 5 grace 10 grace Contractor Sinohydro China Int’l Water-Electric Preparation 4 years 7 years Env oversight Gov Cameroon Independent panel

17. Asian Infrastructure Investment Bank
Charter similar to World Bank and MDBs
Acted on Zedillo report recommendations for MDB reform
87 member countries
$4.4 billion in lending in first two years, three-quarters co-financed with MDBs
India is the largest borrower

18. Improving China’s development finance
China’s financing is too scattershot to have much effect on GVCs
Good infrastructure feeds into trade costs and can help developing countries join GVCs
However, countries with very poor governance are bad candidates for investment
Countries with macro instability (debt unsustainability) and poor rule of law have no involvement in GVCs

19. Improving China’s development finance
To attract better countries, China’s development finance needs to be
More transparent
More competitive (open procurement)
Higher standard (environmental and social standards)

20. China’s development finance and evolution of GVCs
China has become a major funder of infrastructure through CDB/EXIM/AIIB
China’s initiative is global and demand-driven – BRI countries get a minority of the funding
While infrastructure financing is welcome, the initiative raises issues:
Risk and debt sustainability
Weak link with GVCs
Environmental and social safeguards
AIIB is a promising innovation and points the way towards reform

21. Thank You!