EconomicGlobal RiskNews Briefs

The Belt and Road Bubble Is Starting to Burst

Risky projects funded as part of China’s “Go Out” policy for domestic businesses have begun to have an impact on Chinese banks and the larger economy. The policies created easily-accessible credit for foreign projects and encouraged investments, but many of these have severely underperformed. China’s foreign asset purchases have increasingly been made by Individuals and firms, rising from 11% to 40% from 2011 to 2017. As the projects, including many multi-billion dollar investments in Africa, have underperformed or lost money, this sector has only produced a 0.4% return on investment. One major reason for the low performance is that Chinese firms are in the early stages of developing experience and connections overseas. They are thus more likely to invest in high-risk opportunities left untouched by other international investors. The Chinese government has reigned in many of the policies enabling these loans and will exact harsh penalties on those failing to repay. 

Source: The Belt and Road Bubble Is Starting to Burst – Foreign Policy

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