BRI's debt trap and China's expanding footprint
When Beijing's flagship Belt and Road Initiative (BRI) marked its decadal milestone in October 2023, Chinese President Xi Jinping said, 'Viewing others' development as a threat or taking economic interdependence as a risk will not make one's own life better or speed up one's development.' However, instead of mutually-beneficial interdependence, China today has managed to make 140 countries highly asymmetrically dependent on it for economic investment and trade. Many of these dependencies are a result of the over $1.175 trillion worth of construction contracts and non-financial investments Beijing has undertaken under the BRI. Now, analysts suggest that loans to the tune of a whopping $35 billion may be up for repayment in 2025, and most countries affected are financially vulnerable, developing economies.
When compared with the first few years of its launch, the BRI today has changed gears from being a money-pumping endeavour to one focused on 'small but smart and beautiful' projects. This is because, as Xi highlighted in so many words in 2023, the BRI has faced multiple challenges vis-à-vis increasing international hostility, inadequate completion of projects and repayment of loans.
If one looks at Pakistan, it owes most of its external debt (~22 per cent of total debt; nearly $29 billion) to China. As part of the China-Pakistan Economic Corridor (CPEC), a crown jewel initiative of the BRI in Asia, China promised an investment of $62 billion to Pakistan, of which approximately $26.6 billion has already been infused. The major projects the money has gone to include Special Economic Zones built in Karachi, Sialkot, Risalpur and other key Pakistani cities, the development of the Gwadar Port, and various infrastructure projects including construction of various energy power plants and a Pak-China Technical and Vocational Institute. However, the CPEC has not yielded the growth it was supposed to.
This is primarily because of the internal dynamics of Pakistan. For example, even though Rawalpindi has created a Special Security Division to protect CPEC projects and personnel, insurgency by the Balochistan Liberation Army (BLA), and militancy in Karachi have continued to plague projects. Similarly, frequent electricity cuts and supply shortages have made project completion difficult and energy initiatives untenable. A Chinese government article from 2018 itself argues that Pakistan has problems of corruption and is facing a sharp fall in its foreign exchange reserves. As a result, it has repeatedly sought a bailout from the International Monetary Fund (IMF).
Another major BRI-indebted economy, and India's neighbour, is Sri Lanka. The Hambantota port, which is owned and operated by Chinese firm CMPort and enables Beijing's strategic foothold in the Indian Ocean Region (IOR), faces its own hurdles. The key project, an oil refinery on the port, was initiated in 2019, but has yielded no results so far. With Sri Lanka's economic crisis, emerging from massive unpaid sovereign debt (of which, officially, only about 10 per cent was owed to China), the project was halted for many years between 2020 and 2024. Given Sri Lanka's overt dependence on imports for servicing its oil and energy needs, the project has been deemed crucial to yield growth dividends for the island nation. Nonetheless, if true, the claims that the Hambantota port development is mired in corruption due to China's collusion with local elites, may mean that the dividends take a long time to materialise.
In this light, Xi has referred to the new BRI as an endeavour to 'take results-oriented actions' and undertake 'a new stage of high-quality development.' Further, the goals of the revamped BRI included emphasising green and sustainable infrastructure development, progress in scientific innovation and people-to-people exchanges, and 'high-level principles of integrity'. To meet these goals, the China Development Bank (CDB) and the Export-Import Bank of China also announced in 2023 a 350 billion yuan (~$48 billion) financing window.
Further, to enforce integrity and compliance internally, in 2024, China's anti-corruption watchdog, the Central Commission for Discipline Inspection (CCDI) also launched a widespread campaign against embezzlers and bribers in the BRI financing ecosystem. The crackdown started at the highest levels, with one of the first ones to fall being Wang Yongsheng, former deputy president of CDB, who was expelled from the Communist Party for 'severe violations of Party discipline and the law.' Liu Liange, former President of the EXIM Bank (2015-18), was even given the death penalty by a Shandong province people's court for corruption and illegal issuance of loans in November 2024. While none of these announcements identified corruption as part of BRI projects, the CCDI targeted the most powerful officials, who undoubtedly had a major role to play in decision-making vis-à-vis BRI financing.
Externally, the announcement of CPEC 2.0 at the meeting between Pakistani Foreign Minister Ishaq Dar and Chinese counterpart Wang Yi in Beijing on May 20, 2025, also carried a new message. This 'upgraded version' of CPEC will promote cooperation in industry, agriculture, energy and minerals, security and human resource development, and does not necessarily revolve around mighty infrastructure projects. Similarly, in January 2025, Chinese energy firm Sinopec concluded a fast-tracking agreement with Sri Lanka, to curb any further hindrances that may plague the Hambantota refinery project.
None of these challenges seem to indicate that Chinese investment in BRI would halt — they are, however, likely to slow down. In fact, as per numbers released by the Chinese Ministry of Commerce in late April this year, Chinese enterprises made non-financial direct investments totaling 63.63 billion yuan (~$8 billion) in BRI partner countries, a year-on-year increase of 16.8 per cent. In the same period, construction contracts worth 338.27 billion yuan (~$47 billion) have also been signed with BRI partner countries.
In strong economies, BRI investments may lead to GDP growth, minimising any drastic implications for the debt-to-GDP ratio. Singapore is an example for this. However, the biggest victims of a BRI-induced debt trap would be smaller economies in the Indian subcontinent, Southeast Asia, and Africa, many of which incidentally are also the economies with the most external debt owed to China, and have weak domestic institutional structures. With a lack of global opportunities and alternatives, these economies are unlikely to turn their back on Chinese funding. In this regard, one can only hope that BRI financing focuses on sustainability and deliverability in the coming future, especially because in the first quarter of 2025, global debt has reached a record high of $324 trillion.
The writer is Staff Research Analyst, Indo-Pacific Studies Programme, Takshashila Institution
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