OBOR: China gives cheap and plentiful money

OBOR: China gives cheap and plentiful money

Behind China's trillion-dollar effort to build a modern Silk Road is a lending programme of unprecedented breadth, one that will help build ports, roads and rail links, but could also leave some banks and many countries with quite a hangover.

At the heart of that splurge are China's two policy lenders, China Development Bank (CDB) and Export-Import Bank of China (EXIM), which have between them already provided $200 billion (155.1 billion pounds) in loans throughout Asia, the Middle East and even Africa.

They are due to extend at least $55 billion more, according to announcements made during a lavish two-day Belt and Road summit in Beijing, which ends on Monday.

Thanks to cheaper funding, CDB and EXIM have helped to unblock what Chinese president Xi Jinping on Sunday called a 'prominent challenge' to the Silk Road: the funding bottleneck.

But as the Belt and Road project grows, so do the risks to policy banks, commercial lenders and borrowers, all of whom are tangled in projects with questionable business logic, bankers and analysts say.

EXIM, seeking to contain risk, says it has imposed a debt ceiling for each country.

CDB says it has applied strict limits on sovereign borrowers' credit lines and controls the concentration of loans.

"For some countries, if we give them too many loans, too much debt, then the sustainability of its debt is questionable," Sun Ping, vice governor of EXIM, told reporters last week.

For now, funds are cheap and plentiful, thanks to Beijing.

Belt and Road infrastructure loans so far have been primarily negotiated government to government, with interest rates below those offered by commercial banks and extended repayment schedules, bankers and analysts said.