Why It Matters

A recent CRS report examines China’s Belt and Road Initiative and how Beijing uses overseas investment, lending and infrastructure projects to expand its global economic reach and influence. China launched the initiative in 2013 and incorporated it into the Communist Party of China’s charter in 2017. Some participating governments say the initiative helps fill infrastructure gaps, while other governments and some members of Congress assess that its projects advance Chinese geopolitical and economic goals while undercutting U.S. influence and interests.

The Belt and Road Initiative has expanded beyond its initial focus on Asia, Europe and Africa to encompass more than 100 countries. Its projects span energy, manufacturing, transportation and information and communications technology, while seeking to expand Chinese companies’ presence overseas, create markets for Chinese goods and services, and secure access to agriculture, energy and strategic commodities.

The Big Picture

China’s overseas development finance totaled an estimated $498 billion between 2008 and 2021, compared with $601 billion in World Bank lending over the same period, according to data cited by CRS. China’s global outward foreign direct investment stock reached $2.9 trillion in 2022, accounting for 7% of the world total, up from $34.7 billion and 0.5% in 2001. The United States held $8 trillion in outward FDI stock in 2022, representing 20% of the global total, down from 32% in 2001.

China’s state banks, state-owned companies and government funds conduct a large share of the country’s overseas lending and investment. Chinese loans typically are not interest-free and tend to be issued at or near market rates. Repayment is often backed by collateral commitments such as lease rights, minerals or commodities, while the Chinese government absorbs much of the commercial risk for Chinese companies. In some cases, collateral recipients include state-owned companies that were not parties to the original transaction but were designated by the Chinese government.

Some observers have raised concerns that Chinese investment can create unsustainable debt obligations and opportunities for Beijing to secure concessions, while others emphasize the economic benefits of Chinese investment in developing countries. China generally extends the duration of loans rather than forgiving repayment, which CRS says can create long-term financial dependencies.

In 2017, when the Sri Lankan government was unable to repay Chinese loans, China Merchants Port Holdings Company Ltd. acquired a majority stake in the company operating Sri Lanka’s Hambantota port and secured the right to operate it for 99 years. Chinese credit and loan terms are generally opaque, and China tends to negotiate agreements bilaterally. Chinese loans also often prohibit multilateral debt restructuring under Paris Club procedures.

Chinese entities are expanding overseas in construction, transportation, finance and communications, sectors in which China restricts foreign investment domestically. CRS says China does not provide reciprocal market access for the rights its companies secure abroad, giving Chinese companies asymmetric advantages over competitors. China instead creates openings in overseas markets through state financing and integrated project delivery.

Chinese overseas infrastructure can also carry national security implications. Some defense analysts assess that certain civilian infrastructure projects could have military applications as China promotes civilian and military interoperability in technologies and infrastructure, including ports. China Merchants Bank signed the initial commercial lease for property in Djibouti where China later developed a military base.

The Bottom Line

Congress has taken steps to counter China’s overseas economic expansion. The Better Utilization of Investments Leading to Development Act of 2018 created the U.S. International Development Finance Corporation and expanded U.S. support for market-oriented infrastructure projects. Congress also created the China and Transformational Exports Program at the Export-Import Bank in 2019 to provide additional financing tools to counter Chinese export financing.

CRS identifies several issues Congress may continue to examine, including Chinese entities’ presence in U.S. production, energy, transportation and communications networks, Chinese investment in the Western Hemisphere and Caribbean, whether U.S. development or export financing should support projects that use Chinese components or services, and whether new trade, investment and procurement rules are needed to respond to Chinese practices.

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