Charles Kenny

A note for CGD. The early period of China’s Belt and Road initiative involved significant sovereign lending, much of it directed to poorer developing countries, with considerable support for major infrastructure projects. A number of those projects generated healthy economic returns, but the lending was comparatively expensive and non-transparent, and so increasingly financially unsustainable. The Belt and Road model evolved partially as a result, with new sovereign lending focused more on restructuring, while new investment projects are increasingly ‘private’ and frequently linked with extraction. Again, many of these deals may be economically valuable, but they remain both opaque and may generate contingent liabilities. Traditional donors might respond to the changed direction of BRI by (i) better filling the public sector gap: offering the finance China was offering for public infrastructure projects, but doing so transparently and ensuring financial sustainability; (ii) providing private finance through development finance institutions using competitive and transparent approaches that contrast with current practice in both Chinese and traditional donor financing; and (iii) providing support to developing country governments and state-owned enterprises regarding infrastructure planning, competitive selection of private sector partners, and negotiation support.