Pulse 2: China navigates its Covid-19 recovery - outward investment appetite and implications for developing countries

Tanjangco, Beatrice et al. Research Report Pulse 2: China navigates its Covid-19 recovery - outward investment appetite and implications for developing countries ODI Economic Pulse series Provided in Cooperation with: ODI Global, London Suggested Citation: Tanjangco, Beatrice et al. (2021) : Pulse 2: China navigates its Covid-19 recovery - outward investment appetite and implications for developing countries, ODI Economic Pulse series, Overseas Development Institute (ODI), London This Version is available at: https://hdl.handle.net/10419/251140 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/4.0/ Pulse 2: China navigates its Covid-19 recovery – outward investment appetite and implications for developing countries Beatrice Tanjangco, Yue Cao, Rebecca Nadin, Olena Borodyna, Linda Calabrese and Yunnan Chen February 2021 ODI Economic Pulse series China’s outward investment and Covid-19: emerging trends for developing countries Readers are encouraged to reproduce material for their own publications, as long as they are not being sold commercially. ODI requests due acknowledgement and a copy of the publication. For online use, we ask readers to link to the original resource on the ODI website. The views presented in this paper are those of the author(s) and do not necessarily represent the views of ODI or our partners. This report has been funded by the UK Foreign, Commonwealth and Development Office (FCDO). Views expressed do not necessarily reflect FCDO’s official policies. This work is licensed under CC BY-NC-ND 4.0. Cover photo: Construction on the China–Laos railway project. Photo: BENS_TINO/Shutterstock. 3 Contents List of tables, boxes and figures 4 Acronyms and abbreviations 6 Acknowledgements 8 Executive summary 9 The Economic Pulse series 11 1 Introduction 12 2 China’s recovery and its implications for developing countries 13 2.1 Status update: China’s current recovery and implications for developing countries 13 2.2 Status: China’s domestic economy 15 3 China’s international economic response 17 3.1 Macroeconomic indicators 18 3.2 Project-level trends 21 3.3 Policy developments 28 3.4 Debt negotiation updates 32 4 Special focus: the Regional Comprehensive Economic Partnership 37 4.1 What is the RCEP and why is it important? 37 4.2 China’s importance in the agreement and how fellow members benefit 38 5 What to watch 40 References 43 Annex 1 Supporting data 49 Annex 2 Constraints and limitations 56 Annex 3 Data sources 57 4 List of tables, boxes and figures Tables Table 1 Heat map of China’s economic health and consumer sentiment 16 Table 2 Heat map of China’s investment appetite 17 Table 3 Reported developments in China’s debt negotiations, November to mid-December 2020 33 Table A1 63 original Belt and Road countries classified by region 49 Table A2 Chinese disrupted projects, January–November 2020 50 Table A3 Chinese digital projects, January–November 2020 54 Table A4 Macroeconomic indicators 57 Boxes Box 1 Sinosure’s role in China’s overseas lending and debt negotiations 35 Figures Figure 1 Percentage of total exports destined for China, 2019 14 Figure 2 Completed and new foreign engineering contracts, January–November 18 Figure 3 Chinese export growth to BRI countries by region 20 Figure 4 Exports to BRI countries by region, January–November 20 Figure 5 Import growth from BRI countries by region 21 Figure 6 Imports from BRI countries by region, January–November 21 Figure 7 Chinese economic activities in BRI countries, January–November 2020 22 Figure 8 Investments in BRI countries by region, January–November 2020 23 Figure 9 Engineering contracts in BRI countries by region, January–November 2020 23 Figure 10 Chinese BRI projects by size 24 5 Figure 11 Chinese mega projects in BRI countries, 2014–2020 25 Figure 12 Chinese disrupted projects, January–November 2020 26 Figure 13 Chinese digital projects, January–November 2020 27 Figure 14 CDB and EximBank lending, 2008–2019 29 Figure 15 China offshore green bonds proceeds allocation, 2019 29 Figure 16 Trade Complementarity Index with China, 2019 38 6 Acronyms and abbreviations AEI American Enterprise Institute AI artificial intelligence APEC Asia–Pacific Economic Cooperation ASEAN Association of Southeast Asian Nations BRI Belt and Road Initiative BRICS Brazil, Russia, India, China and South Africa BU Boston University CARI China Africa Research Initiative CCCC China Communications Constructions Company CCECC China Civil Engineering Construction Corporation CDB China Development Bank CGM Compagnie Générale Maritime CIIE China International Import Expo CMA Compagnie Maritime d’Affrètement CPI consumer price index CRBC China Road and Bridge Corporation DSSI Debt Service Suspension Initiative EMENA Europe, Middle East and North Africa EPC engineering, procurement and construction EximBank Export-Import Bank of China FDI foreign direct investment FIRB Foreign Investment Review Board FTA Free Trade Area FYP Five-Year Plan GDP gross domestic product GFC global financial crisis ICT information and communications technology IEC International Electrotechnical Commission IMF International Monetary Fund ISO International Organization for Standardization ITU International Telecommunication Union LDCs least-developed countries M&A mergers and acquisitions MFN Most-Favoured Nation 7 MoU memorandum of understanding NCRTC National Capital Region Transport Corporation NFODI non-financial outward direct investment OTN Optical Transport Network PMI Purchasing Managers Index R&D research and development RCEP Regional Comprehensive Economic Partnership RERI Renewables and Environmental Regulatory Institute RMB Renminbi (Chinese yuan) SCO Shanghai Cooperation Organization SDRM Sovereign Debt Restructuring Mechanism SOE state-owned enterprise UEGCL Uganda Electricity Generation Company UN United Nations UNCTAD United Nations Conference on Trade and Development US United States USD United States Dollar WEO World Economic Outlook WITS World Integrated Trade Solution WTO World Trade Organization 8 Acknowledgements This document was prepared by Beatrice Tanjangco, Yue Cao, Rebecca Nadin, Olena Borodyna, Linda Calabrese and Yunnan Chen. Production of this report was supported by project management and communications help provided by Silvia Harvey and Josie Emanuel. The authors are grateful for the research assistance of Roberta Palminteri. 15 this should benefit commodity exporters. Indeed, the initial strength in Chinese infrastructure development is a positive factor for commodity exporters. Recent tensions with Australia over iron ore imports have started to push up iron ore prices (Financial Times, 2021) and raised questions over China’s alternative options. Some developing economies may be poised to benefit if China chooses to diversify its iron ore import sources. Coal is also becoming a contentious issue between the two trading partners, affecting coal prices. 2.2 Status: China’s domestic economy As China recovers, we expect to see it balance its policy mix to secure more sustainable growth and move away from a more public sectordriven to a private sector-driven recovery. At the moment, growth appears to be sustained by public support, with the private sector lagging. The government has highlighted the importance of private consumption, and recent policy announcements support consumers. For example, the State Council is looking to stimulate consumer spending on vehicles, appliances and furniture (Wei, 2020) and has urged other departments to find areas of consumer spending they can help stimulate. The government is also seeking to provide additional support for private firms, including opening up certain sectors to private businesses, increasing credit support and making it easier to do business (ibid.). This is in line with China’s proposed dual circulation development model, discussed in the policy section. China will likely keep the fiscal package as it is, but endeavour to provide more targeted support (Chen, 2020a). Coverage of the direct transfer system is expected to be expanded, taking advantage of the special transfer mechanism used in the Covid-19 recovery (Zhang, 2020). Transfers will be directed towards improved livelihood assistance, payment of wages for teachers and additional support for primary functions of government (ibid.). Premier Li Keqiang has noted the need to consolidate the recovery by focusing on more targeted policies and investments to support firms and individual businesses, with an overall trickle effect on people’s livelihoods and well-being (Xinhua, 2020e). The People’s Bank of China is expected to keep monetary policy ‘flexible and precise’ to alleviate fears that reversion back to normal policy rates would lead to a tightening of financial conditions (Chen, 2020b). It will also allow interest rates to float near the lower bound (ibid.), supporting businesses and maintaining liquidity. Further stimulus is not expected with signs of a recovery under way and a supportive currency, giving the People’s Bank of China leeway to keep monetary policy as is. This should allow the central bank to adapt to calls for high-quality development, while ensuring that the recovery is not jeopardised. On the whole, economic indicators have been generally positive and confirm that a recovery is slowly under way. Imports grew by 5% in October and November, the third consecutive month of growth. Exports grew a staggering 21.1% in November, notably highlighting the disparity between the recovery in consumption and in industry (see Table 1). Exporters have also been able to capitalise on shipments of Covid-19 related products. The IHS Markit Purchasing Managers Index (PMI) score for October and November was 53.6 and 54.9 (Caixin, 2019), the latter featuring the quickest expansion since 2010. Manufacturers credit new orders and the impending recovery from the pandemic for improving conditions. This marks the seventh month of expansion for the manufacturing sector, signalling a robust recovery (Caixin, 2020). CPI declined by 0.5% on an annual basis in November, largely due to base effects. The fall was driven by a 2.4% drop in food prices (see Table 1) (Lu, 2020). In terms of household demand, while there are signs of improvement such as the surge in domestic tourism and consumption during Golden Week last October (Financial Times, 2020), which signals a release of some pent-up demand, household consumption will take time to recover (China Daily, 2020). 16 Table 1 Heat map of China’s economic health and consumer sentiment Indicators Oct 19 Nov 19 Dec 19 Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 % year-on-year change, unless otherwise specified GDP growth (%) 6.0 6.0 6.0 –6.8 –6.8 –6.8 3.2 3.2 3.2 4.9 4.9 4.9 Unemployment rate (%) 5.1 5.1 5.2 5.3 6.2 5.9 6.0 5.9 5.7 5.7 5.6 5.4 5.3 5.2 Consumer price index (100 = prior year) 103.8 104.5 104.5 105.4 105.2 104.3 103.3 102.4 102.5 102.7 102.4 101.7 100.5 99.5 Government revenue (year to date) 3.8 3.8 3.8 –9.9 –14.3 –14.5 –13.6 –10.8 –8.7 –7.5 –6.4 –5.5 –5.3 Government expenditure (year to date) 8.7 7.7 8.1 –2.9 –5.7 –2.7 –2.9 –5.8 –3.2 –2.1 –1.9 –0.6 0.7 Merchandise exports –2.0 –2.7 7.7 –2.5 –40.4 –6.8 3.5 –3.3 0.3 7.3 9.5 9.9 11.4 21.1 Merchandise imports –6.8 0.4 16.4 –12.0 8.8 –0.5 –13.8 –16.4 3.3 –0.9 –2.0 13.6 5.2 5.0 IHS MArkit PMI 51.7 51.8 51.5 51.1 40.3 50.1 49.4 50.7 51.2 52.8 53.1 53.0 53.6 54.9 Consumer confidence (index) 124.3 124.6 126.6 126.4 118.9 122.2 116.4 115.8 112.6 117.2 116.4 120.5 121.7 124.0 New total social financing 868.0 1993.7 2201.3 5053.5 873.7 5183.8 3102.7 3186.6 3468.1 1692.8 3585.3 3469.3 1393.5 2134.3 Notes: Grey-shaded boxes indicate no available data. GDP growth is reported quarterly. Source: CEIC; National Bureau of Statistics of China 17 3 China’s international economic response This chapter focuses on China’s international economic response. We define this as outward direct investments, foreign dispatched labour, credit to other countries, foreign aid, exports to and imports from other countries and any debt relief. The chapter is in four parts looking at: macroeconomic indicators, to gauge China’s investment appetite; project-level data, to understand which sectors and countries Chinese investors are focusing on post-Covid-19; analysis of recent policies, to understand which sectors China is interested in; and developments in China’s debt negotiations. While we note updates to indicators and policies we analysed in Pulse 1 (Tanjangco et al., 2020), we will also look at China’s trade with the 63 original BRI countries, troubled projects, trends in the size of Chinese projects in 2020 compared to past years and Chinese digital endeavours in BRI countries. In terms of scope, macroeconomic and projectlevel data covers January to November 2020 due to reporting lags, while policy and debt updates cover the end of October to mid-December. Table 2 Heat map of China’s investment appetite Indicators Oct 19 Nov 19 Dec 19 Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 % year-on-year change, unless otherwise specified Outward investment, non-financial, year to date 1.0 –5.5 –3.6 –9.5 –1.0 –3.9 –3.1 –5.3 –4.3 –5.5 –5.2 –2.6 –4.5 –3.7 Outward investment, non-financial (BRI), year to date –3.7 –1.4 –9.3 19.5 18.3 11.7 13.4 16.0 19.4 28.9 31.5 29.7 23.1 24.9 Dispatched persons abroad, year to date 0.3 –2.0 –0.9 –44.1 –42.6 –42.3 –46.4 –42.5 –43.4 –40.0 –43.7 –41.6 –41.2 –41.4 Industry inputs – cement –0.9 9.6 8.4 17.7 4.7 9.6 9.0 3.8 7.0 7.2 10.3 8.2 Industry inputs – pig iron –3.2 1.6 6.1 1.2 3.1 7.1 9.3 14.3 10.4 12.6 16.1 11.2 Industry inputs – crude steel –1.2 3.4 10.7 –1.7 0.0 3.6 4.6 9.5 8.7 11.8 13.1 9.2 Industry inputs – steel products 4.7 10.4 11.4 1.0 4.9 6.6 8.2 10.5 12.0 13.1 15.4 12.8 Industry inputs – aluminium alloy 19.7 20.3 30.0 5.5 19.1 14.3 14.2 –0.5 3.0 5.3 10.3 8.3 Notes: Grey-shaded boxes indicate no available data. Source: CEIC Data, National Bureau of Statistics of China, Ministry of Commerce 18 3.1 Macroeconomic indicators Overall overseas investments and related indicators are still slightly subdued relative to 2019. Since the first Pulse report (Tanjangco et al., 2020), new data has come in for October and November. Looking at the Ministry of Commerce’s NFODI4 data, which now captures approved outward foreign direct investments, from January to November domestic Chinese firms invested a cumulative total of $95.1 billion in 6,212 companies overseas in 167 countries. However, this still reflects a 3.7% decline compared to 2019 (Table 2) (MOFCOM, 2020d). Dispatched labour over the same period is 41.4% lower than 2019 (Table 2) (ibid.). Year-to-date completed turnover of foreign engineering contracts declined by 10.8% year-on- year from January to November, and new signed foreign engineering contracts decreased by 4.4% year-on-year over the same period (Figure 2) (ibid.). Year-to-date newly signed foreign engineering contracts declined in October and November, the first time this has happened since last April. This signals a stifling of investment appetite overseas, perhaps because of uncertainty regarding the investment climate or a pull to divert resources domestically. Non-financial investments in BRI countries remained robust. NFODI for BRI countries from January to November grew 24.9% from 4 Outward direct investment refers to enterprises run or instituted by domestic players in foreign countries, including activities pertaining to the operation and management of those enterprises. the same period in 2019 (Table 2). NFODI for BRI countries increased its share of total NFODI to 16.3%, up 3.6 percentage points over the previous year. Investments were said to be mostly in Asia and the Middle East (Singapore, Indonesia, Laos, Vietnam, Cambodia, Malaysia, Thailand, Kazakhstan, the United Arab Emirates and Israel) (MOFCOM, 2020e). The pandemic may be affecting the completion of work and new contracts along the BRI. Although the Ministry of Commerce reports growth in approved outward investments to BRI countries, its report on foreign contracted projects paints a different picture. Complete turnover engineering contracts and newly signed contracts to BRI countries both declined between January and November (by 5.0% and 10.4% respectively) (ibid.). This could reflect disruption to and delays in finishing projects due to the pandemic. It may also imply that companies are focusing on completing big-ticket items rather than starting new projects (Economist Intelligence Unit, 2020). NFODI and foreign engineering contracts often align but they can move against each other, as infrastructure projects are a subset of investments. Other proxy indicators for potential investments abroad, such as industrial inputs, saw double-digit growth. Production of construction materials in China has been linked to the availability of government finance for Figure 2 Completed and new foreign engineering contracts, January–November Source: Ministry of Commerce (http://data.mofcom.gov.cn/tzhz/forengineerstac.shtml) –15 –10 –5 0 5 10 15 20 0 500 1,000 1,500 2,000 2,500 Jan–Nov 2015 Jan–Nov 2016 Jan–Nov 2017 Jan–Nov 2018 Jan–Nov 2019 Jan–Nov 2020 Year-on-year (%) $ (100 millions) Completed turnover Newly signed contract value Year-on-year (%) Year-on-year (%) 19 exports and foreign infrastructure projects, with the logic that Chinese government financing facilitates the over-production of industrial inputs to be sold to foreign buyers and used in infrastructure projects abroad (Dreher et al., 2017).5 The latest datapoint saw the production of inputs such as cement, iron, steel and aluminium increase more than 10% in October and 8.2–12.8% in November. Trends are improving since the first Pulse; the data shows a steady increase over the past few months as the construction and manufacturing sectors reopen and the economy recovers. Any over-production of industrial inputs might spill over to Chinesefinanced infrastructure projects abroad, albeit with a lag. 3.1.1 Focus on the BRI – trade This section examines trade flows between China and the original 63 countries in the BRI.6 Trade and investment are expected to be closely linked; after all, the BRI was established not only to encourage investment, but also to stimulate trade between participating countries. Already, the past few years saw a strengthening of trade ties. Yu et al. (2020) find that the BRI has been a successful catalyst of bilateral trade preferentiality between China and BRI countries. Including China, the original block of 64 countries in the BRI account for almost 30% of global GDP (World Bank, 2019). In 2019, the 63 BRI countries accounted for 27.5% of China’s merchandise exports and 27.2% of merchandise imports (all calculations are based on reported figures in US dollars). China’s merchandise exports to the 63 BRI countries grew faster in 2019 compared to headline figures, growing 5 Dreher et al (2017) link domestic industrial overproduction to Chinese government financing for foreign infrastructure projects. Dreher et al (2019) intuit that the production of raw materials is linked to the availability of foreign projects for Chinese government financing. To address overproduction, China subsidises overseas infrastructure projects, often conditional on purchasing Chinese industrial inputs. Stimulating demand abroad can thus help reduce domestic overcapacity. 6 Although the number of countries in the BRI has increased to 138, time and data limitations restrict the current analysis to the original 63 (i.e. 64 minus China, with India omitted because of its rejection of BRI membership. For the purpose of looking at bilateral trade data, China was excluded. 7 The value of China’s merchandise exports (free-on-board) was $2,499 billion in 2019 and $2,501 billion in 2018, representing a slight decline of 0.1%. This decline is coming from a high base as 2018 saw strong export growth (growing 9.7% from 2017). 8 Trade data broken down by country combines January and February, so these are reported together. 8.8% year-on-year, while aggregate merchandise exports did not grow and just equalled the high base in 2018.7 Exports Unlike NFODI, Chinese exports fell amid the pandemic, with the declines to certain BRI partners more severe. Chinese exports declined 17% year-on-year in January and February, largely due to temporary factory closures. Exports to the 63 BRI countries also declined, but at a more modest pace of 7.3% year-on-year.8 Exports from China next declined in May, when they fell 3.3% year-on-year. China’s exports to the 63 BRI countries fell further during that month, declining 6.3% year-on-year as demand in these countries weakened. The impact on exports was uneven. Exports to South and Central Asian BRI partners saw larger declines compared to other BRI countries, with exports to Central Asian BRI countries falling around 55% on an annual basis in March and those to South Asia falling 45% in May (see Figure 3). This has since recovered, with China’s Asian neighbours seeing the most uptick. From January to November, exports increased to BRI countries in Europe, the Middle East and North Africa, and to Southeast and East Asia (see Figure 4). ASEAN was China’s largest trade partner over the last 11 months (the importance of this region will be discussed later in this chapter, and in Chapters 4) (MOFCOM, 2020). The resilience of trade with ASEAN in part reflects the handling of Covid-19, where most member countries saw fewer new cases than other countries (CSIS, n.d.; Johns Hopkins University, 2021). However, Central and South Asian partners still saw declines in exports from 20 Figure 3 Chinese export growth to BRI countries by region Notes: The 63 BRI countries were grouped according to the World Bank’s classification by region. For the specific categorisation, please see Annex 1. Sub-Saharan Africa is not covered by this analysis because none of the 63 countries studied are African. Source: General Administration of Customs; CEIC data –80 –60 –40 –20 0 20 Year-on-year growth (%) 40 60 1/11/2019 1/12/2019 1/1/2020 1/2/2020 1/3/2020 1/4/2020 1/5/2020 1/6/2020 1/7/2020 1/8/2020 1/9/2020 1/10/2020 1/11/2020 Central Asia South Asia BRI (63) total Southeast and East Asia Middle East and North Africa Europe China total Figure 4 Exports to BRI countries by region, January–November Notes: The 63 BRI countries were grouped according to the World Bank’s classification by region. For the specific categorisation, please see Annex 1. Source: General Administration of Customs; CEIC data 0 100,000 200,000 300,000 400,000 $ millions Southeast and East Asia Central Asia Middle East and North Africa South Asia Europe Jan–Nov 2019 Jan–Nov 2020 China (Figure 4). In total, China’s merchandise exports to the 63 BRI countries from January to November 2020 was 3.75% higher than in 2019. Imports Chinese import growth has been slower to recover than exports, and imports from BRI countries were similarly lacklustre. Developing economies rely on Chinese import demand for many of their exports, but domestic demand has been weak due to sluggish private consumption and private investments. With a still-recovering domestic economy, import growth from the 63 BRI countries was patchy, contracting since April and only seeing positive growth in September (Figure 5). From January to November, imports from the 63 BRI countries were still 2.7% lower compared to 2019. Imports from the 63 BRI economies have started to pick up, mainly in Southeast and East Asia. Most imports in the first 11 months were from China’s neighbours in these regions, which have grown 4.9% compared to 2019. BRI countries in Europe also saw some gains. However, imports from BRI countries in South and Central Asia and the Middle East and North Africa are still lower compared to the previous year (Figure 6). Import values from the Middle East in particular face steep and persistent declines because of the fall in oil prices. In terms of volume, imports of crude petroleum have actually been robust, but prices have depressed 21 import values. Import receipts from developing economies exporting oil to China will likely remain weak as prices stay low. In general, both exports and imports from the 63 BRI countries were substantially affected by the pandemic, but there is some resilience in exports to and imports from certain regions, such as Southeast and East Asia. Externally, China has benefitted from the export of pandemic-related goods and goods that have halted production in other countries. Domestically, imports are slowly recovering. China’s import recovery is of particular importance as many countries rely on Chinese domestic demand to absorb their exports. 3.2 Project-level trends This section provides the necessary granularity to understand changing trends in and discern signals of China’s overseas activities. It provides nuance to the aggregate statistics described in the previous section, while adding information in terms of industries and countries targeted by Chinese stateowned enterprises (SOEs) and private enterprises operating overseas (RWR Advisory, 2020). 3.2.1 Focus on the BRI Chinese economic activity among BRI countries in January–November was concentrated in Southeast and East Asia and sub-Saharan Africa. Figure 5 Import growth from BRI countries by region Notes: The 63 BRI countries were grouped according to the World Bank’s classification by region. For the specific categorisation, please see Annex 1. Source: General Administration of Customs; CEIC data –40 –20 0 20 40 Year-on-year growth (%) 1/12/2019 1/1/2020 1/2/2020 1/3/2020 1/4/2020 1/5/2020 1/6/2020 1/7/2020 1/8/2020 1/9/2020 10/1/2020 1/11/2020 Central Asia South Asia BRI (63) total Southeast and East Asia Middle East and North Africa Europe China total Figure 6 Imports from BRI countries by region, January–November Notes: The 63 BRI countries were grouped according to the World Bank’s classification by region. For the specific categorisation, please see Annex 1. Source: General Administration of Customs; CEIC data 0 100,000 200,000 $ millions 300,000 Southeast and East Asia Central Asia Middle East and North Africa South Asia Europe Jan–Nov 2019 Jan–Nov 2020 22 Similar to the global trends described in Pulse 1 (Tanjangco et al., 2020), the majority of Chinese investments and engineering services among the current 136 countries in the BRI focused on ASEAN countries and sub-Saharan Africa (Figure 7). From a sectoral perspective, energy and transportation projects dominate the overall share in both Southeast and East Asia and sub-Saharan Africa, followed by construction. In Africa, there was also activity in the manufacturing sector and water supply services. Disaggregated data by investments and contracts, however, shows differentiated trends. Looking at the value of investments (foreign direct investment (FDI) and mergers and acquisitions (M&A)), the largest transactions were in the energy sector in Latin America and the Caribbean and sub-Saharan Africa. The Middle East and North Africa and Southeast and East Asia regions saw most investments (by value) in the transport sector, whereas investments in Europe were concentrated in the mining sector (Figure 8). More specifically: •In Latin America investment was driven by the $3 billion acquisition of Chile’s Compania General de Electricidad in November 2020 by China’s State Grid, which became the majority shareholder. •In sub-Saharan Africa greenfield investments in two major power plants were announced: the 4x700MW Senga coal power plant in Zimbabwe, for $3 billion, and the 840MW Ayago hydropower project on the Nile river in Uganda, expected to cost $1.4 billion. •In the Middle East and North Africa, a new greenfield container terminal project in Abu Qir, Egypt, was signed in August, and in Southeast Asia Chinese-owned logistics company GLP announced the purchase of a majority stake in a new venture to develop three logistics assets in the Greater Hanoi and Greater Ho Chi Minh City areas. •In Europe, the Zijin Mining Group announced plans to invest $800 million to increase its production capacity in Serbia, where it already owns several gold and copper mines. 0 10 20 30 40 50 Number of investments and engineering contracts 60 Central Asia & Caucasus Europe Latin America & Caribbean Middle East & North Africa Pacific SE Asia & East Asia South Asia Sub-Saharan Africa Wholesale and retail industry Water conservancy, environment and public facilities Transportation, warehousing and postal service industry Scientific research and technology service industry Residents services, repair and other services industry Mining industry Manufacturing industry Information transmission, software and information technology services industry Financial industry Electricity, heat, gas and water production and supplyEducation, health, culture and sports, entertainment Building industry Agriculture, forestry, animal husbandry and fishery Figure 7 Chinese economic activities in BRI countries, January–November 2020 Source: RWR Advisory (2020) 23 0 1,000 2,000 3,000 4,000 5,000 $ million Central Asia & Caucasus Europe Latin America & Caribbean Middle East & North Africa SE Asia & East Asia South Asia Sub-Saharan Africa Wholesale and retail industry Water conservancy, environment and public facilities Transportation, warehousing and postal service industry Scientific research and technology service industry Residents services, repair and other services industry Mining industry Manufacturing industry Information transmission, software and information technology services industry Financial industry Electricity, heat, gas and water production and supplyEducation, health, culture and sports, entertainment Building industry Agriculture, forestry, animal husbandry and fishery Figure 8 Investments in BRI countries by region, January–November 2020 Source: RWR Advisory (2020) 0 2,000 4,000 6,000 8,000 10,000 12,000 $ million 14,000 Wholesale and retail industry Water conservancy, environment and public facilities Transportation, warehousing and postal service industry Scientific research and technology service industry Residents services, repair and other services industry Mining industry Manufacturing industry Information transmission, software and information technology services industry Financial industry Electricity, heat, gas and water production and supplyEducation, health, culture and sports, entertainment Building industryAgriculture, forestry, animal husbandry and fishery Central Asia & Caucasus Europe Latin America & Caribbean Middle East & North Africa Pacific SE Asia & East Asia South Asia Sub-Saharan Africa Figure 9 Engineering contracts in BRI countries by region, January–November 2020 Source: RWR Advisory (2020) 24 Several high-value engineering contracts were won in the Middle East and North Africa and South Asia despite the overall lower level of economic activity compared to other regions. In the former, a massive $9 billion contract was signed between China Civil Engineering Construction Corporation (CCECC), Samcrete and the Arab Organization for Industrialization to build a high-speed rail link between Ain Sokhna on the Gulf of Suez and El-Alamein on the Mediterranean coast. In the latter, eight major energy engineering contracts were signed to build a cumulative 2,300MW of electricity capacity in coal (320MW), hydro (1,145MW), gas (800MW) and waste to energy (42.5MW) in Bangladesh, Pakistan, Sri Lanka and the Maldives (Figure9). The Diamer-Bhasha Dam and hydropower project in Pakistan has raised $5.8 billion out of an estimated total cost of $14 billion to begin development and construction. That said, the majority of projects Chinese companies have been involved in (either through investing or providing services) have been small (less than $100 million). There have been fewer major projects ($100–1,000 million), at 42, with the majority not exceeding the halfbillion-dollar price tag. Twenty exceeded the $1 billion ‘mega project’ threshold. Of these, 16 were engineering projects in energy (eight), transportation (four), water (one), waste (one), manufacturing (one) and construction (one). There were two mega greenfield investments, in energy acquisition and energy greenfield FDI (Figure 10) (Flyvbjerg, 2014). While most media reports on the BRI focus on ‘big ticket’ infrastructure projects often driven by policy or political interests in Beijing, the size distribution of Chinese projects abroad shows that Chinese companies (both private and SOEs) are engaged in all types of investments and deals driven by commercial interests. Mega projects were at their lowest level in 2020 year to date since the inception of the BRI (see Figure 11). Investments (FDI and M&A) exceeding $1 billion have been especially few and far between. This is understandable both 9 We define projects as having run into trouble when they are cancelled, delayed, blocked, halted or withdrawn for a variety of reasons – some may depend on the Chinese parties, and some may be the decision or responsibility of the non-Chinese partners, including project partners and national and local institutions. in light of the impacts of Covid-19 and the slowdown in overseas investment and lending that started before the pandemic, partly driven by international criticism of Chinese ‘white elephant’ projects in developing countries. Fifteen Chinese projects overseas reportedly ran into some form of trouble in January– November 2020.9 Several have been affected by delays due to Covid-19, with Myanmar and Nigeria closing their borders early on to contain the virus, and Costa Rica likely as a result of mobility restrictions due to high numbers of infections. Other projects failed to raise the necessary funding or backing to achieve financial close. Many projects in countries with tense relations with China have been blocked on national security grounds or geopolitical considerations, including an acquisition in Australia and two service contracts in India and Romania, as well as acquisitions of ports in India and Vietnam. Other projects were halted, not extended or terminated due to failure to meet environmental standards or technical standards agreed in contracts. One project was cancelled due to community protests in Kyrgyzstan, where perceptions of China and Chinese investments have tended to be negative Figure 10 Chinese BRI projects by size Source: RWR Advisory (2020) 0 10 20 30 40 50 Small (<100) Major (100–500) Major (500–1,000) Mega (>1,000) Number of projects Size of projects ($ million) 31 of the Council of Heads of State of the SCO in November 2020, Xi reiterated that ‘China cannot develop without the world, and the prosperity of the world also needs China’ (Ministry of Foreign Affairs, 2020a). Premier Li highlighted that, under new conditions, China’s large market will provide more opportunities for neighbouring countries and other partners, creating a more attractive investment and business environment through higher levels of opening up, stronger intellectual property protection and encouraging fair competition between domestic and foreign enterprises (Ministry of Foreign Affairs, 2020b). China’s leaders have sought to reassure their neighbours and BRI partners that the country will work with them to jointly build a ‘highquality’ BRI, and is encouraging them to align development strategies with the initiative. China regards ASEAN as ‘the priority direction of its neighbouring diplomacy’ and a ‘high quality area for the joint construction of the Belt and Road’. At the 17th China-ASEAN Expo and China-ASEAN Business Investment Summit on 27–30 November, Xi affirmed China’s support for the region to play a greater role in constructing an open and inclusive regional structure (Ministry of Foreign Affairs, 2020c). China and ASEAN have signed an action plan for the implementation of the Joint Declaration of the China-ASEAN Strategic Partnership for Peace and Prosperity for 2021–2025, which outlines measures for cooperation in politics and security, economic and financial cooperation and cooperation in food and agriculture, transport, energy and minerals, ICT and technological innovation. China has raised $1 billion of start-up funds for the second phase of the China-ASEAN Investment Cooperation Fund (Ministry of Foreign Affairs, 2020d). This is in line with the recent signing of the RCEP, discussed in Chapter 4. In November 2020 China hosted the 3rd China International Import Expo (CIIE). The CIIE, first held in 2018, aims to support trade liberalisation, economic globalisation and the opening up of Chinese markets. In his keynote speech, Xi noted that China had implemented measures announced at the 2nd CIIE in 2019 reducing the number of items on China’s National Negative List of Market Access for foreign investment from 40 to 33, and increasing the number of pilot free trade zones from 18 to 21 (Ministry of Foreign Affairs, 2020e). Official statements emphasise that the 3rd CIIE contributes to global economic recovery by ‘providing impetus to aid the economic recovery of countries along the Belt and Road, presenting opportunities for enterprises from these areas at a time when the COVID-19 pandemic is adding to uncertainties and challenges’ (Zhong et al., 2020). Over 500 companies from 47 BRI partner countries reportedly participated in the event, including from 35 least-developed countries (LDCs) (China International Import Expo, 2020). The Expo reportedly ended with tentative deals in sectors such as consumer goods, food and agriculture and intelligent industry and information technology worth around $72.62 billion, representing a 2.1% increase on the last event in 2019 (Xinhua, 2020d). 3.3.3 New growth sectors: digital economy, green energy and agriculture As highlighted in Pulse 1 (Tanjangco et al., 2020), Beijing is promoting the digital and smart economy and 5G as key sectors in post-pandemic recovery. This trend has continued in China’s most recent regional engagements, alongside announcements on how China and its neighbours and BRI partner countries will promote this. During the regional forums mentioned above China emphasised the need for greater cooperation across the digital economy, including big data, 5G, AI, e-commerce and smart cities. The China-ASEAN Expo prioritised expanding cooperation on the digital economy and promoting high-quality BRI construction (Ministry of Foreign Affairs, 2020c). Chinese companies and provincial authorities have signed several project agreements in the ASEAN region. China Road and Bridge and China Telecom signed a contract for data centre construction in the Philippines (RWR Advisory, 2020), Huawei announced that, in 2021, the company would spend $23.2 million to establish a third data centre in Thailand, and Cambodia signed an MoU with the Shanghai government on cooperation in science, technology and innovation (ibid.). While calling for full implementation of the APEC Internet and Digital Economy Roadmap and strengthened 32 digital construction, Xi stated that China will conduct smart city case studies to help formulate guidelines and provide a model for the development of innovative cities in the APEC region (Ministry of Foreign Affairs, 2020f). During the BRICS Leaders meeting, Xi stated that China is willing to build the BRICS New Industrial Revolution Partnership Innovation Base in Xiamen City in Fujian, and asked for support from BRICS countries for China’s recently launched Global Data Security Initiative (Ministry of Foreign Affairs, 2020g). Despite high-level calls at regional forums for the promotion of green development and a growing number of solar and wind power projects, coal projects still feature heavily in China’s project commitments. This should perhaps come as no surprise as, domestically, China is also promoting green development while continuing to support fossil fuel investments. Over the next five years, China will prioritise green development and plans to triple its wind and solar capacity by 2030, as well as systematically reshaping the energy industry and formulating an action plan to reach peak carbon emissions before 2030. At the same time, China is also planning to strengthen domestic oil and gas exploration and development, and the country continued to rely on coal-powered industry during the recovery in 2020 (Yang, 2020). China has reiterated the need to expand agricultural cooperation and ensure national food security with ASEAN and SCO countries. China plans to release a Trade Index with SCO Member States to help facilitate local economic and trade cooperation demonstration zones and SCO agricultural technology exchange (Ministry of Foreign Affairs, 2020h). The country will also cooperate with ASEAN governments to realise a ‘10+3 Rice Emergency Reserve Agreement’, strengthen cooperation in agricultural science and technology innovation and food safety and enact relevant standards, technical regulations and conformity assessment procedures as outlined in the China-ASEAN Memorandum of Understanding on Strengthening Sanitary and Phytosanitary Cooperation and the China- ASEAN Free Trade Agreement (Ministry of Foreign Affairs, 2020i). 3.4 Debt negotiation updates This section summarises recent reports on negotiations on debt owed to China. Many countries have had to divert funds to address the health and economic issues brought on by the pandemic, leaving them unable to fulfil their debt service obligations. China, a large holder of debt, is participating in negotiations with distressed countries. 3.4.1 Debt Service Suspension Initiative (DSSI) China is currently part of the G20 Debt Service Suspension Initiative (DSSI) and has become a party to the new Common Framework. In November 2020, Finance Minister Liu Kun noted that 23 countries benefitted from total debt service suspensions worth $1.353 billion, and that the CDB, while not officially a bilateral creditor in the DSSI as it is considered a commercial creditor by the country, has signed agreements with DSSI countries worth $748 million (Ministry of Finance of the People’s Republic of China, 2020). Regarding the timeline, the G20 has extended the initial debt service suspension period from December 2020 to June 2021, and with the Paris Club recently agreed a ‘Common Framework for debt treatment beyond the DSSI’. This framework is expected to guide coordinated efforts to treat and resolve debt, ensuring that the burden is shared fairly among creditors (Pazarbasioglu, cited in IMF, 2020). While there is no publicly available list of countries China is engaging with bilaterally, media reports confirm that it is working with several countries to address their debt problems. Pulse 1 noted media reports on debt negotiations between China and countries including Angola, Kenya, Kyrgyzstan, Laos, the Maldives, Papua New Guinea, Tonga, Zambia and Zimbabwe. Table 3 lists debt negotiations and updates reported since the first Pulse, from November to mid-December 2020. 3.4.2 Lessons from Zambia’s debt default Zambia’s debt problems have been utilised to support criticism that Chinese lending is contributing to unsustainable debt among 33 low-income countries.12 However, while China owns an estimated 33–41% of Zambia’s total external debt ($4–5 billion out of a total of $12 billion), it is a minor stakeholder in Africa’s overall external debt (17%). Multilateral and private actors are larger creditors, especially private Eurobond holders (Hill and Clifford- Mitimingi, 2020), though China is the biggest bilateral lender. While Chinese debt makes up a larger proportion of Zambia’s external debt, loans on partial concessional terms from China 12 See Chen et al. (2020). Eximbank and CDB suggest it is less costly than borrowing from the private sector at commercial terms (Ofstad and Tjønneland, 2019). In addition, while Chinese lending is usually tied to infrastructure projects, private lending is not attached to specific projects or strict reporting requirements. When the third Zambian Eurobond was issued in 2015, the government did not specify how a large share of these funds ($410 million out of $1,250 million) were to be spent, though they have likely supported Countries that are in default Zambia Zambia failed to pay a $42.5 million Eurobond coupon due 13 November. The central bank governor clarified that the country would have been able to pay the coupon but was unable to do so due to the need to treat all creditors equally. This, however, may have increased the possibility of creditors taking legal action (Mfula and Strohecker, 2020). Countries that are participating in the Debt Service Suspension Initiative (DSSI) Angola Interviewed on 23 November, Angola’s finance minister stated that he hoped for three years of breathing space on debt obligations. The country owes more than $20 billion to Chinese creditors, roughly $14.5 billion to the China Development Bank and $5 billion to Export-Import Bank of China (Arnold, 2020). Maldives The Chinese ambassador to the Maldives met officials on 30 November to discuss the recovery and development cooperation. They mentioned that the Maldives has deferred some loan repayment under the DSSI. Under the initiative, China reduced loan repayment this year from $100 million to $75 million (Osmanagic, 2020). On 11 December an argument between the Chinese ambassador and Speaker of Parliament Mohamed Nasheed broke out on Twitter over the repayment of loans.ii The initial message from the Speaker said ‘Over the next 14 days, Maldives Treasury must pay over $15m to Chinese banks. These banks have not, thus far, given any concessions for these loans. These repayments represent over 50% of the government income over the next 14 days. After Covid, Maldives needs breathing space’ (Zhang, 2020). By 12 December, after a terse exchange, both parties had posted reconciliatory messages. The speaker ended the exchange by saying that the Maldives needs a further two-year grace period to repay its loans, and the ambassador said that dialogue had begun on relevant issues. Pakistan On 13 December, it was reported that Pakistan would take on additional Chinese debt to repay loans from Saudi Arabia. China agreed to provide $1.5 billion in financing through its bilateral Currency-Swap Agreement (CSA) (Chaudhury, 2020). As reported in November, Pakistan intends to seek another $2.7 billion loan for the construction of the first package under the China-Pakistan Economic Corridor (Rana, 2020). Countries eligible for DSSI, but not participating Kenya After initially stating that the country will not participate in the DSSI, Kenya announced in November that it was considering joining the initiative. It agreed to join in principle, but as of December 2020, this had not yet been finalised. Under DSSI, Kenya expects to defer debt repayments worth KSh 75 billion ($686 million) (Miriri, 2020). i The breakdown of participants and non-participants in DSSI is based on the DSSI official list: www.worldbank.org/en/topic/ debt/brief/covid-19-debt-service-suspension-initiative (World Bank, 2021). ii See www.opindia.com/2020/12/former-maldives-president-mohamed-nasheed-criticises-chinese-debt-trap-island-na- tion-treasury-pandemic/, https://frontline.thehindu.com/dispatches/after-a-twitter-spat-on-repayment-of-loans-by-maldives- zhang-lizhong-the-chinese-ambassador-to-maldives-and-mohamed-nasheed-speaker-of-the-countrys-majlis-make-conciliato- ry-gestures/article33319468.ece. Table 3 Reported developments in China’s debt negotiations, November to mid-December 2020i 34 consumption instead of productive assets (World Bank, 2017), undermining criticism that only China lent irresponsibly (ibid.). The debt default was triggered after private bondholders refused the government’s request to suspend a $42.5 million interest payment due in November 2020. CDB provided relief in the form of a $391 million debt repayment deferral from October 2020 to April 2021 without seeking interest arrears from the Zambian government as it had attempted previously (Mfula, 2020). In refusing to pay the coupon to Eurobond holders, the Zambian government sought to apply the ‘equal treatment of all creditors’ principle as recommended by the DSSI, despite having the capacity to pay (Hill and Clifford-Mitimingi, 2020). Bondholders had two concerns that contributed to the failure to reach an agreement: that debt relief would end up servicing debt owed to China in the absence of more transparency around Zambia’s borrowing from China; and the apparently unfulfilled request for the government to provide a credible ‘policy trajectory’ and framework to restore fiscal sustainability (ibid.). On the first concern, Chinese stakeholders agreed that the Zambian government could share more information with the bondholder committee in return for signing confidentiality agreements, which the committee refused to do (while this had the negative effect of causing the default, it may put some pressure on China to increase transparency on its lending unconditionally. The consequences of Zambia’s default are likely to be severe. Bondholders have announced that they expect a more adversarial backdrop to future discussions with the government, and many foresee drawn-out and costly negotiations (leading to the ‘too little, too late’ problem of debt workouts) which would be catastrophic for Zambia’s recovery from Covid-19. More generally, the United Nations Conference on Trade and Development (UNCTAD) has warned of another ‘lost decade’ if the challenges raised by the pandemic are not addressed, including large unsustainable debt burdens for developing countries (UN, 2020). The Zambian debt default saga mirrors the wider misplaced focus of what is required to resolve the current (and future) sovereign debt crisis in an orderly way. There has been a great deal of attention on the role played by China in the current crisis (Brautigam, 2020); however, the case also illustrates the shortcomings of the existing international debt architecture involving the private sector. The current architecture is based on a contractual approach/doctrine, which includes collective action clauses in bond contracts to mitigate delays and ‘holdouts’ caused by a minority of private creditors in renegotiating debt (Kaiser, 2013). While these clauses have contributed to the orderly restructuring of sovereign debt, there is still a large outstanding stock of sovereign bonds that lack them. In addition, collateralised debt instruments, which are not protected by these clauses, are increasingly being used in sovereign borrowing (IMF, 2020). The Zambian case is particularly illustrative of the obstacles to an agreement with the private sector even on achieving a debt standstill, let alone debt haircuts or cancellation. In this respect, besides criticism of the limited amount of debt service covered by the DSSI (3.65% of debt service for 2020) (Fresnillo, 2020), there has also been strong criticism of the DSSI and the new Common Framework’s failure to make the inclusion of the private sector mandatory, while putting the onus on the debtor country to seek equal treatment (Munevar, 2020). Other criticisms of the Common Framework include the exclusion of middle-income countries despite the fact that they also face deteriorating macroeconomic conditions, and the preclusion in principle of debt haircuts and cancellation other than in ‘the most difficult cases’. Proposals have been put forward over the last 20 years to create a sovereign insolvency framework based on a statutory approach. Recently, UNCTAD and 33 civil society organisation networks representing more than 1,500 individual organisations have made similar proposals to create a body independent from both creditors and debtors, perhaps under the UN, to restructure a country’s entire debt stock 35 Box 1 Sinosure’s role in China’s overseas lending and debt negotiations Sinosure was established in 2001, the year China joined the World Trade Organization (WTO), following a merger between the export credit departments of China Eximbank and the People’s Insurance Company of China. As an export credit agency, its purpose is to promote China’s foreign trade and investment. Unlike China Eximbank and CDB, Sinosure does not offer direct loans, but provides insurance for Chinese exporters, contractors and lenders, underwriting the risks of foreign trade, lending and investment. Sinosure is the primary provider of risk insurance for China’s overseas investment ‘going out’ and in the BRI. Not all Chinese loans require Sinosure backing, but lenders prefer it, depending on their risk appetite. In countries with higher risk ratings, Sinosure coverage may be a requirement for banks to extend financing. In much of Africa, Sinosure guarantees are preferred by CDB, while for commercial or private lenders such as Industrial and Commercial Bank of China (ICBC), Sinosure guarantees are considered essential. China Eximbank is less likely to require Sinosure involvement, particularly for concessional loans where the interest rate is low. Eximbank may involve Sinosure for particular projects considered high-risk, due to the country profile, the size of the project or when the country’s existing loan portfolio to China is already large. What is Sinosure’s approach to debt renegotiations? In the case of loan non-repayment, Sinosure is subrogated to the rights of the lenders. Sinosure will reimburse the amount owed by the borrower according to the terms of the contract, typically by reimbursing unpaid instalments or by a lump-sum payment up to 95% of the debt or equity insured, meaning that it bears almost the entire default risk. Sinosure’s final approval is mandatory to any restructuring or refinancing that takes place between borrower and creditor, though its limited capacity may limit how actively it participates in renegotiations. However, if a sovereign default occurs, Sinosure assumes the obligations of all Chinese creditors for restructuring, and will act as a single representative of all creditors in communicating with the State Council. This minimises any conflicts of interest between Chinese creditors over seniority of debt. Sinosure is legally mandated to exhaust all means to recover the loan or equity value. However, as a state-owned entity reporting directly to the State Council, Sinosure defers to China’s diplomatic interests in dealing with sovereign borrowers, and may allow flexibility through rescheduling or restructuring loan terms. This is likely to be a protracted, case-by-case process as it requires State Council approval; Sinosure does not have the authority to write off debt. In cases where the borrower is a non-sovereign public or private entity (e.g. a parastatal or SOE), there is less scope for flexibility, and Sinosure’s approach is likely to be more aggressive. For sovereign borrowers that have defaulted or have unpaid arrears, Sinosure has the power to stop all future disbursement of loans and limit further access to finance. Following Ethiopia’s default in 2018, Eximbank finance for the next phase of the SGR rail project from Weldiya to Mekele has been halted, probably due to Sinosure’s non-approval. In Zimbabwe, Sinosure refused to grant guarantees for an expansion of the Hwange Thermal Power Plant in 2016. This was due to outstanding unpaid debts from Zimbabwe Iron and Steel Company (ZISCO) to Sinosure dating back to 2003, which had covered the restructuring of an Eximbank loan. Source: Chen (2020c). The source uses key informant interviews and secondary sources such as Acker et al. (2020). 36 in one comprehensive procedure (Perera, 2019; UNCTAD, 2020). This would prevent delays in adjusting the debt stock when it is clearly unsustainable and ‘kick the can down the road’ by modifying conditions on interest, maturity, etc. (the debt flow). A timely and adequate restructuring of debt would avoid needless suffering, as seen, for instance, in Greece in 2009. With multiple debt defaults looming, involving both low- and middle-income countries (Eichengren, 2020), the current crisis provides an opportunity to seriously re-engage with these proposals. In its recent assessment 13 The SDRM was a statutory mechanism under the IMF and championed by the then deputy managing director of the IMF, Anne Krueger, which ultimately was rejected by both developed and developing countries for different reasons. of the international architecture for resolving sovereign debt, even the IMF, which has adopted a conservative approach since the unsuccess of the Sovereign Debt Restructuring Mechanism (SDRM) ten years earlier,13 recognises that the Covid-19 pandemic may push the existing system to its limits, with ‘deep restructurings, implying large losses for creditors, and potentially involving protracted and difficult negotiations’, with implications for financial stability which, in extreme cases, would require additional instruments that could ‘only be either of a statutory or financial nature’ (IMF, 2020). 37 4 Special focus: the Regional Comprehensive Economic Partnership This chapter takes a closer look at the Regional Comprehensive Economic Partnership treaty (RCEP). The agreement, the first multilateral trade deal signed by China, is in line with its aim to promote free trade and expand cooperation with other countries. China is expediting domestic processes to quickly ratify the treaty (Xu, 2020). The agreement itself is important for developing economies that are part of the agreement as they stand to benefit from more liberalised trade. It could also have implications for developing economies excluded from it. 4.1 What is the RCEP and why is it important? The RCEP was signed by 15 countries in November 2020. It creates a Free Trade Area (FTA) where members agree to reduce and eliminate barriers to trade (World Bank, n.d.). Its signatories include the 10 members of the ASEAN economic community (Brunei- Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and five countries with existing FTAs with the group (Australia, China, Japan, South Korea and New Zealand). While India was originally part of the negotiations, it stepped down in November 2019, noting the need to protect its markets, including manufacturing imports from China and dairy products from New Zealand and Australia (Gaur, 2020). India retained the option to rejoin at a later date. Despite India’s absence, the RCEP still covers 30% of the world’s GDP. The agreement simplifies and consolidates ASEAN’s existing treaties with several partners. As the treaty consolidates and updates existing agreements, in terms of trade relations it does not introduce new relationships, with the exception of China and Japan and South Korea and Japan, which did not previously have agreements with each other. In terms of scope, ASEAN expanded on the current FTAs it already had. The final agreement contains 20 chapters, 17 annexes and 54 schedules of commitments (ASEAN, 2020). Chapters range from trade in goods, services and investments to the movement of people, rules of origin, customs procedures and trade facilitation. New provisions on emerging forms of trade, such as electronic commerce, have also been added. Environmental standards and labour rights are notably absent. Many consider the agreement shallow because it does not hold its members to higher standards (akin to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership), offers relatively weak protection of intellectual property rights and allows for carve-outs and concessions in tariff negotiations. Indeed, there are carve-outs for many sensitive products in the agricultural sector. For example, Japan added carve-outs for products such as rice, beef, pork, wheat, dairy, sugar and poultry. Cambodia still has tariffs on vegetables, potatoes and other food products. Laos has tariffs on meat, certain fish and seafood and some vegetables and fruits (MOFCOM, 2020a). Regardless, the economic impact of the agreement is not negligible. Petri and Plummer (2020) use a computable general equilibrium model of the world economy to simulate the impact of the agreement. Assuming ‘business as 38 before’,14 the RCEP (without India) is expected to add $186 billion to the world economy annually by 2030 and permanently increase members’ GDP by $174 billion, or 0.4% of members’ aggregate GDP. China, Japan and South Korea are expected to gain the most (around $156 billion for the three countries), as the RCEP effectively becomes the first agreement these large economies jointly become a party to (ibid.). 4.2 China’s importance in the agreement and how fellow members benefit China’s inclusion is key because it expands on the ASEAN–China Free Trade Area. Research shows that the original FTA led to an increase in trade, particularly for agricultural and manufacturing products.15 RCEP expands on this original FTA and many chapters of the agreement see China increasing its commitments compared to previous bilateral agreements. For example, China’s RCEP commitments on services liberalisation cover 22 new sectors (on top of the 100 sectors it committed to when joining the WTO) and raise the level of commitments in 37 service sectors (MOFCOM, 2020b). For the first time in an FTA the agreement also covers topics such as the flow of data and information storage. To caveat, some commitments, namely on goods trade, can follow tariff reduction schedules that extend as far as 20 years. Other countries’ commitments face similar timelines. Expanding FTA coverage can further boost regional trade. The ASEAN region was China’s top trading partner in goods in the first three quarters of 2020 (Premier Li, 2020). We look at the Trade Complementarity Index (Figure 16), which shows how well a country’s export profile matches another’s import profile, and find that many RCEP members have export baskets matching China’s import needs. More specifically, more than 50% of the export profiles of Indonesia, Japan, Thailand, the Philippines, South Korea, Singapore and Malaysia match China’s import profile. While low-income countries’ export 14 Their assumptions for ‘business as before’ refer to trade relations before the trade war between the US and China. 15 See Yang and Martinez-Zarzoso (2014). profiles are not yet an exact match, they can take advantage of cheaper imports and, further down the line, adjust their capacity to meet the needs of other RCEP countries. With simplified rules of origin, China has an extra incentive to source intermediate inputs from RCEP members. One key feature of the agreement is that it standardises the ‘Rules of Origin’ policies among the assortment of FTAs held by the ASEAN bloc. This means that RCEP allows members greater flexibility in how to meet these origin documentation requirements, meaning that manufacturing powerhouses such as China can take advantage of lower labour costs in Cambodia and still satisfy the 40% regional content requirement to take advantage of lower RCEP tariffs to export to other RCEP markets. This should help optimise and stabilise some value chains. Notably, this might Figure 16 Trade Complementarity Index with China, 2019 Note: For the Trade Complementary Index, a score of 0 means none of the goods exported by one country is imported by the partner country. A score of 100 means export and import shares between the two analysed countries exactly match. Source: World Integrated Trade Solution (WITS) databank of the World Bank. Trade indicators use underlying UN COMTRADE data 0 20 40 60 80 Malaysia Singapore Korea, Rep. Philippines Thailand Japan Indonesia Vietnam Australia Lao PDR Myanmar Brunei New Zealand Cambodia 39 make inputs from other countries outside the agreement, particularly developing economies linked to China’s value chains, less competitive. Provisions on investments are also more open than the ‘10+1’ FTAs and can help facilitate further outward foreign direct investment (OFDI) from China to RCEP members. The chapter on investment includes core protections and guarantees fair treatment for investors. It removes the need for performance requirements (i.e. exporting a given level or percentage of goods or achieving a given level or percentage of domestic content), allows for the free transfer of capital related to the investment, accounts for compensation for losses due to conflict and includes Most-Favoured Nation (MFN) provisions, which means that preferential treatment granted by partner countries to other countries would extend to other RCEP members. All 15 members also use the negative list approach, which liberalises all sectors with the exception of those on the negative list. These improvements in investment provisions can make developing economies that are part of RCEP more attractive to investors. It is also worth noting some potential downsides. For example, compensation for losses due to conflict and MFN provisions can make countries more appealing to investors, but can also entail a financial burden on governments (i.e. foregone taxes due to MFN provisions or big pay-outs for LDCs if they have to compensate investors). As with any FTA, excluded economies would not be a party to the benefits of the agreement 16 See FTA list at http://fta.mofcom.gov.cn/english/index.shtml. and may suffer trade and investment diversion effects due to a reduction of barriers and preferential market access. Developing economies may find themselves vulnerable to trade diversion effects should the RCEP agreement make trade and investments more economical between members of the group, particularly if supply chains are regionalised. To illustrate, Petri and Plummer (2020) find that, with the signing of the RCEP, India and Taiwan would incur the largest losses ($6 billion and $3 billion annually by 2030) as they are excluded from the agreement. In general, while the world is expected to reap a net benefit from the RCEP agreement, developing economies are not expected to gain the lion’s share. Of Petri and Plummer’s (2020) estimate of an additional $186 billion to the world economy, $174 billion accrues to the 15 RCEP members. Only $3.6 billion is expected to go to Vietnam, Cambodia, Laos and Myanmar. Other developing economies such as sub-Saharan Africa are expected to gain just $0.1 billion, while Europe, the Middle East and North Africa is expected to gain $4.2 billion (ibid.). Developing economies, instead, can gain from the momentum towards increased trade liberalisation. The signing of the RCEP sends a signal that there is enthusiasm for multilateralism and further liberalisation of trade. China is in the midst of several FTA negotiations, some with developing/emerging economies such as Sri Lanka and Peru.16 In Africa, the China-Mauritius FTA recently came into effect (Nyabiage, 2021). 40 5 What to watch This section highlights emerging themes and trends or future developments to note. Adoption of the RCEP. Developing economies are not set to receive a large share of the initial gains from the signing of the RCEP, but they can better prepare to maximise the longer-term opportunities it presents. We note that the Trade Complementarity Index of countries like Cambodia, Myanmar and Laos with China is relatively low compared to the other signatories (this means their export profile does not necessarily match China’s import profile). Such economies may want to adjust their export capacity and specialisation to take advantage of the agreement and more liberalised trade with China. Beyond improving their export capacity to China as a final market, developing economies in RCEP can take advantage of the ‘Rules of Origin’ provision, which imposes a ‘40% regional content requirement’ for exports to take advantage of the RCEP-lowered tariffs when exporting to other RCEP members. With this provision, manufacturers in China can relocate sections of their value chain in RCEP countries and still satisfy the 40% requirement and be eligible for lower RCEP tariffs. This makes RCEP countries more attractive to Chinese investors. In contrast, those excluded from the agreement will appear less attractive to Chinese manufacturers as components made there will not contribute to the 40% requirement. Developing economies excluded from RCEP may want to improve their competitiveness in certain value chains to avoid trade diversion. Regardless, developing economies are expected to benefit from the increased momentum towards further trade liberalisation. Pulse 3 will discuss the China-Mauritius FTA. Shifts in Chinese lending modalities. While outward FDI and engineering projects remain resilient, the slowing of Chinese overseas loans from the two big policy banks (CDB and Exim Bank), emphasised by newly released data from BU’s China’s Overseas Development Finance Database, suggests shifts in Chinese overseas lending modalities. Many commentators have used this new data as a sign that the BRI, and China’s overseas engagement more broadly, is unravelling. However, our analysis shows a more nuanced picture, as Chinese companies are still developing, building, managing and acquiring projects overseas, and possibly receiving funding from commercial banks beyond the two traditional policy bank lenders, though there is no comprehensive data that reinforces this with certainty. Stylised evidence also points to more financial lending from Chinese commercial banks to local banks (and enterprises) in BRI countries, which is fostering the capacity of these institutions on issues such as due diligence and risk analysis. At the same time, this is helping to institutionalise Chinese banks’ business practices, which still differ to a certain extent from those of Western financial institutions (Poenisch, 2019). Additionally, there seems to be a shift towards more balance sheet and project financing, based on green bond issuance data for overseas infrastructure projects from the Climate Bonds Initiative. Thus, it is more likely that the BRI is recalibrating (in size and modalities) its engagement with partner countries, rather than halting abruptly and dismantling 20-plus years of China’s ‘Going Out’ strategy. China will therefore continue to be a development partner to these countries. Growth in the digital sector. As analysed in Pulse 1 (Tanjangco et al., 2020), Beijing intends to increase engagement in new growth sectors with neighbouring and BRI countries after the pandemic, including in the digital economy. The last year has seen Chinese companies engaged in 17 digital projects in (mainly) BRI countries, for a minimum estimated value of 47 Staff, R. (2021) ‘Ex-China Development Bank Chair Hu Huaibang jailed for life for bribery – state media’. Reuters, 7 January (www.reuters.com/article/china-corruption/ex-china-development-bank- chair-hu-huaibang-jailed-for-life-for-bribery-state-media-idUKB9N2J807N). State Council (2015) 国务院关于印发《中国制造2025》的通知（国发〔2015〕28号）_政府信息公开 专栏 (www.gov.cn/zhengce/content/2015-05/19/content_9784.htm). Tanjangco, B., Cao, Y., Nadin, R. et al. (2020) Pulse 1: Covid-19 and economic crisis – China’s recovery and international response. ODI Economic Pulse series. 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China International Import Expo, 9 November (www.ciie.org/zbh/en/news/exhibition/News/20201109/24530.html). 49 Annex 1 Supporting data Region Country Southeast Asia and East Asia Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Timor-Leste, Vietnam, Mongolia Central Asia Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan Middle East and North Africa Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Palestine, Syria, United Arab Emirates, Yemen South Asia Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan, Sri Lanka Europe Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey, Ukraine i After the BRI was launched in 2013, early texts and policy documents referred to 65 Belt and Road countries, predominantly in Asia, Europe and the Middle East and North Africa, and including China. These countries have since been considered as the original 65 BRI countries and likely to have a special strategic status to Beijing. We consider 63 countries in this report, excluding China and India, which later refused to join the BRI. Source: Grouped by authors Table A1 63 originali Belt and Road countries classified by region Country Industry Chinese party Value ($ million) Status Type of trouble Notes Australia Mining industry Baotou Iron and Steel Group subsidiary Baogang Group Investment (Australia) 13.53 Blocked National security concerns The Foreign Investment Review Board (FIRB) blocked a 13% stake investment to ‘safeguard the national interest’ and prevent a fire sale of distressed corporate assets in the face of ‘intense pressure on the Australian economy and Australian businesses’ during Covid-19. Australia Mining industry Yibin Tianyi Lithium Industry 9.7 Withdrawn Regulatory Yibin withdrew a FIRB application to buy a 12% stake and announced an amended investment plan of $6.9m for a 9% stake. The acquisition will be exempt from FIRB approval (under 10% stake). Costa Rica Transportation, warehousing and postal service industry China Harbour Engineering Company (CHEC) 465 Delayed Covid-19 Expansion of Highway 32, a 107km section connecting Costa Rica’s capital San Jose to the port city of Limon, will be delayed until March 2021 due to the pandemic. The project has already been delayed multiple times since CHEC signed the $465 million contract in 2013, and only an estimated 17.6% has been completed to date. Croatia Building industry Zhongya Real Estate Company (Zhongya Nekretnine) 2.1 No update Financial The Croatian government announced on 3 February that it is reconsidering the sale of Hotel Zagorje to Chinese-backed Zhongya Real Estate Company (Zhongya Nekretnine), which was the sole bidder in June 2019, after it failed to pay the agreed price of $2.1 million despite two deadline extensions. Zhongya Real Estate responded that its failure to make payment is due to the ongoing political situation between China and Hong Kong, which has impeded outbound money transfers, and the company will continue searching for ways to complete the transaction. India Transportation, warehousing and postal service industry Shanghai Tunnel Engineering Corporation (STEC) 148 Halted Internal The contract is funded by the Asian Development Bank to build an underground section of the Delhi–Meerut rapid rail transit system. India’s National Capital Region Transport Corporation (NCRTC) has indicated that the finalisation of STEC’s selection is pending an internal evaluation. Kyrgyzstan Transportation, warehousing and postal service industry China’s One Lead One (HK) Trading 275 Cancelled Community protests Pulled out of a logistics hub construction project in Kyrgyzstan’s Naryn region following protests by hundreds of people demanding the project’s cancellation, in the village of At-Bashi on 17 February. The Kyrgyz government envoy to the region stated that only 700–800 people took part in the protests, but protest organisers have claimed that the number of participants exceeded 2,000. The government is expected to issue an official response to protesters’ demands. Table A2 Chinese disrupted projects, January–November 2020 Country Industry Chinese party Value ($ million) Status Type of trouble Notes Myanmar Electricity, heat, gas and water production and supply China National Technical Import & Export Corporation (CNTIEC), Hong Kong-listed Vpower 800 Delayed Covid-19 Chinese-Myanmar consortium – contracted to build three power stations: the 400MW Thaketa power plant, 350MW Thanlyin power plant and the 150MW Kyaukphyu power plant – missed deadlines. Potential fine of $300,000 for each day past the deadline, but according to the Ministry of Electricity and Energy the consortium has not signed a final contract and wants to invoke force majeure due to Covid-19. Nigeria Transportation, warehousing and postal service industry China Civil Engineering Construction Corporation (CCECC) Unknown Delayed Covid-19 Nigerian Transport Minister Rotimi Amaechi announced that the 150km Lagos–Ibadan railway project being built by the CCECC has been delayed because most of the Chinese workers who left for the New Year have not yet returned. Papua New Guinea Mining industry Barrick Niugini Limited Unknown Not extended Environmental Citing environmental and social concerns, the government of Papua New Guinea has refused to extend Barrick Niugini Limited’s special mining lease for Porgera gold mine after it expired last August. Barrick Niugini is a joint venture between Canada’s Barrick Gold and China’s Zijin Mining Group, with each owning 47.5% of the mine. Romania Electricity, heat, gas and water production and supply China General Nuclear Power Corporation (CGN) Unknown Cancelled National security concerns The Ministry of Economy asked state-owned Nuclearelectrica, which owns the Cernavodă nuclear power plant, to terminate the preliminary agreement that it signed with CGN in May 2019 for the construction and operation of two new reactors. The agreement became uncertain after Romanian President Iohannis and US President Trump met and signed a joint declaration in August 2019 to increase bilateral nuclear energy cooperation. CGN was added to the US Department of Commerce’s Entity List about a week prior to the White House meeting due to alleged attempts to ‘acquire advanced US nuclear technology and material for diversion to military uses in China’. Romanian media reports cited security concerns as the primary reason behind the termination. Table A2 Chinese disrupted projects, January–November 2020 (continued) Country Industry Chinese party Value ($ million) Status Type of trouble Notes Serbia Manufacturing industry Linglong International Unknown Halted Environmental Serbia’s Regulatory Institute of Renewable Energy and the Environment (RERI) announced that Chinese firm Linglong International had not obtained the proper environmental protection documentation before beginning construction of a factory near Zrenjanin. The municipal administration of Zrenjanin and the Vojvodina province authorities did not approach the Regulatory Institute about the project, although they are required to do so by law. Linglong needed both a location permit and an environmental impact assessment before building its tyre factory. The Carska Bara nature reserve is located about 2km away from the under-construction factory, and is a category I protected area. Uganda Electricity, heat, gas and water production and supply Sinohydro Unknown Delayed Contractual Uganda Electricity Generation Company Ltd. (UEGCL) had accused Sinohydro, the contractor of the Karuma Hydropower Dam (Uganda’s largest power project), of failing to comply with international standards and technical specifications on the dam’s construction. The issue, which had been in discussion since February, came to a head on 10 October, when President Museveni met with representatives from Sinohydro, the Ugandan Ministry of Energy and UEGCL to discuss the matter. It was reported that Museveni asked the Chinese contractor to fix the defects in the dam before it is commissioned and given to UEGCL to operate and maintain. The dam was expected to be completed and commissioned before 30 November 2020. Ukraine Transportation, warehousing and postal service industry Sinohydro Unknown Cancelled Contractual The Ukrainian State Agency of Motor Roads (Ukravtodor) terminated a highway construction contract with Sinohydro following an investigation that found violations of the terms of agreement. The firm, working on the 22km M-06 bypass road near Zhytomyr, was said to have been involved in non-compliance with construction standards, resulting in the destruction of the road’s concrete surface, and was also behind schedule. Table A2 Chinese disrupted projects, January–November 2020 (continued) Country Industry Chinese party Value ($ million) Status Type of trouble Notes Vietnam, India Transportation, warehousing and postal service industry China Merchants Ports Unknown Halted Political China Merchants Ports’ acquisition of shipping terminals through its joint venture with French shipping company CMA CGM has been put on hold by authorities in Vietnam and India. It was claimed that the reason for the delay was local bureaucratic slowdown amid the Covid-19 pandemic, but the move comes amid rising political tensions between China and the two countries. One of the terminals is located at Munda Port in India’s Gujarat state, the busiest container port during the April–June quarter in 2020. Zimbabwe Electricity, heat, gas and water production and supply Sinohydro 680 Halted Financial Reports indicated that Chinese insurance companies were reluctant to back Zimbabwe’s infrastructure projects, with the construction of the $680 million Kunzvi Dam (contracted to Sinohydro) halted after Sinosure pulled out. The move came after a period of indecision by the Zimbabwean government over payment of a $10 million commitment fee for the project, which ‘greatly frustrated’ Sinosure, stated an official involved in the project. The Zimbabwean government already reportedly owes a substantial amount of debt to Sinosure. Source: RWR Advisory (2020) Table A2 Chinese disrupted projects, January–November 2020 (continued) Country Chinese party Industry Value ($ million) Project Angola Huawei Science, technology, R&D 60 Completing a technology park in Talatona, Luanda, to train local engineers, create new technology and exchange technological experience. Brazil (non-BRI) Huawei Wholesale and retail Unknown In partnership with Telefónica, Huawei opened a 5G telecommunications lab in Brasilia to showcase the new technology. France (non-BRI) Huawei Manufacturing 223 Building first European manufacturing plant to produce wireless equipment for 4G and 5G networks for European markets. France (non-BRI) Huawei Science, technology, R&D Unknown Opened its sixth French research centre, the Lagrange Research Centre in Paris, which will focus on mathematics and computer science. Hungary Huawei Science, technology, R&D Unknown Establishing a research and development centre in Budapest focusing on artificial intelligence (AI),, streaming, image processing, signalling technologies and large distribution systems. The centre will also develop adult education and university collaboration projects in the future. Kenya Huawei ICT Unknown Kenya's Safaricom announced it will award Huawei a contract to deploy a 5G network. Madagascar Huawei ICT 42.7 Funded by EximBank, Huawei will deploy a fibreoptic network using its 4G eLTE technology, build data management centres and install video-conferencing technology and surveillance cameras across government agencies in Antananarivo to improve public services and reduce costs within the public administration. Mongolia Alibaba Wholesale and retail Unknown Establishing a business centre for the e-commerce community. MENA region China Mobile International ICT Unknown Partnering to build 2Africa, a submarine fibreoptic cable that will connect Europe (eastward via Egypt), the Middle East (via Saudi Arabia) and the African continent (via 16 countries) to Asia (via East Africa). The fully funded project is 37,000 km long and will facilitate 4G, 5G and fixed broadband access through carrier-neutral data centres and open-access cable landing stations. Completion date is 2023. Morocco CCCC and CRBC ICT 1,000 CCCC and CRBC become shareholders (35%) in Tangier Tech Management Company (SATT). SATT is responsible for building and managing the Mohammed VI Tangier Tech City, a smart city designed to spearhead the future Tangier region economic hub and set to attract nearly 200 Chinese companies operating in the automotive, aerospace, textile, electronics and machine tool sectors. CCCC and CRBC will contribute towards the estimated $1 billion cost of the project. Mozambique Huawei ICT Unknown Huawei signs ICT collaboration agreement with the government of Mozambique. Oman Huawei ICT Unknown Huawei Technologies to deliver a range of 5G services in the country, including training 1,000 Omani students in 5G technology. Table A3 Chinese digital projects, January–November 2020 Country Chinese party Industry Value ($ million) Project Pakistan Huawei Science, technology, R&D Unknown Developing Huawei Knowledge Factory project to provide AI, big data and other technology training and solutions to start-ups and Pakistan Mobile Communications Limited employees. Thailand Huawei ICT Unknown Huawei to jointly build Southeast Asia’s first optical transport network (OTN) to serve multinationals and government agencies with CAT Telecom Public Company. Thailand Huawei ICT 23.2 Huawei to establish third data centre in Thailand to develop the country into a regional hub for digital technology. UK (non-BRI) Huawei Wholesale and retail Unknown Huawei Technologies to develop the first fully 5G-enabled shopping centre in the United Kingdom in Camberley, Surrey. It will be a test centre for future 5G connectivity in retail. UK (non- BRI) Huawei Science, technology, R&D 6.1 Five-year strategic partnership for a new innovation centre to provide high-tech products and services, deploy a 5G network and help fund the Imperial Data Science Institute and the Leonardo Centre at the Imperial Business School in London. UK (non- BRI) Huawei Wholesale and retail 12.7 Opening three Huawei stores in London and Manchester during 2020 and 2021. Source: RWR Advisory (2020) Table A3 Chinese digital projects, January–November 2020 (continued) 56 Annex 2 Constraints and limitations 1. Alternative data sources explored a. Project-level data from multiple sources was initially explored but faced some inconsistencies with self-reporting. The team would need more time to conduct manual due diligence to ensure accuracy of the data. b. Chinese outward direct investment data from official sources only disaggregates at the country and industry level on an annual basis. There are no monthly indicators for this level of detail and the latest reported data is for 2019, before the pandemic. c. Other databases, such as the Partnership for Investment and Growth in Africa, were consulted but the difference in scope of the data collected prevented the team from using them. d. Loan, trade and investment data from reputable sources was often aggregated at an annual level and available only until a certain year. For example, data from the China Africa Research Initiative at the Johns Hopkins School of Advanced International Studies is reported on an annual basis and available from 2000–2018. e. Other official sources such as the OECD International Direct Investment Statistics Yearbook, ITC Investment Map, IMF Coordinated Direct Investment Survey and UNCTAD Foreign Direct Investment online database had certain drawbacks. Data is often collected on an annual basis, not broken down sufficiently (inward and outward flows are collected at the aggregate level and not separated by country), limited in terms of country coverage or published with a considerable lag (only up to 2018 or 2019). 2. Caveat on the RWR Advisory Belt and Road Monitor database a. The research team consulted several databases tracking Chinese overseas economic activities, weighing strengths, weaknesses and limitations of each (Schwarzenberg, 2020). The RWR Advisory Belt and Road Monitor database was selected due to the frequency of updates (biweekly), which provides the necessary granularity of data to probe changing trends in China’s overseas activities. Similar to other databases of its kind, the RWR collects this information mainly through media reports, company press releases, and other relevant online sources, with a light-touch effort to verify the accuracy and consistency over time of such information. As explained extensively in the literature on Chinese overseas economic activities, many of these announcements never materialise in actual investments or disbursement of funds, the amounts may change or some projects may be missed. Thus, while useful in indicating investment appetite and ‘real-time trends’ of Chinese companies’ overseas activities, the monetary value of the investments and contracts in the database should be treated with caution. Moreover, the aggregate value of projects does not add up to the official outward investment and engineering contract data released by China’s Ministry of Commerce for obvious reasons. Furthermore, not all activities reported in the database feature contract values; this is especially the case for activities in education, health, culture, sports and entertainment, where activities are reported as ‘collaboration or cooperation’, which makes it difficult to discern whether it is FDI, portfolio investment, a service contract or a grant. Thus, these activities are likely underreported in the aggregate estimates we present in this tracker.