China’s post-pandemic support to Belt and Road countries and ESG factors

China’s post-pandemic support to Belt and Road countries and ESG factors
China’s post-pandemic support to Belt and Road countries and ESG factors

As the first country to emerge from the pandemic, China is one of the better-positioned major economies to extend financial support to emerging market countries. It is also in China’s interest, since most Chinese BRI loans were extended to emerging market countries.

We have already witnessed Chinese direct lending, including a concessionary loan of USD500 million granted to Sri Lanka upon request to fight the virus.1 We expect China to continue to provide financial support to emerging market countries going forward. That being said, conditions vary in different countries and individual domestic policies, types of governance, levels of corruption, and debt levels are important when making investment decisions.

Debt renegotiation and relief for Belt and Road countries?

It has been reported that China has written off interest on some bilateral loans with partner countries. China has also given some borrowers more time to repay or made other concessions. The Kyrgyzstan government, for example, announced in April that China had agreed to reschedule USD1.7 billion of debt repayments.2 Notably, these relatively less developed countries are also receiving emergency financing and debt relief from major international organizations, such as the IMF and World Bank (Figure 1).

Figure 1: Countries receiving emergency financing and debt relief
Figure 1: Countries receiving emergency financing and debt relief
Source: IMF, data as of June 4, 2020.

We expect China and other international organizations to provide debt relief or renegotiation to selected emerging market countries in the future. However, we do not expect debt write-offs to discourage Chinese lending activity. Most funding was conducted through Chinese policy banks and government support for investment in participating Belt and Road countries remains high. From an investment perspective, we believe China’s support and that of key international organizations is a positive factor that will benefit Belt and Road countries.

Sustainability of Belt and Road country development and the significance of ESG factors  

We expect BRI projects to become more economically viable as China increases its efforts to improve their sustainability, transparency and governance. Measures like the Debt Sustainability Framework and the inclusion of multilateral participants will likely benefit Belt and Road countries and projects over time.

We believe environmental, social and governance (ESG) factors will be critical to the long-term economic development of emerging market countries where the level of socio-economic development, degree of political stability and entrenchment of the rule of law can vary significantly. The outbreak of Covid-19 has highlighted the importance of a safe, clean and sustainable environment to reduce systemic health risks.

The importance of ESG factors has been reflected in the financial market performance of emerging market sovereign bonds. Over the last three years, the sovereign bonds of countries rated more highly from an ESG perspective have outperformed lower ESG-rated peers (Figure 2). We believe China’s emphasis on ESG factors would be a positive catalyst for the overall development of the Belt and Road universe.

Figure 2: Emerging market sovereign bond returns for past three years by MSCI ESG rating
Figure 9: Emerging market sovereign bond returns for past three years by MSCI ESG rating
Source: MSCI, JP Morgan, Bloomberg L.P., Invesco. Data as of May 28, 2020. Past performance is not a guide to future returns.


  • 1 Source: The New Indian Express, as of March 18, 2020.

    2 Source: Barron’s, as of April 29, 2020.       

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