The coronavirus crisis will have a long-lasting impact on China's Belt and Road Initiative (BRI), including rising credit strains across BRI countries and a likely decrease in new investment flows in the next two years, said Moody’s Investors Service recently.
Nevertheless, greater interregional connectivity within participating countries will support sustainable infrastructure and digital connectivity projects over time, the credit rating agency pointed out.
"Worsening credit stress amid the pandemic will put the brakes on fresh BRI investment flows, which are unlikely to return to 2014-19 levels before 2023, even as China's policy objectives continue to support BRI activity," said Rahul Ghosh, a Moody's Senior Vice President.
Project finance lending in BRI countries with worsening credit profiles carries risk for China's policy banks, some large commercial banks and state-owned enterprises (SOEs), according to Moody’s.
But the sovereign exposure of China is manageable when compared with the overall size of the government's external assets, the firm said.
In addition, China’s aim to expand its economic influence and increase trade regionalisation will ensure that the BRI continues to evolve going forward with an increasing focus on environmental and technological initiatives, Moody’s pointed out.
"The BRI has become greener over the years, with renewables accounting for roughly 58% of new BRI contract values in the first half of 2020, up from 18.5% in 2014," said Lillian Li, a Moody's Vice President and Senior Credit Officer.
With internet penetration well below global averages in most BRI countries, governments will seek to enhance resiliency to future lockdowns and economic disruptions by investing in the digital economy, galvanising cross-border technology flows and underpinning investment activity, Moody’s noted.
While credit positive overall for Chinese telecom, internet and e-commercial companies, expansion could encounter country-specific pushback given the national strategic importance of telecom sectors the firm added.