BRAHMA CHELLANEY: China’s imperial overreach.

Yet Xi has set his sights much higher: he aspires to become modern China’s most transformative leader. Just as Mao helped to create a reunified and independent China, and Deng Xiaoping launched China’s ‘reform and opening up,’ Xi wants to make China the central player in the global economy and the international order.

So, repeating a mantra of connectivity, China dangles low-interest loans in front of countries in urgent need of infrastructure, thereby pulling those countries into its economic and security sphere. China stunned the world by buying the Greek port of Piraeus for $420 million. From there to the Seychelles, Djibouti, and Pakistan, port projects that China insisted were purely commercial have acquired military dimensions.

But Xi’s ambition may be blinding him to the dangers of his approach. Given China’s insistence on government-to-government deals on projects and loans, the risks to lenders and borrowers have continued to grow. Concessionary financing may help China’s state-owned companies bag huge overseas contracts; but, by spawning new asset-quality risks, it also exacerbates the challenges faced by the Chinese banking system.

The risk of non-performing loans at state-owned banks is already clouding China’s future economic prospects. Since reaching a peak of $4 trillion in 2014, the country’s foreign-exchange reserves have fallen by about a quarter. The ratings agency Fitch has warned that many OBOR projects—most of which are being pursued in vulnerable countries with speculative-grade credit ratings—face high execution risks, and could prove unprofitable.

The coming years will determine whether Beijing’s reach exceeds its grasp, or if China’s Communists have pulled Central Asia and East Africa more or less permanently into their orbit.