China’s Belt and Road Initiative (BRI) was already one of the most controversial issues on the international agenda prior to the arrival of COVID-19, a little more than a year ago.
But today, it seems more problematic, and may become a financial and political burden for the Chinese Communist Party (CCP) and also Chinese President Xi Jinping, who has invested much personal political capital in the project.
President Xi has placed so much importance on the BRI as a foreign policy and economic strategy that it was incorporated into the Constitution of the People’s Republic of China in 2017. And symbolically, the project has a target completion date of 2049, the date of the centennial anniversary of the founding of the People’s Republic.
What is driving the BRI?
Why has Xi Jinping’s China invested so much financial and political capital in the BRI? There are many suggestions. Fostering trade, investment and development in its neighbourhood. Improving security in its restive borderlands. Securing access to energy and other natural resources. Boosting business for state-owned enterprises (SOEs), as the Chinese economy slows. Creating a network of economic dependency, and through this, a new Sinocentric regional order. Achieving “discourse power”, whereby BRI partner countries defend and parrot Chinese positions on human rights, the South China Sea and the like. Forging a “community of common destiny”.
As China seeks to dominate Asia, this is being facilitated by the seeming retreat by the US from leadership in the Indo-Pacific. At the same time, in its infrastructure diplomacy, China is following in the footsteps of other rising powers, notably Japan and the US (till today, Japan is the biggest investor in infrastructure in Southeast Asia).
Indeed, the BRI has echoes of the Western imperialism era and projects like the Suez Canal, which left Egypt highly indebted and mired in poverty.
There is an emerging consensus that China will likely scale back the scope of the BRI. China has less money available to lavish on the BRI and many Chinese citizens would prefer the BRI money being spent domestically.
Some reactions to the BRI
Many Asian countries and analysts have reacted positively to the BRI, in light of the vast needs for better infrastructure in Asia’s developing economies. For example, according to the Asian Development Bank (ADB), developing Asia will need to invest $26 trillion from 2016 to 2030—or $1.7 trillion per year—if the region is to maintain its growth momentum, eradicate poverty and respond to climate change. But before COVID-19, it was only able to invest an estimated $881 billion in infrastructure annually, resulting in a massive infrastructure investment gap. Multilateral development banks like the World Bank and the ADB, and traditional bilateral donors like Japan and Australia, just don’t have enough money to cover Asia’s infrastructure needs. In fact, even a successful BRI will not satisfy Asia’s infrastructure needs.
At the same time, some BRI participant countries and analysts have criticised China’s leadership of the BRI programme. Most projects are financed by Chinese banks—mainly the China Development Bank and the Export-Import Bank of China—at commercial rather than concessional interest rates, and secured against collateral such as oil or other commodities. Most work is conducted by Chinese SOEs, using Chinese labour, rather than local enterprises and workers. Most agree that the quality of Chinese work on BRI projects is much lower than that of Japan. It offers ample opportunities for bribery and kickbacks. And despite its multilateral pretensions, the BRI is a spoke-and-hub system of bilateral agreements between each participating country and China, giving China dominant power in negotiations.
The US has been particularly scathing in its criticism of the BRI. In a major speech, in 2018, then US Vice-President Mike Pence said: “China uses so-called ‘debt diplomacy’ to expand its influence,” with opaque terms of loans, and benefits flowing overwhelmingly its way.
President Biden’s administration will surely endorse these sentiments. Indeed, most US commentators see the BRI as a form of new imperialism. It is argued that China is seeking to establish a new regional order, with China at the centre.
China’s response to criticisms
China has been sensitive to some criticisms and concerns. For example, following a change in government in 2019, Malaysia was able to renegotiate the terms of Malaysia’s East Coast Rail Link, reducing the cost by one-third. And in 2018, Myanmar renegotiated the cost of the Kyaukpyu deepwater port project down from $7.3 billion to $1.3 billion, with some Myanmar officials concerned the project disproportionately served China’s energy, trade and security interests.
Following the second BRI summit in Beijing in 2019, the Chinese government has sought to address some BRI criticisms, notably with regard to environmental and fiscal sustainability.
In response to concerns about Chinese dominance of BRI projects, China released a white paper titled China’s International Development Cooperation in the New Era in January 2021. It now defines the BRI as a “major platform” for international development cooperation through which Beijing can provide various public goods for global development.
Political commentary on the BRI often gives the impression of a grand strategy, brilliantly-led from a central control tower in Beijing. But on the ground reporting reveals quite a different picture. There was a mad rush by Chinese SOEs to secure projects, often with little project or credit assessment. Different Chinese ministries, provincial governments, SOEs and banks compete for projects, and there is little effective coordination or leadership in Beijing.
Most agree that the quality of Chinese work on BRI projects is much lower than that of Japan. It offers ample opportunities for bribery and kickbacks. And despite its multilateral pretensions, the BRI is a spoke-and-hub system of bilateral agreements between each participating country and China, giving China dominant power in negotiations.
Many projects are running well behind schedule, notably the China–Pakistan Economic Corridor, and there are questions as to whether they will be finalised, especially in light of COVID-19. Extravagant promises of infrastructure for the Philippines have seen very few results, while the project for an economic zone on the border of China and Kazakhstan seems like a wasteful pipedream. The case of the Sri Lankan port has left a big stain on the BRI, and damaged China’s international reputation.
That said, there are also many success stories like the Greek port of Piraeus.
BRI and COVID-19
Overall, even before COVID-19, there was a slowing down in the BRI programme, with 2016/17 being the peak years.
There has been much speculation and commentary about the possible impact of COVID-19 on the BRI. For example, according to a report by Moody’s, in the first half of 2020, economic and financial pressures resulted in the value of Chinese-led new contracts and investments into countries participating in the BRI totalling $23.5 billion, suggesting that full-year figures will fall short of the previous year’s $104.7 billion.
Most BRI projects have been adversely affected by COVID-19, reports Reuters. About 20% of projects have been “seriously affected”, a further 30-40% “somewhat affected”, while about 40% have seen little adverse impact, according to Wang Xiaolong, director-general of the foreign ministry’s international economic affairs department. This is hardly surprising. Restrictions on the flow of Chinese workers and construction supplies have been cited as factors for project suspensions or slowdowns in Pakistan, Cambodia, Indonesia, Myanmar and Malaysia. And the big economic hit from COVID-19 has reduced the ability of participating countries to service the BRI debt.
Many BRI participating countries like Pakistan are now burdened with great debt and have sought financing support from the International Monetary Fund or debt relief from G-20 lenders. Chinese banks are significantly exposed to BRI projects and could also suffer financial losses. They are now spending more time renegotiating deals, rather than writing new ones. They are also becoming more cautious in their lending.
What future for the BRI?
On the whole, COVID-19 will likely impact the BRI for several years at least. Many poorer countries are still suffering immensely from COVID-19 and their access to vaccines will be very much delayed, despite the active vaccine diplomacy of China and the Quad.
Many Asian countries and analysts have reacted positively to the BRI, in light of the vast needs for better infrastructure in Asia’s developing economies. At the same time, some BRI participant countries and analysts have criticised China’s leadership of the BRI programme.
This has resulted in speculation about the future of the BRI. There is an emerging consensus that China will likely scale back the scope of the BRI. China has less money available to lavish on the BRI and many Chinese citizens would prefer the BRI money being spent domestically. But Chinese SOEs are very keen to maintain the pace of the BRI, as it is a very good source of business for them.
Given the amount of political capital that President Xi has invested in the BRI, it will likely remain a major political priority while he is in office. Australian geopolitical expert Digby James Wren has even suggested that China might look to transform the BRI into a COVID-Marshall plan, to help reboot the world economy and hasten the emergence of a new, China-led world order.
In any event, the BRI will likely be a feature of the Asian economic landscape for a long time, even if in a substantially truncated format. Will the BRI be able to achieve its lofty ambitions? Has China overreached? Only time will tell. But history shows that infrastructure diplomacy, which dates back to at least the Roman Empire, is always difficult.
John West is author of the recent book, “Asian Century … on a Knife-edge,” and executive director of the Asian Century Institute. He is also adjunct professor at Tokyo’s Sophia University and contributing editor at FDI-Intelligence, a Financial Times magazine. These positions follow a long career in international economics and relations, with major stints at the Australian Treasury where he was director of balance of payments, OECD (head of public affairs and director OECD Forum) and Asian Development Bank Institute (senior consultant for capacity building and training).