China’s Belt and Road Initiative (BRI) may be the most talked-about development plan of the century. Xi Jinping’s signature plan has captured the world’s attention since its announcement in 2013, with comparisons drawn to the ancient Silk Road and the Marshall Plan. But recently, worldwide coverage of the BRI has grown less favorable and more critical. Has BRI lost its luster?
The BRI now includes around 3,000 projects, according to official Chinese sources. The majority of the BRI projects involve constructing infrastructure to facilitate trade, which requires collaborating with partner countries to secure lending agreements and territory rights. BRI’s flagship project and biggest success is the China-Pakistan Economic Corridor (CPEC), a road and cable link between Pakistan’s Gwadar port to Xinjiang, China. China’s BRI relies on projects financed by Chinese policy and commercial banks rather than FDI, which requires massive capital flow to partner countries in the form of Chinese loans. This model makes sense when considering China’s industrial overcapacity dilemma; facing economic setbacks, China has already begun consolidating manufacturing companies to prevent defaults on loans. China sees foreign projects as an easy way for its state-owned enterprises (SOEs) to secure contracts and minimize losses.
However, these massive lending projects have led to partner countries accruing extreme debt. This problem was brought to the forefront of China’s second Belt and Road Forum in April. Several previous delegations refused to attend this year, protesting growing concerns that China both has unethical standards and leverages debts as a diplomatic bargaining chip in its BRI strategy. Notably, Turkey also cited concerns for China’s blatant oppression, through heavy policing and internment camps, of Uighurs living along BRI pathways. Malaysia’s prime minister, during renegotiations of nearly $23 billion in rail/pipeline deals, called BRI agreements “unequal treaties” and “a new version of colonialism” before cancelling the deals altogether. Other countries have already paid the price. Sri Lanka’s inability to resolve an $8 billion loan for its Hambantota Port in 2017 led to a debt-for-equity swap accompanied by a 99-year lease for managing the port. Even Pakistan’s CPEC venture has necessitated a $6 billion bailout from the IMF. Debt distress is a common trend with BRI projects, and although asset seizure is rare, this trend raises valid concerns about the sustainability and methods of BRI projects.
It remains unclear the degree to which BRI, a Chinese-led bilateral initiative that employs some multilateral mechanisms to achieve financing goals, will be guided by multilateral standards on debt sustainability. A key factor in creating and maintaining successful deals lies in the stability of partner countries. BRI’s partners tend to welcome China’s “no strings attached” style of investment compared to lending by Western powers conditioned on environmental concerns, human rights, and other obligations. Although China’s system is appealing for many developing countries, it has enabled corruption while allowing governments to burden their countries with unpayable debts. The reality is that, apart from pushing its political agenda, the West’s requirements were attached in order to lower the risk of failure. The BRI’s lack of requirements signals either an absence of educated, informed planning or a deliberate decision to create debt stress in BRI’s partners.
The instinct may be to accept the latter conclusion, believing criticism that the BRI’s underlying motive is to expand China’s geopolitical influence through a veil of economic development. But the former seems just as plausible. For all of its hype, no one, not even China, seems to know exactly what the BRI is. Aside from vague policy objectives, there are no concrete policies that define the BRI. This lack of vision and cohesion has already led to widespread inefficiency. Studies have demonstrated that BRI projects do not align with the BRI’s proposed “geographic corridors.” This incoherence, combined with looming industrial overcapacity, paints a credible picture that the BRI is demand-driven and opportunistic rather than supply-driven and centrally planned. Additionally, the vague nature of the BRI allows its brand to be extended to almost anything, from fashion shows to dentistry to projects that lack any Chinese involvement, all of which damage the credibility of BRI. Distrust of the BRI brand, in turn, stifles private investment domestically (only 12% of FDI goes to BRI countries) and abroad (former UK PM David Cameron’s UK-China fund is struggling to secure investors), which ensures that the BRI continues to rely on precarious sovereign lending projects.
This is not to say that the BRI is a failure. Many BRI projects have opened up conduits to new economic opportunities, particularly in Central Asia. In response to criticism, China has recently taken steps to reform the BRI, with changes to debt risk policy and transparency (dubbed BRI 2.0 by Christine Lagarde). Here, BRI’s ambiguity may prove beneficial, as the initiative is so amorphous that recalibrations can easily be integrated without admitting failure or defeat. But if the BRI is to truly live up to its nickname as the “plan of the century,” Beijing needs to get serious about repairing the potholes in its Belt and Road.
Source for map: Hong Kong Trade Development Council, http://china-trade-research.hktdc.com/business-news/article/The-Belt-and-Road-Initiative/The-Belt-and-Road-Initiative/obor/en/1/1X000000/1X0A36B7.htm.
