China’s Belt and Road Initiative

The new Silk Road?

The last post discussed the Silk Road as the ancient highway of trade between China, Europe and the Levant. China itself capitalized on this Silk Road imagery when promoted their new Belt and Road Initiative. It has been described by the Council on Foreign Relations thusly. “The Belt and Road Initiative is a massive China-led infrastructure project that aims to stretch around the globe.”

It was pitched as both a “New Silk Road” and a Chinese “Marshall Plan”. But what is it exactly, and how is it progressing?

What is the Belt and Road Initiative?

China’s growth in foreign trade and the projection of its diplomatic clout has grown from the 1980s through today. In 2013 it announced the Belt and Road Initiative (BRI) to capitalize on these twin achievements and to project economic and diplomatic strength in Asia, Africa and Europe.

China proposed to create, or support creation, of new infrastructure to support new routes to Europe, Russia, and Africa. These initiatives are designed to improve the facilities and transit time for trade and related infrastructure. Chinese investment has also been extended into projects to complement these routes, including roads in Montenegro, damns in Myanmar, bridges in Croatia, rail in Kenya, just to name a few.

Early Progress

By 2019, more than 3,000 projects had been started - valued at billions of dollars had started. These were built and funded mainly by Chinese State firms. It was heralded as a successful undertaking by multiple outlets, including The Economist.

So what had been completed? I provided a list of some of the major achievements in both completed and started projects in Asia, Europe and Africa at the end of this post. It is an impressive list of achievements, most pre-Covid. But a few stand out. First, the rail link from China, through Central Asia to Moscow has been completed. Port expansion and updates have been completed in Colombo, Mombasa, and Djibouti.

The Belt and Road Initiative originally incentivized various countries to begin negotiations to be a part of it by use of funding and loans. BRI was very successfully originally bringing in many different countries. The Belt and Road Initiative was introduced concurrently with China bidding to work on infrastructure projects in non-BRI countries.

Since Covid, BRI has lost some of its luster as partners have uncovered issues that were not originally expected.

BRI Issues

Chinese Focus Issues

Like the entire world, China suffered from the years of Covid. Covid shut down the nation and exports, ultimately lowering the GDP growth of China to the lowest point since 1975. After Covid, China has directed more investment inward. Now China is trying to reassure its BRI partners that little has changed, despite the changes in China’s investment approach

This focus inward has been reinforced by sanctions by the United States which has required China to produce some of the high-tech components supplied by the US. This reduces both the amount of funds as well as the focus of BRI initiatives.

Additionally, nearly all of the Chinese contracts have been made via state owned or state supported businesses. As post-Covid China moves to rebuilding and reinforcing their internal supplies chains, BRI initiatives will be fighting for money against other local and state enterprises.

Chinese Workers

There have been push back and complaints from host countries about the workers on Chinese projects. Most often, China will provide the workers for a Chinese based project. These companies usually build living quarters for their workers and the interaction with the local population is minimal. Given that one of the selling points was to drive employment and business, this method of construction does not bring the expected value. It is even worse in many African nations where the views of China have fallen as the imported workers appear racists and aloof.

For example (per Center for Strategic and International Studies) BRI projects use 89 percent Chinese contractors, 7.9 percent local and 3.4 foreign (non-Chinese). The makeup of multilateral development banks projects, which are more advantageous to the local economy, were made up of the following contractors: 29 % are Chinese, 41% are local and 30 %are foreign. Local populations, far from where deals are made, benefit less than expected with the BRI projects. Wealth does not flow into the local or regional businesses as promised by local polititicans.

BRI Partners

According to a Carnegie Endowment for Intentional Peace article, the national BRI partners of these relationships are often made with the local elite and government officials. This process has been successful in creating projects, but as governments or strongmen change the deals may be revoked or ignored. Because the Chinese partners are state sponsored, they are directed to work with some partners at the expense of due diligence and proper vetting. When a contract partner is expelled from office, the new government is usually required to continue to pay for the project, or it will be left partially complete.

BRI Investment Protection for Chinese Lenders

In practice, China appears to be less of an investment partner and instead more of a lender of last resort. Many other sources of development funds will work as partners to find creative ways to move on. In World Bank projects, fees may be waved or even loans cancelled after unexpected circumstances or changes in governments. Repayments do not usually start until after the project is finished.

With BRI Chinese investment parties, the repayment terms can be onerous on emerging economies and payments often begin before project completion. China is unsupportive of moves to reduce payments or interest terms. For that reason, it is seen by many countries preferable to work with the World Bank, US, or EU partners.

An example of this sort of problem is with the government falling in Sri Lanka. As Sri Lanka approached default, one of the proximate causes was China’s insistence of repayment of loans within the agreed to contract.

New Competition

The United States has stepped up its efforts to provide an alternative to the BRI initiatives with government supported development funds. The European Union has refinanced many of the projects even outside of the EU may be supported. For example, a Chinese Highway development project payment terms during Covid threatened the government, and an EU loan was extended instead.

In Asia, Japan underwrites development funds, in Central Asia alternative development funds are provided by the Asian Development Bank or multilateral development banks.

Transparency

With the pause forced by Covid, national partners have reevaluated the future impact of BRI projects. One issue in common is the lack of transparency of the projects. This lack in transparency shows up in governance, management, and in reviewing original the award processes. Obviously, a lack of transparency doesn’t necessarily mean there are definitely problems, but it makes evaluations much more difficult.

Is the Belt and Road initiative a Success?

The Belt and Road Initiative has definitely been successfully in terms of expected results. Other nations now do see China as possible partner for infrastructure developments. It has also been a successful operation for many countries in Asia and Africa that need developmental support. Projects in these regions not only see new funding from China, but also see some rare competition to support projects. This means success in development in some areas even if the Chinese contractors do not succeed, but another development group does.

The Belt and Road Initiative has lost some of the Chinese focus, but has been successful. The proof of this is found in the alternatives that have sprung up in response.

Appendix:

List of BRI highlights completed or where significant work has been completed before Covid restrictions:

Africa

• Djibouti:  Addis Abada – Djibouti railroad

• Djibouti: Completion of Chinese Port Project

• Multiple other projects were started but have not been completed, or were cancelled

Europe

• Freight Rail Traffic corridor finishes. By 2018 10,000 trips had bene completed

• Belarus: Chinese – Belarus special economic zone infrastructure

• Greece: Updated and now runs the port of Piraeus

• Croatia: Pelješac Bridge (completed in 2022)

• Multiple other contracts of memo’s of understanding have been signed but not completed.

Central Asia

• Azerbaijan: Port and Rail lines in Baku

• Georgia: Rail line to Tbilisi

• Kazakhstan: Completion of Western China – Western Europe road

• Uzbekistan: Increase in infrastructure has lead to nearly 50% increase in Uzbek trade an exports.

Asia

• Laos: Vientiane – Boten Railway

• Malaysia: Malaysia – China Kuatan Industrial Park

• Sri Lanka: New port (Magampure Mahinda Rajapska Port – 2^nd largest in country)

• Sri Lanka: Colombo International Finance city