Standing on the cusp of its second decade, Xi Jinping’s mission to reshape the world’s economic and geopolitical landscape through the Belt and Road Initiative (BRI) continues, though it will now likely take a different shape. Conceived by China in 2013, this ambitious project has spanned continents and oceans, connecting countries through infrastructure, trade, and diplomacy.
This month China published a white paper on the BRI, taking stock of the past 10 years and shedding light on its future trajectory. A closer look at the third Belt and Road Forum for International Cooperation convened in Beijing on 18 October offers valuable insights into the potential evolution of the BRI in the years ahead.
A decade of controversies
Over the past decade, the BRI has sought to strengthen China’s global economic role through extensive infrastructure loans involving over 150 countries. It achieved connecting the Eurasian continent to a greater degree than ever before, through major projects like gas pipelines, railways, and dams. Additionally, more maritime trade routes were unlocked thanks to ports constructed in the Bay of Bengal, Red Sea, and Mediterranean Sea. Principally, it was planned as an engine of development, impacting countries across continents: from Asia to Africa to South America. For China, the BRI has also been a strategic foreign policy tool, aiming to establish a broader, more interconnected market, increasing its global economic influence.
Despite its ambition, the BRI has been beset by significant issues. Chinese financiers have often conducted inadequate risk assessments and debt sustainability analyses, leaving many participating nations struggling to repay their loans to China. As financial crises emerged, international scepticism has spread.
The BRI’s controversies have extended beyond financial quagmires, and enthusiasm for the BRI has eroded with numerous reports revealing failing and wasteful infrastructure projects. One more high-profile point of dispute involving the BRI has been the often inadequate enforcement of environmental and social requirements, as well as the dominance of high-carbon investments. What was once envisioned as a path to prosperity and connectivity for participating countries has, for some, transformed into a cautionary tale of fiscal burdens and environmental hazards.
With rumoured loans totaling approximately one trillion USD, BRI has involved a colossal financial stimulus. It is difficult to assess the impact of the BRI accurately: the Chinese central government does not provide a comprehensive list of which projects fall under the BRI and which do not. Additionally, the BRI involves a patchwork of fragmented bilateral agreements, each struck on different terms, rather than a unified, coherent strategy.
Yet loans have not always had the desired effect. Some megaprojects have led to mounting debts in the recipient states. Indeed, debtors, a combination of external factors mean that many debtors now find their ability to repay loans severely hindered. For example, though the loans served Zambia for dams and roads, the debt burden pushed the government to cut critical spending on healthcare. Montenegro too has accumulated a debt greater than its GDP through a BRI project to build a highway – now it can no longer afford to finish the project. The global impact of COVID-19 pandemic, the ongoing Russian-Ukrainian war, and growing instability in the Middle East have all placed additional strain on the economic viability of BRI projects.
Furthermore, China’s slowing economic growth has also limited the number of new projects signed and the implementation of current ones. Beijing’s capital reserves, once seemingly limitless, have come under pressure, and there is a growing urgency to recover the outstanding funds. China has even been compelled to allocate substantial resources, nearly $240 billion, to bailouts in recent years, exacerbating the debt situation rather than providing relief. This predicament leaves China at a crossroads, where it must balance its global economic objectives with its financial vulnerabilities.
The recent Belt and Road Forum demonstrates waning support for the BRI. Only 23 heads of state or government attended the event, a significant decline from the 37 present in 2019. While some Southeast Asian nations remained engaged, the presence of leaders like Russia’s Putin, Hungary’s Orban, and even the Taliban underscores the increasingly limited appeal of the BRI among the world’s democracies.
The path ahead
The BRI now appears poised for transformation, guided by the principles outlined in China’s recent white paper. It is set to remain a key pillar of China’s global economic expansion, although this will involve a slower pace of investment. Indeed, China is scaling back its infrastructure loans for megaprojects and is likely to embrace a more streamlined, targeted, and cost-effective approach, focusing on projects with reduced risk.
The forum this year convenes discussions on connectivity, green development, and the digital economy – these will be themes of the BRI’s evolving strategy. Expectations suggest that upcoming initiatives will be both smaller in scale and more environmentally sustainable, with Chinese companies playing a more significant role in investment compared to development loans to governments.
Additionally, the list of leaders attending the Forum reflects China’s ongoing commitment to partner with the Global South, aiming to promote economic growth and development in participating countries, as part of its ‘challenge’ to the US-led global order.
Implications for Governments
Given that the BRI will extend, here are key considerations for policy-makers in partner countries or foreign governments:
- Assessment of economic risks: Governments may need to be cautious about the terms of BRI loans and their ability to repay them, as default could lead to the loss of strategic assets or economic leverage. Foreign governments must develop robust financial strategies and contingency plans to mitigate the financial risks associated with BRI projects.
- Environmental and social accountability: Countries interested in participating in the BRI could apply leverage to ensure that BRI projects adhere to international environmental and social norms, potentially mitigating environmental hazards and improving the public perception of these projects.
- Geopolitical preferences: Policy-makers may increasingly re-evaluate their participation in BRI projects and consider their strategic alignment with China, including the impact on their relationships with other countries, especially their existing allies.
Implications for Private Firms
China’s commitment to connectivity, green development, and the digital economy in the coming years within the BRI-framework means the following for private firms:
- Market opportunities: Private firms, especially those in the infrastructure, construction, and logistics sectors, can benefit from BRI-related projects. Private firms can access new markets thanks to improved transportation networks and connectivity.
- Investment opportunities: Should China deepen cooperation in areas such as green infrastructure, green energy, and green transportation, this may present opportunities to operate in these areas. Business development in certain practices should increase attractiveness for BRI loans.
In sum, foreign governments are likely to focus on managing financial risk, advocating for environmental and social responsibility in BRI projects, and carefully assessing their strategic alignment in the evolving landscape of the BRI. Private firms, especially in infrastructure, construction, and logistics, can capitalize on market opportunities and potential investments in green development and transportation within the BRI framework, which can enhance their business prospects and access new markets.