What's Changing? - Belt & Road Initiative

 

Introduction

China's Belt and Road infrastructure initiative is one of the most ambitious geopolitical projects ever. By 2027, it aims to dish out an estimated $1.3 trillion in loans, around ten times what the US spent on the Marshall Plan in the aftermath of World War II. As China increases its investment in the West, will countries' loyalty shift toward Beijing? About 80 countries have already joined, and dozens more are flirting with the idea. For a world that badly needs more and better infrastructure, Belt and Road is a good thing

The BRI is China’s project to create a modern-day Silk Road, the ancient network of trade routes which connected east and west. Billions of dollars have been invested since it was launched in 2013 across more than 60 countries, in disparate infrastructure projects including railways, roads and ports. Some estimates of the total investment over the coming years run to $1trn or more.

Critics of the plan warn that China is setting a debt trap by allowing developing countries to accept loans they can't pay back. Default could then enable Beijing to seize assets – as it's already done on a handful of occasions – or exert political pressure on cash-strapped governments.

The world will need $94 trillion in investment in roads, water systems, and telecom infrastructure by 2040, according to the G20's Global Infrastructure Hub. China's Belt Road Initiative will contribute about $1 trillion in investment, according to a report from the Center for Strategic and International Studies.

Key recent developments are summarised below.

 

2023

• Italy formally withdrew from China’s global Belt and Road initiative that seeks to deepen relations with foreign countries through infrastructure investments, Italy became the first G7 country to sign on to the initiative in 2019, when the populist, anti-establishment Five Star Movement party-led government promoted it as a way of increasing trade with China while getting investments in major infrastructure projects.
• China hosted the third edition of the Belt and Road Forum. The forum, which also served as a celebration of the BRIs 10th anniversary, was a window into global perceptions of the initiative, as evidenced by which world leaders attended and it also provided a platform for China to explain its own take on the BRI, including the future of the project.
• According to the FT, for China, the BRI has won valuable overseas business for its large state-owned enterprises and strengthened diplomatic ties with the countries in the so-called global south. Those links have in turn increased China’s influence within other international organisations such as the UN and allowed it to advance President Xi’s political vision for the world. Recipient countries such found themselves able to finance projects impossible under old-style foreign bilateral or multilateral aid programmes, but critics say the projects can become a debt trap and increase the economic dependency of many states on Beijing.
• However, the BRI, so promising a decade ago, is looking worse for wear, warned GZERO. At its peak in 2018, Beijing was pumping nearly US$60 billion a year into cargo ports, railways, power plants, and much more across Africa, Asia, and Latin America, and even attracting some interest from European economies. Now, post-pandemic, the picture isn’t so pretty.
• China claims that 420,000 jobs have been created in BRI countries and 40m people lifted out of poverty thanks to BRI-generated growth. America, and many of its allies, see the BRI as far less benign: a political tool aimed at stifling foreign criticism of Mr Xi’s iron-fisted rule, claimed The Economist.
• The China Going Global Investment Index ranked 80 economies across nearly 200 indicators to identify opportunities and risk for Chinese firms and investors looking to expand globally. A decade since Xi Jinping’s Belt and Road Initiative (BRI) launched in 2013, Chinese firms have become formidable investors globally, and the flow of overseas investment is set to increase over the next decade, argued the EIU. 
• China significantly expanded its bailout lending as its Belt and Road Initiative "blows up" (according to the FT) following a series of debt write-offs, scandal-ridden projects and allegations of corruption. A study showed China granted US$104bn worth of rescue loans to developing countries between 2019 and the end of 2021. The figure for these years is almost as large as the country’s bailout lending over the previous two decades.
• Indeed, China’s $1tn Belt and Road Initiative infrastructure finance programme has been hit by spiralling bad loans, with more than $78bn-worth of borrowing turning sour over the past three years. The scheme made China the world’s largest bilateral creditor. About $78.5bn of loans from Chinese institutions to roads, railways, ports, airports and other infrastructure around the world were renegotiated or written off between 2020 and the end of March 2023.
• The FT argued that the EU should aim for its own Belt and Road.

 

2022

• El Salvador has signed onto Beijing’s ambitious Belt and Road Initiative, and China has agreed – in principle at least – to invest in a number of infrastructure projects in the Central American country, including a sports stadium, water treatment plants, and a $40 million cultural center in the capital. 
• China has forked out US$32.83 billion in emergency loans to three cash-strapped countries - Argentina, Pakistan, and Sri Lanka - since 2017, according to a study. Most of the cash went to avoid default on money owed to Chinese banks for infrastructure projects under the Belt and Road Initiative.
• China now styles itself as a near-Arctic power and is investing billions of dollars to build Arctic energy and infrastructure projects — including the world's largest icebreaker fleet — along what Beijing calls the "Polar Silk Road.” As icecaps melt due to climate change, the region will be more accessible, opening up new navigation channels and vast energy and mineral resources. 
• In 2017, China’s leader Xi Jinping proclaimed that the Belt and Road Initiative (BRI) was the “project of the century”. Now the huge programme to build infrastructure in developing countries is morphing into a financial firefighting operation on a grand scale, claimed the FT. The total value of loans from Chinese financial institutions to projects in BRI countries that had to be renegotiated in 2020 and 2021 hit $52bn, more than three times the $16bn of the previous two years. The renegotiations, which mostly involved loan write-offs, deferred payment schedules and reductions in interest rates, were necessitated by deteriorating financial conditions in debtor countries plus project-specific problems.
• Investment in Russia by China's Belt and Road Initiative dropped to zero for the first time. Although the Chinese are buying a lot more Russian fossil fuels since the invasion of Ukraine, Beijing worries that future infrastructure projects inside Russia could become exposed to Western sanctions.
• Dozens of countries in the developing world hoped to take advantage of the surge in Chinese overseas lending over the past decade under the Belt and Road Initiative - a scheme that ranks not only as Beijing’s biggest foreign policy gambit since the founding of the People’s Republic in 1949 but also the largest transnational infrastructure programme ever undertaken by a single country. However, a large number of projects have failed to yield a commercial return while the huge loans it takes to build such infrastructure can exacerbate financial pressures on vulnerable governments.
• Trade between Africa and China reached an all-time high of US$254 billion in 2021, up more than a third from the previous year, but most of the increase came from a jump in Chinese exports, which continued to dwarf Africa’s exports to China.
• China, in addition to being Africa’s biggest trading partner, is building the future of the continent’s urban landscapes almost single-handedly. In spite of rhetoric from US president Joe Biden and other leaders from wealthy countries on the urgent need to improve infrastructure on the continent, investment from those countries and international development banks has stagnated at levels far below what is needed. Between 2007 and 2020, China’s two main overseas development banks invested $23 billion in infrastructure projects on the continent, according to a Feb. 9 analysis by the Center for Global Development, a US think tank. That’s $8 billion more than what the other top eight lenders combined, including the World Bank, African Development Bank, and US and European development banks, contributed, noted Quartz.
• President Alberto Fernández signed Argentina up to the Belt and Road Initiative, hoping to secure $23 billion in investments from Beijing. Buenos Aires likely hoped this would offer more breathing room after years of painstaking negotiations with the IMF aimed at refinancing outstanding debt.
• For nearly a decade, Beijing has been investing heavily in middle- and low-income economies to boost China’s economic and political clout. The Belt and Road Initiative, one of the most ambitious infrastructure projects ever, is helping China expand its geopolitical reach and rival America’s influence in Asia, Latin America, Africa, and the Middle East. Below, GZERO looks at where China invested its yuan from 2015-21.

 

Quarter 4, 2021

• The European Commission unveiled its Global Gateways plan, which aims to invest €300 billion globally in infrastructure projects by 2027. Brussels positioned its plan as a better alternative to China’s Belt and Road Initiative. This announcement came as Beijing had been steadily upping its investment in the Global South, including a pledge to supply Africa with an additional 1 billion COVID vaccine doses until 2024, as well as doling out $10 billion of trade finance to boost African exports. 
• Further reading:
  • Clear ambition is required if Europe is to rival China’s Belt and Road - FT
• Low- and middle-income countries with infrastructure projects financed by China's flagship Belt and Road Initiative owe Beijing and Chinese banks $385 billion more than previously thought. A study claimed that its mostly state-owned companies with opaque balance sheets that are on liable for the hidden debt.

 

Quarter 3, 2021

• China made clear that it may be willing to recognise the Taliban's rule in Afghanistan if it gives Beijing carte blanche to expand its Belt and Road infrastructure development projects to Afghanistan.
• China’s Belt and Road Initiative should stop financing new coal power Ending the fuel’s use would help meet climate commitments and foster co-operation with western nations, argued the FT.
• China put pressure on Pakistan to investigate an explosion on a bus in the remote northern Kohistan region that killed 13 people - among them nine Chinese workers employed at an infrastructure project financed by China's Belt and Road Initiative. The Pakistanis initially blamed the blast on a gas leak, but a preliminary probe found traces of explosives. China is a close ally and has major investments in Pakistan, including a $65 billion economic corridor linking China's northwestern Xinjiang region to Gwadar port in southern Pakistan. In recent years, Pakistani militants - especially separatists from Balochistan - have regularly targeted Chinese infrastructure investments, but so far Beijing has not pulled the plug.

 

Quarter 2, 2021

• US President Joe Biden is pushing a new Build Back Better World plan as an alternative to China’s Belt and Road. The plan will see G7 countries invest hundreds of billions of dollars in infrastructure across Africa and South America.
• While China has been making clear efforts to clean up power creation at home, it had been assumed by some that Beijing continued to export coal power through its Belt and Road Initiative (BRI) around the world. However, report published by the International Institute of Green Finance in Beijing found evidence that coal projects were receiving less funding.
• Australia cancelled two 2018 deals signed between Victoria, Australia's wealthiest state, and the Chinese government, that committed the two sides to working together on initiatives under China's Belt and Road infrastructure development program. Foreign Minister Marise Payne said that the agreements "were adverse to our foreign relations".

 

Quarter 1, 2021

• Concerns about a looming debt crisis on the Africa continent and the questionable economic sustainability of some BRI projects have become more pressing amidst the COVID-19-induced economic contraction. 

 

Quarter 4, 2020

• China’s vaulted Belt and Road Initiative, which was touted to remake the global economy with all roads leading to Beijing, may be running out of steam. The grand project could end up leading to China’s first overseas debt crisis, and the effects across emerging markets will be powerful. Is the BRI a pipe dream and attention is moving elsewhere? Or is Beijing playing the long game, asked the FT.
• China drastically curtailed the overseas lending programme of its two largest policy banks, after nearly a decade of ambitious growth which at its peak rivalled that of the World Bank, new research indicates. Lending by the China Development Bank and the Export-Import Bank of China collapsed from a peak of $75bn in 2016 to just $4bn last year, according to data compiled by researchers at Boston University and seen by the Financial Times. The sharp retrenchment comes as Beijing rethinks its Belt and Road Initiative, the signature scheme of China’s leader Xi Jinping that finances and builds roads, railways, ports and other infrastructure in mostly developing countries.
• Further reading:
  • China-Pakistan Belt and Road Initiative hits buffers - FT
• Chinese President Xi Jinping pledged to further deepen cooperation and promote a “digital Silk Road” with Southeast Asia as Beijing moves to cement its influence in the Asia-Pacific. The commitment came just as the new US administration said it wanted to pivot towards the region and resume a leadership role.
• The US and Taiwan have announced that they will team up to develop infrastructure projects across Asia and Latin America. The plan is meant as a direct challenge to China's trillion dollar Belt and Road Initiative, which seeks to build new roads, rails, and ports in over 75 countries. For Taiwan in particular, the idea is to decrease its economic dependence on Beijing, which considers the self-governing island to be part of China. 

 

Quarter 3, 2020

• The US Treasury Department unveiled sanctions against Union Development Group, a state-owned Chinese company, for the seizure and demolition of land in Cambodia as part of a construction project associated with China's Belt and Road Initiative. Here too the economic impact will be limited, but this is the first time the US has issued this type of sanction for actions directly related to China's signature international investment and development project.
• Critics of the BRI accuse China of pursuing a policy of ‘debt-trap diplomacy’: luring poor, developing countries into agreeing unsustainable loans to pursue infrastructure projects so that, when they experience financial difficulty, Beijing can seize the asset, thereby extending its strategic or military reach. A Chatham House paper argued that the evidence for such views is limited.

 

Quarter 2, 2020

• Pakistan is trying to renegotiate Belt and Road repayments after it alleged that Chinese companies had inflated power project costs by billions of dollars. The renegotiation talks began after Islamabad released a report by a committee convened by the prime minister that accused Chinese and local power companies of “malpractices” and exaggerating costs. The financial stress caused by the coronavirus pandemic has lent the negotiations greater urgency.
• The COVID-19 pandemic and its economic fallout is having a profound impact on China’s Belt and Road Initiative (BRI) and its regional relations. More immediately, the BRI faces budgetary challenges as China’s leadership focuses its resources instead on revitalising the economy at home and maintaining social stability. Meanwhile, key regional partners of the BRI are also contending with economic crises linked to the global health outbreak, raising concerns over BRI related debts and loans. But the pandemic has also raised wider questions around China’s regional role in a COVID-affected world which will impact both the vision and shape of the BRI as it continues to evolve as China’s flagship foreign policy.
• See also: The pandemic is hurting China’s Belt and Road Initiative – The Economist
• China has started to deploy its Belt and Road Initiative (BRI) in the European Union (EU), and the EU in turn has regional and global interests that intersect with the BRI’s scope. Subject to future adjustments of China’s BRI strategy, the initiative’s potential contribution to the EU requirements for infrastructure development could be significant, even though its modalities in the EU are inevitably different from those in countries that are poorer or have more difficult financial market access. The EU’s attitude to the BRI, however, has not yet fully coalesced. Despite superficial similarities in public discourses, the EU has a profoundly distinct perspective from that of the US on the BRI, and more generally on the rise of China and its growing global influence. For the EU, the BRI generates challenges but also potential benefits.
• China received a wave of applications for debt relief from crisis-hit countries included in the “Belt and Road Initiative” as coronavirus strains the world’s biggest development programme.

 

Quarter 1, 2020

• China has proposed the construction of a "Health Silk Road" to help co-ordinate global efforts to tackle the coronavirus pandemic. During a call with the Italian Prime Minister Giuseppe Conte, President Xi Jinping said China was available "to work with Italy to contribute to international co-operation in the fight against the epidemic and for the construction of a Health Silk Road", state media reports. Similarly, during a call with the Italian foreign minister last month, the Chinese foreign minister Wang Yi had expressed hope that the "joint fight against the outbreak" would start a "Silk Road" of health care.
• However, even before the impact of coronavirus, Xi Jinping’s much-vaunted Belt and Road Project was struggling. From Kenya to Malaysia, grand rhetoric is hitting the realities of delays, cost blowouts, and ambivalent local elites. A flagship project in Gwadar, Pakistan, proved to be a particular problem.
• As a complement to President Xi Jinping’s signature Belt and Road infrastructure initiative, Beijing is pushing what it calls Global Energy Interconnection - a vision of a multitrillion-dollar worldwide electricity network. China already has a number of power lines connected to other countries, including Myanmar, Laos and Vietnam, while lines into Thailand, Pakistan and Bangladesh are under consideration.
• Now that China is edging towards a modern incarnation of the “silk road” it is worth remembering how this emblem of the ancient world actually came into being. There is no doubt that these overland trading routes existed in the early and late Middle Ages. There is also no doubt that these treks across deserts brought massively important cultural influences from the west to the east while carrying goods in the other direction. But there is another side to this tale, and it is one which the Chinese government acknowledges with its huge One Belt One Road (OBOR) transcontinental infrastructure project to link East Asia to the Middle East and Europe. Simply put, claims the World Economic Forum, the story of the silk road, ancient or modern, is as much the story of the sea as the dunes.

 

2019

• Laos’s Belt and Road project sparks questions over China ambitions.
• In The Promise and Peril of the Digital Silk Road, Chatham House explained that North Africa is expected to become home to some massive infrastructural projects, including Morocco’s Tangier Med Port and Egypt’s new administrative capital, after all of the countries in the region signed up to China’s Belt and Road Initiative (BRI). While much has been written about the physical infrastructure under the BRI umbrella, China’s ambition to extend its digital footprint in North Africa has received far less attention despite the significant economic, political and strategic implications. At the first BRI forum in May 2017, Chinese President Xi Jinping announced that big data would be integrated into the BRI to create the ‘Digital Silk Road of the 21st century’. The Digital Silk Road, also called the ‘Information Silk Road’, brings advanced IT infrastructure to BRI countries, such as broadband networks, e-commerce hubs and smart cities. The Digital Silk Road is driven by China’s tech giants, most notably Huawei and ZTE, who are able to deliver high-quality fibre optic cables at much lower costs than their European and US competitors. 
• China’s Belt and Road Initiative (BRI) is an ambitious effort to strengthen infrastructure, trade, and investment links between China and countries across Africa, Asia, and Europe. To this end, China has provided hundreds of billions of dollars in loans to sixty-seven countries to promote massive infrastructure development. To aid analysis of this important geostrategic the Council on Foreign Relations (CFR), and Benjamin Della Rocca developed the Belt and Road Tracker to illustrate how BRI has changed these countries’ bilateral economic relationships with China over time. The tracker focuses on three economic indicators for sixty-seven participant countries:
  • Imports from China, as a percentage of a country’s gross domestic product (GDP). This indicator can be used to gauge China’s success in using BRI to raise demand for its exports. 
  • Foreign direct investment (FDI) from China, as a percentage of a country’s total FDI. A greater Chinese share of FDI implies greater Chinese influence over domestic economic activity.
  • An estimate of external debt to China as a percentage of a country’s GDP. The index can be used to gauge a country’s vulnerability to defaulting on Chinese debt, an eventuality which may result in China taking ownership of infrastructure.
• China has funded more than $65 billion worth of energy projects in Latin America since 2005. That's six times the amount invested by the World Bank. The boom illustrates how China is using its Belt and Road infrastructure initiative to expand its influence around the world.
• Xi Jinping trumpeted the BRI’s progress. The Chinese president said $64 billion in deals were signed during a conference held in late April for the sprawling international infrastructure initiative. He tried to reassure critics concerned about what they see as China’s “debt-trap diplomacy.”
• Is it too late to salvage something good from the BRI, asked Prospect? China’s monumental development plan is worth more than one trillion dollars and would build transport and technology links between 123 countries. The stated aim is to forge “a shared future for humanity.” But the reality is very different. China is seeking to remake the global order in its favour, the magazine claims.
• So far, despite grand visions of “connectivity”, the BRI programme has been limited to direct Chinese investment into other countries. Beijing has yet to indicate whether it envisions a new multilateral organisation, or even a platform where international issues might be aired. “What is the Belt and Road? Is it an international institution or more of a loose structure like the G7, or is it just a forum? I think that isn’t settled yet,” said Victor Gao, a foreign affairs commentator and former foreign ministry official. He expects the BRI format to become more institutionalised in the next three to five years. But for now, he said, “there’s no overeagerness to set up a permanent body”.
• More than 30 world leaders attended a gathering in Beijing to discuss the BRI global infrastructure investment programme, which has been blamed for funding huge projects that leave countries in debt. Malaysia, which got China to slim down plans for a railway project while maintaining momentum on tech tie-ups, could be a sign the plan is evolving.
• What many see as a big economic danger of the BRI is that it will saddle poor countries with unmanageable debts. China insists that its tens of billions of dollars in loans and investments are fostering global prosperity, but worries about the cost of the BRI, a project closely linked with President Xi Jinping’s foreign policy, have become widespread. Malaysia, Pakistan and Sierra Leone are among a growing list of countries that have delayed or scrapped China-led projects.
• Further reading: BRI is opening up a new fault line in Europe.
• Italy became the first G7 country to formally endorse China's Belt and Road global investment plan. Italian officials hope to draw Chinese investment into Italy's aging infrastructure and open Chinese markets to more Italian-made products. EU and American officials fear that Chinese investment will leave Italy dangerously deep in debt. (Italy is already the second most indebted country in Europe, after Greece.) They also worry that Italy's endorsement for Belt and Road will undermine their ability to present a united front when bargaining with China over trade and investment practices, noted GZEROMedia.
• The Belt and Road initiative, which already includes some 80 countries, is a centrepiece of President Xi Jinping's plan for China to "take centre stage in the world". Until now, the that strategy has focused primarily on Africa, Asia, Latin America, and smaller countries on Europe's fringes – but if Italy signs on, it would be the first G7 country to join. That would mark a major new milestone in Beijing's global rise.
• Brussels and Washington don't like it at all, according to GZEROMedia, because they fear that if Italy takes loans from China it could end up in a dangerous web of debt that exposes it to pressure from Beijing. After all, Italy is already Europe's second most indebted country, and unlike much smaller economies like Greece, a systemic crisis there could unravel the entire Eurozone. However, Italy went ahead despite the warnings from the US and NATO allies that it will strengthen Beijing’s hand. Italian deputy prime minister Luigi Di Maio told CNBC the deals signed - worth $2.8 billion - were “nothing to worry about.”
• At the World Economic Forum in Davos, delegates held a session on Advancing the Belt and Road Initiative: China’s Trillion-Dollar Vision.
• Five years after its launch, the Bruegel thinktank reflected on China’s Belt and Road Initiative. The plan to revive ancient trade routes has the potential to enhance development prospects across the world and in China, but that potential might not be realised.
• Malaysia scrapped a $20 billion China-backed rail project. An economic affairs official said the cost of the East Coast Rail Link project was “beyond the government’s financial capability,” noting the high interest rates involved. The project was part of China’s Belt and Road Initiative—and, critics say, its “debt-trap diplomacy.” 

 

2018 and earlier

• In 2013 China launched its flagship economic project, the 'Belt and Road Initiative' (BRI). In the five years since the initiative has rapidly expanded trade and infrastructure relationships between China and 88 countries in Eurasia and Africa, covering over 60% of global GDP. Chatham House spoke to its Asia-Pacific Programme's research fellow to find out more.
• Then, in its China and the Future of the International Order - The Belt and Road Initiative podcast, Chatham House discussed business and human rights issues in relation to China's Belt and Road projects, particularly in the context of labour and environmental rights.

 

November 2018

• US vice president Mike Pence announced a US-driven private-sector model at the Asia-Pacific Economic Cooperation meeting in Papua New Guinea, aimed at combating Beijing’s international investments - in a sense a Belt-and-Road rival.  US-China relations have been fraught in this week’s Asia gatherings, with Pence continually condemning China’s business moves.
• Further reading:
  • China’s Belt and Road hits problems but is still popular - FT
  • China's Belt and Road Initiative – Chatham House

 

October 2018

• Pegged as the most ambitious infrastructure megaproject of all time, China’s One Belt, One Road initiative (OBOR) will stretch from the very edge of East Asia to East Africa and Central Europe, connecting nearly two thirds of the world’s population. Through continuous networks of highways, railways, ocean routes and ports, the scheme will open up cross-border connectivity and encourage a further integration of international markets, reported Raconteur.
• GZEROMedia noted that President Trump quietly signed a bill that will expand US foreign aid to countries in Africa, Asia, and the Americas by $60 billion. The bill, which creates a new foreign aid agency that will provide loans to companies operating in developing nations, is seen by many a deliberate move to counter China’s expansive One Belt, One Road initiative, which aims to deliver $1 trillion in infrastructure investment.