By Abigail Li
On November 28, a symposium was held in Brussels to celebrate the 10th anniversary of China’s Belt and Road Initiative (BRI). The attendees heralded the successes and positive impacts of BRI. Wu Gang, an official from the Chinese Embassy in Belgium, lauded the BRI as “the most popular international public good and largest international cooperation platform in today’s world.”
This positive endorsement begs the question: ultimately, how successful was the BRI, and what outlook can we expect for the BRI in the next ten years?
While the BRI has achieved some successes and correlates with positive impacts in developing countries, it has also had its share of failures and challenges for developing nations. Transitioning into another era of economic development, China plans to pivot the BRI towards smaller and “greener” projects. Still, the considerable geopolitical competition between China and the West clouds its future.
One of the most significant successes of the BRI has been its contribution to infrastructure development in many countries. The BRI has funded the construction of thousands of kilometers of roads, railways, and ports, thereby improving connectivity and facilitating trade between countries. For instance, the BRI-funded Mombasa-Nairobi Standard Gauge Railway in Kenya has significantly reduced travel time between the two cities and boosted economic activity along the route.
At the symposium in Brussels, Bart Dessein, a professor at the University of Gent, pointed out that the BRI’s 3,000 projects had resulted in the creation of 420,000 jobs globally. Bernard Dewit, Chairman of the Belgian-Chinese Chamber of Commerce (BCECC), praised BRI for aiding countries in developing more rapidly and stated: “It has been a success, and that is the reality.”
The BRI has also significantly promoted economic cooperation and cultural exchange between China and other countries. The initiative has fostered partnerships in sectors such as trade, investment, technology, and education. For example, the BRI-sector-supported China-Pakistan Economic Corridor has facilitated joint ventures in energy, infrastructure, and agriculture between the two countries.
Although there is evidence to suggest that the BRI has been beneficial for some developing countries, it has also faced criticism for its potential to create “debt traps” for those countries. Massive Chinese loans finance many BRI projects, and some countries have struggled to repay these loans. Sri Lanka, for instance, handed over control of the strategic Port of Hambantota to China in exchange for debt relief in 2018. However, the Foreign Policy article “Chinese Belt and Road Investment Isn’t All Bad—or Good” by Nilanthi Samaranayake took a balanced approach, underscoring that although China was not solely to blame, it wasn’t blameless either. Samaranayake noted that Sri Lanka’s debt troubles predated the China BRI partnership and that many of its economic challenges resulted in a greater part from a “middle-income trap” than a Chinese debt trap. On the other hand, China and its state-owned enterprises created an unfavorable situation for Sri Lanka. Chinese negotiators pushed for an excessive 99-year lease to the operation of Hambantota port with a country in desperate economic straits.
Another case study of the “debt trap” due to China’s BRI is Laos. According to the International Monetary Fund (IMF), Laos’s debt stands at 123% of GDP as of 2023. Laos owns more than half of this debt to China, which funded several of its large infrastructure projects. According to Mariza Cooray, a senior economist with the Indo-Pacific Development Centre at the Lowy Institute whose work modeled Laos’ near-term economic prospects, “Laos’ debt crisis is a lot bigger than the world realizes…That’s partly because of the incredible level of opacity, and the poor quality of the statistics and information being disseminated.” In other words, how China has leveraged the large debt owed by developing countries to achieve its geopolitical goals is often shrouded in secrecy, which may hide the accurate scale of the problem globally and increase the Western superpowers’ concerns about China’s influence.
Even defenders of BRI admit that there is potential for greater transparency. Albert Muchanga, head of trade and industry for the African Union Commission, expresses that “I think there’s an acknowledgment that if we [China] demonstrate greater transparency, I think some of the allegations [of the debt trap] that are made may not be well founded.” Although developing countries may owe China a massive amount of debt, according to the U.S. research firm Rhodium Group, $76.8 billion of Chinese overseas loans were renegotiated or written off between 2020 and 2022, compared with just $17 billion in the prior three years.
Three additional areas of concern and criticism leveled at BRI are corruption and harmful environmental and social impacts. According to the United States Institute of Peace (USIP), a “2021 study by AidData found that 35% of BRI projects have faced challenges on the grounds of corruption, excessive debt or labor exploitation.” Carla Freeman from the USIP added that “Corruption has plagued numerous Chinese projects in BRI countries, many of which are in countries where large-scale infrastructure projects are particularly prone to being exploited by corrupt officials.” In terms of BRI projects’ environmental impacts, some of these projects “have opened sensitive environmental areas to development increasing biodiversity loss while dams and other changes to water flows are putting new pressures on critical water resources.” China has exported some of its most unfriendly climate technology through BRI projects. Finally, some BRI projects have had negative social implications. Freeman believes that many BRI projects lack adequate planning, cause social displacements, and raise other human rights concerns, including the violation of local labor laws.
Samaranayake conveys that for US policymakers, the main concern is not entirely about the fairness of China’s loans but the extent to which friendly developing countries may fall into China’s orbit. She urges the US to pay closer attention to the domestic structural and economic factors in the developing countries that are causing them to look to China’s BRI for help with infrastructure developments. In many ways, China’s BRI has pushed the United States and its Western allies to pay more attention to developing countries in Africa and other parts of the world.
When asked whether Western countries were drawn to develop stronger relations with African nations in competition with China, Muchanga acquiesced, declaring, “Well, they are reacting to it, which is good.” One recent example of how the US and its European allies are countering China in Africa is evident in President Biden’s September 9th announcement of US support of the African railway development in the Lobito Corridor in partnership with the EU. This initiative seeks to improve the distribution network between Angola’s port of Lobito and Zambia and the Democratic Republic of the Congo (DRC), which are two inland countries that are rich in mineral resources.
Despite its many challenges, the BRI is likely to continue to be a major driving force in global infrastructure development in the years to come. However, the BRI’s future success will depend on whether it can address some of the concerns and challenges leveled against it. At the recent BRI forum on October 18th, Chinese President Xi Jinping announced eight new strategic objectives for the BRI, several of which sought to address some of these concerns. The Chinese government seeks to pivot BRI to “smaller,” “greener,” and “high-quality” projects. Smaller projects mean less debt for developing countries, and greener projects will improve environmental impacts. In an attempt to combat corruption, one of the eight goals is to have better monitoring of companies’ compliance standards and improve transparency. At the forum, China announced $97.2 billion of signed investment deals, as well as an additional US$47.8 billion financing pledge from Chinese development banks.
While 23 national leaders attended the BRI summit in Beijing, Philippine President Ferdinand Marcos Jr did not. “In a major development with geopolitical implications, the Philippine Department of Transportation has announced the full termination of a series of big-ticket infrastructure projects with China in favor of Japanese and Western rivals.” This gesture marks a new low in Philippine-China relations. According to the Asia Times article, “China has largely engaged in “pledge trap” diplomacy during the Duterte administration, a cynical ploy that entailed forward-deployed concessions in the South China Sea in exchange for largely illusory investment pledges. China pledged as much as $24 billion in infrastructure projects under Duterte, nearly none of which have been delivered.”
In addition to geopolitical tensions affecting various developing countries’ views towards BRI, China’s domestic economic challenges may also impact BRI’s future success. China’s foreign exchanges are flat, which are needed to help fund new BRI projects. President XI has given a directive for BRI projects to raise their investment returns. Chinese economic growth, which saw a slowdown in 2010, encountered further deceleration after 2017. This economic indicator negatively impacts BRI projects because “the enormous expansion of China’s export-led economy is what drove much of the rise in global trade since the 1990s. Lower Chinese economic growth, coupled with China’s long-awaited shift to a more consumption-led economy, is likely to temper global trade. That, of course, would bode ill for BRI infrastructure projects in developing countries that need higher trade volumes to meet their debt obligations.”
The Belt and Road Initiative (BRI) has a profound impact on business, primarily through its significant contributions to infrastructure development across Asia and Africa, with notable implementations in countries like Kenya. By focusing on constructing essential infrastructure such as highways, airports, seaports, and railway linkages, the BRI has created a more interconnected regional economy and facilitated smoother and more efficient trade routes. This enhanced connectivity boosted local economies and opened up new business opportunities by improving market access and reducing transportation costs. Projects like the Nairobi-Mombasa railway in Kenya and the China-Pakistan Economic Corridor highlight the initiative’s role in enhancing economic integration and connectivity. Such developments have served an instrumental role in attracting foreign investment, promoting regional trade, and fostering a conducive environment for business growth. However, these ambitious infrastructure projects also bring challenges, including navigating the complexities of large-scale developments in diverse political and economic landscapes. Nevertheless, the overarching influence of the BRI on business is characterized by fostering economic growth, enhancing regional trade, and opening up new markets for businesses operating within these regions.
Arguably, the biggest challenge to BRI is borne out of the rising geopolitical tensions between China and the United States. At the G20 summit in September 2023, the US and its allies revealed an ambitious plan to create an economic corridor linking India, the Middle East, and Europe. According to an article by the Council on Foreign Affairs (CFR), President Biden’s announcement of the India-Middle East-Europe Economic Corridor (IMEC) counters the growing influence that China has gained through BRI. “This reflects a recognition in Washington that even though BRI has encountered serious setbacks, Chinese leader Xi Jinping’s signature foreign policy undertaking is not going anywhere. In addition, even a stumbling BRI poses significant challenges to the United States.”
Although the Lobito Corridor and the link between India, the Middle East, and Europe will generate significant benefits in supply chain security and resilience, economic growth and promote trade among U.S. partners, there are important geopolitical motivations for IMEC. According to the CFR article, “At the same time, the new corridors’ geopolitical motivations are hard to miss. If the Lobito Corridor is able to increase the production and trade of critical minerals such as copper and cobalt, it will decrease reliance on China for the electric vehicle supply chain. IMEC can be seen as an effort to respond to Saudi Arabia and the UAE’s tilt toward China, facilitate economic integration between Israel and the Arab world, and promote an alternative to Russian energy supplies.”
As we head into 2024, what is the likely impact of China’s BRI on businesses globally? BRI will continue to help accelerate the infrastructure development in Africa and Asia, which helps to generate economic growth. However, China’s pivot towards “smaller” and “greener” projects should have a positive impact on the renewable energy sector globally. According to Rebecca Ray, Senior Academic Researcher, at Global China Initiative, “China’s newly announced Green Investment and Finance Partnership (GIFP) paves the way for Chinese investors and lenders to support partner countries in project development.” President Xi announced that GIFP would invest $100 billion annually in green projects. In comparison, since 2013, when BRI was announced, China invested $55.4 billion in fossil fuel projects, $20 billion of which was for coal-fired power generation. Cecilia Springer, Fellow at the Global China Initiative, believes China could help accelerate the clean energy sector more broadly: “The financial might and technical know-how of Chinese DFIs stand ready to foster a green transition abroad, especially within the frameworks of its Belt and Road Initiative and the Global Development Initiative. It is also important to note that Chinese companies have provided more support for overseas renewable energy than its DFIs, in the form of foreign direct investment amounting to 12 GW of installed renewable energy capacity…[GIFP] will provide financing for the critical early stages of projects, which are often a huge hurdle for renewable energy projects, including feasibility studies, technical support, risk analysis, debt sustainability analysis, and proposal design.”
While China’s Belt and Road Initiative played a significant role in accelerating the economic growth of many developing countries, it has also saddled some of them with massive debt. Overall, it has led to drastic negative environmental and social impacts. The future success of BRI will depend on whether or not China can address some of the concerns about the “debt trap,” corruption, and environmental impact. Furthermore, a significant factor in its success could be determined by China’s desire and ability to reduce the geopolitical tensions between China and the United States and its European, Asian, and ANZ allies. If the geopolitical tensions continue to increase — due to China’s actions towards Taiwan and in the South China Sea — the US and its allies will continue to increase efforts on IMEC and launch other initiatives to counter China’s global influence.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.
Image By: One Belt One Road Initiative of China: Implication for Future of Global Development January 2018 Modern Economy 09(04):623-638