When the history of
China’s Belt and Road Initiative (BRI) is written, it is unclear how much there will be to say that
is positive. After spending more than $1 trillion to build a network of
infrastructure projects across emerging market countries designed to connect
large portions of the global economy to Beijing, cracks are beginning to form.
Funding is drying up, existing projects are falling apart, and receiving countries
are drowning in debt.
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This is leading some nations to rebel openly
against Chinese influence in their backyards. Given the softening global
economic outlook, it is time to ask some hard questions about the future of the
BRI and how China might pivot its foreign policy efforts in the near future to
cover over BRI’s endemic challenges.
The promise of emerging markets
From its origin, the BRI was a vehicle for
extending Chinese influence across emerging markets from Asia to South America.
In the mid-2010s, when the BRI gained real momentum, the collective economic
narrative was one of irrational hope for emerging markets. From the World
Economic Forum to the pages of the financial press, emerging markets were
heralded as the next great economic miracle. Greater connectivity through
smartphones and aviation links gave hope that a new middle class would arise
from Kenya to Kazakhstan. Buoyed by fast urbanization and even faster birth
rates, this middle class would propel the global economy to new heights.
The BRI was the “project of the century”, in the words of Chinese President Xi Jinping, that would reshape the global order with China at the center.
As the world superpower closest to these
population centers, China moved quickly to insert itself into these changing
economic tides. Beijing was eager to connect these new hives of economic
activity to the Chinese economy through the deployment of infrastructure
programs, cheap loans, and technology partnerships. TikTok, the viral Chinese
social media application that has taken the world by storm, has arguably been
an arm of this expansion. The BRI was the “project
of the century”, in the words of Chinese President Xi Jinping, that would
reshape the global order with China at the center.
The flaws in the plan
This was all possible in an era of cheap money
spurred by low-interest rates and blockbuster Chinese economic growth, but the
picture is gloomier now. The Chinese economy is struggling to regain its
incredible growth rates in the face of a global economic downturn and continued
restrictions from the COVID-19 pandemic. Complicating matters is anger from
several countries over the quality of their BRI projects.
The breakdown in BRI projects is adding fuel to claims that China has engaged in predatory lending practices that have contributed to debt crises in places like Sri Lanka
The Wall Street Journal recently
reported on several BRI projects from Ecuador to Zambia that have experienced
severe construction flaws. Ecuador’s $2.7 billion Coca Codo Sinclair
hydroelectric project is a prime example. Thousands of cracks have emerged in
the Chinese-built plant, which could knock the entire thing offline. As one of
the largest sources of power in Ecuador, fixing the plant could drive the
country deeper into debt.
The breakdown in BRI projects is adding fuel to
claims that China has engaged in predatory lending practices (known as
debt-trap diplomacy) that have contributed to debt crises in places like Sri Lanka. Other critics have said
that the breakdowns confirm that China moved too aggressively in building
projects that were often mismatched for a country’s existing infrastructure or
excessively damaged the environment.
The initiative’s revamp
Last year, the Chinese government quietly made
some changes to the structure of the BRI. Dubbed Belt and Road 2.0 in internal
discussions, Chinese policy markets agreed to evaluate new projects more
rigorously and allow for debt renegotiations, which was a red line previously.
The changes will likely continue if the global
economy enters a prolonged recession and projects fail. Economists Sebastian
Horn, Carmen Reinhart, and Christoph Trebesch quoted in the Wall Street Journal that
countries in financial distress hold nearly 60 percent of China’s overseas
loans. This is compared to just 5 percent in 2010.
The BRI is too large to disappear overnight but it is going to have to rapidly change.
As the BRI continues to buckle, China’s top
leaders are refocusing their foreign policy goals with a new push in the Middle
East. One of China’s long-term foreign policy objectives is breaking up the
dollar-dominated oil trade so that oil is bought and sold in other currencies.
To that end, Chinese companies have invested
handsomely in oil-producing countries. China even made a bid to take a significant stake in Saudi Aramco. The Chinese
president recently traveled to the Gulf and held the first China-Arab Summit in
Saudi Arabia, in which Beijing pledged deeper economic
cooperation across various sectors. The real focus was on oil and
guarantees for more Chinese imports of Middle Eastern crude.
The BRI is too large to disappear overnight but
it is going to have to rapidly change. As the cheerleaders of emerging market
economies quiet down, China is quietly recasting its foreign objectives away
from poorly built projects in debt-laden countries toward areas that promise
real return. Breaking the dollar-dominated oil trade is one such area. Expect
to see Chinese leaders around the Middle East much more in the coming years.
Joseph Dana is the former senior editor of
Exponential View, a weekly newsletter about technology and its impact on
society. He was also the editor-in-chief of emerge85, a lab exploring change in
emerging markets and its global impact. Twitter: @ibnezra
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