China’s Belt and Road Is Getting a Reboot. Here’s Why

_ Hong Kong, 14 August 2019.

By many accounts, China’s Belt and Road Initiative has been a monumental success: Since 2013 more than 130 countries have signed deals or expressed interest in projects geared to spurring trade along routes reminiscent of the ancient Silk Road. The World Bank estimates some $575 billion worth of railways, roads, ports and other projects have been or are in the process of being built. But President Xi Jinping’s signature effort has also come in for criticism including charges that China is exploiting poor countries — luring them into debt traps — for its own political and even military gain. The mixed reviews abroad and worries at home about the cost have led China into something of a rethink as it tries to increase transparency, improve project quality and bring in deep-pocketed partners who can share the risk.

1. Where are the problems?

At least seven countries have run into trouble with Belt and Road projects or had a rethink, often after a popular backlash, change of government or both. Complaints include corruption, padded contracts, heavy debt loads, environmental damage and a reliance on imported Chinese labor over local hires. Some examples:

  • Sri Lanka borrowed heavily to build a new port, couldn’t repay the loans, and then gave a state-owned Chinese company a 99-year lease in exchange for debt relief. The port has little business now but provides China a strategic berth along key shipping lanes.
  • Projects along the $62 billion China-Pakistan Economic Corridor have been slimmed down due to Pakistan’s long-running debt problems.
  • Myanmar drastically scaled back a port deal struck under its previous military regime, to $1.3 billion from $7.5 billion.
  • A new Malaysian government canceled $3 billion worth of pipelines and renegotiated a rail project in 2019, cutting that one’s cost by a third to $11 billion.
  • Leaders in the Maldives are seeking debt relief amid allegations of large-scale graft connected to BRI projects under the previous government.
  • In June 2019 a court in Kenya halted construction of a Chinese-backed power plant on Lamu island, a major tourist destination, and ordered a new environmental-impact assessment.

2. What’s changing?

At a high-profile forum in April 2019, Xi signaled that the Chinese government would exert more control over BRI projects and tighten oversight. Rather than boasting about the initiative’s growth, as he did at the previous forum in 2017, he focused on steps China is taking to clean up its image, urging “higher quality” and “greener” projects and vowing “zero tolerance” for corruption. State-owned-enterprises, by far the biggest investors in BRI projects, are being told to beef up auditing and increase supervision for their overseas units and personnel. The government has been drafting rules for use of the BRI label to try to better protect its reputation. And the Communist Party’s propaganda machine has turned down the volume. The People’s Daily, a party mouthpiece, launched two new columns and a special edition in the run-up to the first BRI forum. One government official described that campaign as having been too aggressive. Around the 2019 forum, the newspaper ran only about 10 articles in its regular pages.

3. Is China serious about change?

Signs of a more cautious approach have emerged — at least around its debt exposure. China has withheld some $4.9 billion in new loans for a major rail project it had been building in eastern Africa. The line was supposed to run from the Kenyan port city of Mombasa to Uganda and beyond, but only the stretch from the coast to Nairobi is done. China balked at funding the extension amid concerns that Kenya was at risk of debt distress. Revenue from the railway is supposed to repay the initial $3.6 billion loan, but critics say it won’t turn a profit for a long time. RWR Advisory Group, a Washington-based consulting firm, reported that the Export Import Bank of China backed out of providing financing for a giant solar project due to the Zimbabwean government’s legacy debts.

4. Is the reboot convincing anyone?

Italy in 2019 became the first Group of Seven country to sign a memorandum to join the BRI, despite pressure from many of its European Union partners and the U.S., providing a public relations coup for Beijing. After six years of wrangling, Russia quietly approved its first project designed specifically for the BRI: a toll road linking China’s western neighbor Kazakhstan with Belarus, which borders Poland and two other EU members. The second BRI forum attracted about three dozen world leaders, more than the first. Still, Asian powerhouses Japan and South Korea stayed away, as did the U.S. and the three biggest European economies: Germany, the U.K. and France.

5. What else is China trying?

It’s trying to woo skeptics with a framework dubbed third-party market cooperation, which is basically an agreement to consider working together on specific infrastructure projects without actually endorsing the BRI. China hopes such partnerships will give it access to Western technology and expertise, reduce financial risks and dispel allegations that China is just trying to expand its influence. Japan, Australia, France, Singapore, Spain, the Netherlands, Belgium and Austria have signed the third-party pacts. But apparently not much has come from it. A 2018 reportby the Center for Strategic and International Studies found that of all the contractors participating in Chinese-funded infrastructure projects, 89% were Chinese companies, 7.6% local and just 3.4% foreign, “third-party” companies. Impediments to the participation of multinational companies include the absence of open tenders, standardized contracts, transparent procurement rules and anti-corruption safeguards.

6. What’s the bigger picture?

Compared to 2013 when the BRI was first introduced, China is facing a more difficult economic environment. Its growth has slowed to the weakest pace since at least 1992. Chinese policy makers are leaning toward more spending on domestic infrastructure projects to stimulate the economy, which can restrict the funds available for lending abroad. At the same time, geopolitical uncertainties are on the rise, most notably persistent tensions over trade and other issues with the U.S. But China has other reasons for pressing ahead that remain strong, including a desire to better integrate and develop its remote western provinces, and to diversify routes for energy imports.

7. How much has been spent?

It’s difficult to pinpoint, even for authorities in Beijing. Chinese companies had directly invested more than $80 billion in Belt and Road countries through the end of 2018, according to an official tally. But that doesn’t include money from China’s policy banks and other state-owned institutions such as the Silk Road Fund, which focuses on equity investments, or from other partners. The World Bank in 2019 counted $575 billion worth of BRI investments, most of which were still in the construction or planning phase. Almost half the total was in energy and a quarter in transport.

Source: https://www.bloomberg.com/

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