The Belt and Road Initiative (BRI, B&RI) is the most ambitious project of the People’s Republic of China in their “100-year marathon” for creating a new world order. Adopted in 2013, the BRI happens to be a global development strategy that involves massive infrastructural projects linking five continents through land and sea corridors.
The value that this initiative holds to China was evident when it was inserted into the constitution of the Communist Party of China and has been the flagship foreign and economic policy of President Xi Jinping since then. However, the year 2020 brought with itself a pandemic that has virtually changed the global scenario on many fronts, and unfortunately for China, it was the birthplace of the virus COVID-19. Quite obviously this had to have repercussions on its not so infant BRI.
The Magnitude Of The Belt And Road Initiative
China’s BRI umbrella extends over 138 countries including 38 Sub-Saharan countries and 18 in Latin America. By early January 2020, some 2951 BRI-linked projects valued at $3.87trillion were planned or underway across the world. This gives us an idea of the enormousness of this initiative. The aim here is to create a massive network of rail routes, super-highways, energy pipelines, and maritime sea routes through a chain of seaports across the world.
Such a network would act as a release point for the overwhelming capacity of the Chinese construction companies that are desperately looking for markets overseas. China hopes to increase the international use of its currency by offering to finance many of the projects in developing and under-developed countries. It has also been argued that this initiative would help China to take a giant leap forward towards President Xi’s ambitious “Made In China 2025” economic development strategy as means to counter U.S. economic hegemony in the world.
What Are The Complications That Come With This Initiative?
Usually, when a country signs a memorandum of understanding (MoU) with Chinese entities stating that so and so the project is a part of the BRI, it gains access to finances from state-run banks of China, Chinese contractors and suppliers eager to utilize their excess capacity. It has been one of the highly criticized points of this initiative.
Finances offered under the BRI are low-interest loans and not aid grants. The process of tendering is also opaque and only Chinese firms end up getting the work. Many countries realize, but not until it’s too late, that they are way deep into loans than they cannot afford to pay back. There have been many examples where Chinese entities took over the ownership of certain projects due to financial failures faced by partner countries. For example, Sri Lanka offered 70% ownership of their Hambantota Port to a Chinese state-owned firm for a 99-year lease after it was unable to service loans used to build the $1.3 billion strategic Indian ocean port.
Effects Of The COVID-19 Pandemic On BRI: Who Will Pay The Bills?
Rattled with controversies for the BRI, China had to deal with the outbreak of the COVID-19 virus. It has been repeatedly said that life is going to be different in the post-pandemic era. One thing that this pandemic has exposed in these unfortunate times is how global interconnectedness gets compromised when countries panic en masse. Keeping in mind the fact that BRI’s survival depends on interconnectedness, it’s not difficult to conclude that surviving the storm is going to be arduous for this initiative.
Many experts have pointed out that it is going to be very burdensome to continue the funding. The question here arises on who is going to pay the bills. China, the prime financier of projects, has already been reeling with a slow growth rate. The pandemic brought with itself large scale lockdowns that severely affected their domestic industries.
With the spread of the virus in the US and Europe, exports from China are also facing a deficit in demand abroad. The COVID-19 crises will surely force the Chinese govt. to focus more on their domestic economy first and then look out towards the world as a superpower. They are going to need a strong reason for diverting cash to BRI projects from the domestic economy’s revival.
As countries are closing their borders, ordering lockdowns, and shutting down non-essential services all across the planet, restrictions on the movement of workers and construction supplies from China has led to a virtual standstill for almost all of the BRI projects. Many recipient countries that earlier bellowed accusations of high project cost and predatory loan practices, now had other concerns like diverting their precious resources in their fight against the pandemic. Therefore, spending on health care systems is finding more importance than infrastructural needs in ongoing times.
Several projects in Pakistan, Indonesia, Sri Lanka, Malaysia, and Cambodia have been stalled due to lockdowns, according to Simon Leung, a banking and finance partner at a law firm, Baker McKenzie.
“Drop-in export revenues, coupled with increasing domestic spending as a result of the outbreak, have led to a significant depreciation of the local currency and in turn adversely affected the ability of borrowers to meet forex-denominated debts owing to Chinese banks,” said Leung in context of the stimulus packages being announced by countries. China might have to write off massive loans owed by certain countries due to the inability of payment.
BRI In A Post-Pandemic World
The world today is in a very precarious position. Many countries are angered with China for the outbreak and inadequate access to details on the origin of the virus. Along with these many recipients, countries are not in a position to divert resources and repay the debts simultaneously while fighting the virus. It is also an accepted fact that China will no longer be able to provide loans like earlier due to domestic financial constraints.
However, it would be very immature to say that this pandemic will derail the BRI to its end. The Belt and Road initiative continues to be the most important policy of China in its drive to become a superpower. This initiative is also very close to President Xi’s legacy and was a big reason for his rise to power. The first half of 2020 will see a stalemate in BRI’s move forward but will not trickle its growth.
The road to recovery would begin with the repair in reputational damage caused to China by COVID-19. Undertaking the “mask diplomacy” and supplying essential medical equipment to countries in need is a start. By the time world starts recovering from the pandemic, China is bound to make changes to the China-centeredness of this scheme.
The “Health Silk Road” part of BRI can be exploited by China during this time by portraying it as China’s contribution to fighting the pandemic by sharing their experience in controlling it. Similarly, the “Digital Silk Road” aspect of the BRI is another thing China can focus upon. With social distancing becoming the new normal and work from home is encouraged, people and entities getting more and more digitally connected are becoming a necessity.
It is going to be a real test for China to overcome an environment increasingly becoming one of doubt and suspicion. The Belt and Road initiative, still being their paramount strategy, may turn out to be the face of a less aggressive but more opportunistic China.