By TIPP EDITORIAL BOARD, TIPP Insights

As Chinese President Xi Jinping prepares for an unprecedented third term in office, one wonders what the fate of the centerpieces of his foreign policy – the Belt and Road Initiative (BRI) – will be.

Announced with much fanfare in 2013, the ‘belt’ denotes a land network of roads and railroads connecting Chinese manufacturing hubs to markets across Eurasia. The ‘road’ refers to sea routes connecting major Chinese ports to others in Asia, Africa, and beyond. Augmented transport connectivity was to facilitate the easy movement of Chinese goods to South East Asia, the Gulf Countries, North Africa, and Europe. According to official sources from Beijing, the colossal initiative was meant to strengthen regional cooperation.

World’s Largest Official Creditor

BRI was touted as an infrastructural development opportunity for developing nations and a means boost to international commerce. It was a vehicle for President Xi’s plans to make China the trade and transport center. It is believed that the country has loaned and spent about $1 trillion in its efforts to become the lynchpin of world trade. It is estimated that close to 150 countries have received funds or loans in the name of BRI projects.

But, much has changed in the decade since developing nations signed on the dotted lines hoping to improve basic amenities and modernize their infrastructure. Many warnings and troubles foretold by international financial institutions, analysts, economists, and Western nations have come true.

Covert Cost

Often dubbed “debt-trap diplomacy” by the West, many mega infrastructural initiatives have bought little comfort to the local population. Simultaneously, such colossal borrowing has driven governments into deep debt, sometimes even jeopardizing the foundations of their economies.

ADVERTISEMENT

Pandemic-induced growth slumps, record inflation rates, and rising interest costs have brought many nations to default on their loans to Beijing. Many see the hand of Chinese lending practices in the collapse of Sri Lanka, Pakistan asking IMF for a bailout, and the precarious condition of Zambia.

Cost To China

It is not just the borrowers who have risked their financial health. Data suggests that about 60% of Beijing’s overseas lending is to countries considered to be in financial distress. Just a dozen years ago, the risk exposure was just 5%. Once dubbed the “project of the century,” President Xi’s magnificent vision could buckle China’s lending institutions.

Bowing to international pressure and faced with the prospect of a global economic slowdown, China finally joined the Common Framework. Based on similar principles as the Paris Club (which Beijing is not a member of), the group of large creditor nations, endorsed by the G-20, helps coordinate debt negotiations. Loan restructuring has given many countries breathing room and ensured that BRI loans would not become a total loss for some of China’s biggest foreign lenders.

Course Correction

Prolific lending has upped China’s clout among developing nations. It has helped Beijing gain support at international forums and sign strategic security pacts. Even as China once again gears its economy towards the domestic market, it is doubtful that the BRI will be scrapped for good.

But, the Chinese real-estate bust, sluggish production, and a shrinking economy are major troubles ahead of President Xi. Future Chinese investment may take a different route under President Xi 3.0. Public-private partnerships, lower interest rates, and a close working relationship with international lenders are on the cards.

ADVERTISEMENT

The scale of the BRI may be reduced without much fanfare. But, huge, risky investments in hostile and unstable nations for projects with a long turnaround schedule may be a thing of the past. For as long as it serves President Xi’s agenda of regional dominion, projects that boost multilateral cooperation in China’s backyard are expected to continue.

Neither Beijing nor President Xi will likely admit that his grandiose BRI plans were unwise. But, policymakers have begun to reshape and restructure the project to ensure that the Chinese lenders are no longer overextended.

READ MORE BY TIPP INSIGHTS

Comment

We have no tolerance for comments containing violence, racism, profanity, vulgarity, doxing, or discourteous behavior. If a comment is spam, instead of replying to it please click the ∨ icon below and to the right of that comment. Thank you for partnering with us to maintain fruitful conversation.