The Belt and Road turns 10
中国「一帯一路」 北京で国際会議
中国「一帯一路」 北京で国際会議

Happy Birthday

A few weeks ago, Beijing hosted the third Belt and Road Forum to mark the 10 year anniversary of Xi Jinping’s signature geopolitical project.  The forum had 22 heads of state and representatives from 140 countries but many of the delegates were relatively low-level government officials or simply media from some countries.  22 heads of state may sound impressive although that is 14 less than the last BARF held in 2019.

The shorthand description of the BRI tells of nearly a trillion dollars of infrastructure projects across 150 countries linking China to the world.  So after 10 years of the program it is worth asking if it has been successful?  Has the BRI lived up to its goals?  How has it changed over the decade? And what is one to make of the significant fall in attendance by world leaders?

Answers to those questions can be surprisingly difficult because the entire BRI project has never been well defined in the first place, even the name is somewhat misleading.  The BRI is often presented as a modern-day version of the ancient silk road, a term which was first used by a German in the late 19th century to describe the network of trading routes across central Asia connecting dynastic China to the Middle East and Europe.  Yet the road of the BRI describes not land connections but maritime routes, with the belt being shorthand for the economic belt of rail and road connections across the Asian heartland.  BRI isn’t even the name originally used to describe Xi’s project, a decade ago it carried the rather clumsy name, One Belt, One Road or OBOR as being a direct translation of the China characters 一带一路.  It also wasn’t as if this was the first time China had gone global with investments.  For at least a decade before Xi starting talking about the BRI China had been making infrastructure investments in a slew of developing countries with a patchy record of success.  Those earlier projects were brought under the umbrella slogan of the BRI but it often was never clear what constituted a BRI project.  What was distinct about the past 10 years of activity is that countries now formally sign a MOU with China in the name of the BRI.  Those MOU could often be rather vague on details and more worrying were often kept secret, not an encouraging start to such significant investment.  But approximately 140 countries have signed MOUs with China and in mid-2018 only 70 had done so, regardless of the lack of clarity of the project virtually all the developing countries wanted to be part of what was going on.  Perhaps the details would become clearer in time.

Only countries who signed up with China via an MOU would be able to benefit from BRI projects and if China has shown anything over the years it is that it can build infrastructure.  The BRI was effectively the export of infrastructure overcapacity in China’s domestic economy.  But China’s gift to the world, as the BRI was sometimes presented was no gift, nothing was given, it was all done with borrowed money.  The recipient countries would borrow money from Chinese banks for the various projects, airports, highways, bridges, power stations, subways, telecommunications and generally the projects then were built by Chinese contractors.  From bridges in the Maldives, to power plants and highways in Pakistan or railways in Africa.  China’s willingness to lend to cash strapped countries who had traditionally limited access to borrowing was an offer too good to refuse.  Unlike other lenders like the World Bank, the US or the EU, China’s policy of non-interference in other countries affairs allowed for corruption to flourish under the safety of the BRI umbrella.  Chinese domestic development was no stranger to corruption with bribes and payoffs to local actors being just part of how business was done.  As China demanded confidentially of contracts not only did corruption thrive but so too did overly optimistic forecasts of future demand and projected revenue meaning that deals were priced high which only landed the recipient country with more debt.  The short-term impact was harshly summed up by the phrase “from America we get a lecture, from China we get a railway”.

Borrowing money to build a bridge or toll road with the debt to be repaid by future tolls charged by users is a perfectly good way to realize new infrastructure but what if the tolls are too high that locals can’t afford to use the new route, or they can’t be collected effectively?  Or perhaps the number of users falls well short of the original projections?  Or perhaps the repayment terms are too aggressive with debt needing to be repaid after only 5 years say instead of 10 years which might have been more realistic?  However impressive thousands of miles of train tracks are connecting China with Europe are they economically viable and competitive against the speed of air freight or the sheer volume of maritime shipping? For many countries the shiny new and massive infrastructure can easily turn into a major problem and not a blessing.

These issues are ones which China has encountered time and time again domestically as well with overly optimistic projects leading to a vast oversupply of infrastructure.  Of the tens of thousands of miles of high-speed railway lines in China only a handful of routes actually make money to cover running costs let alone the sunken costs of building the lines.

So does all this add up to success or not?  Since the BRI was never a clearly defined program with actual goals and measurable targets, success can be anything you wish it to be!  Certainly, plenty of MOUs were signed, lots of concrete was poured and deals completed but for a number countries the early promises of investment failed to materialize.  But what has become clear over the past decade is how the nature of the BRI has changed and how Beijing has had to struggle with the unintended consequences of the program.  To those challenges we now turn.


The changes and challenges of the BRI

What made the BRI appealing to so many developing countries and sat in contrast to more traditional channels of borrowing and aid was how the Chinese side emphasized “non-interference” in local politics.  There were no demands to reform economic and democratic processes or institutions in return for funding for projects.  This no-strings attached approach has failed time and again as the sheer size of the lending involved has meant that Chinese influence and lending became a domestic political issue in country after country.  Zambia, the Maldives, Sri Lanka, Nepal and the Philippines have all seen local politics spar around issues relating to the scale of Chinese investment in the country.  China may claim to follow a path of non-interference but the prominence of the BRI means that it is a central part of any BRI’s countries domestic politics.

That scale of lending, often to countries with poor track records of repaying debts has meant that China has faced the same problems which many Westerns countries had long been aware of.  When the BRI started there seemed to be a willful blindness to the repayment risks China was running.  Many deals were done in secret with the full scope of Chinese lending hidden from the public domain.  As inevitably happened when countries, like Sri Lanka, struggled to repay their debts and called in the World Bank and IMF the scale of the Chinese debts were hidden from other creditors.  There also was concern that the terms of the Chinese debts meant that Chinese lenders would be paid first.  The long-established Paris Club which had worked through debt restructuring many times struggled to fit the Chinese debt into their negotiating process as the Chinese were reluctant to work together in finding a fair and equitable solution for all creditors.

Critics of the BRI have often stated that it lays debt traps on recipient countries as the size of the debts are almost certain not to be repaid and it allows Beijing to sweep in and gain control over keys assets in the country in lieu of payment.  That is too harsh an assessment of the program but the additional debt outside of traditional channels has meant that it becomes all too easy for countries to find themselves in a weak position with half-finished projects, large debts owing to China and little capacity to push back against a much bigger and better organized counterpart.

While only a handful of countries have withdrawn from the BRI program, Italy and the Philippines being the most recent and high profile their experiences paint a sober reality to the early promises.  Many high profile projects in the Philippines never got off the ground and no funding materialized from the Chinese side.  Italy saw few projects but its trade deficit with China ballooned in China’s favour and the country saw none of the much loved phrase which the Chinese employ of win-win cooperation.  Italy did not attend the recent summit although President Marcos of the Philippines did.  Not only did the investment not come but China continues to encroach on Philippine waters and threaten the national navy and local fisherman.  All the economic win-win in the world can’t cover over the ever-darkening geopolitical situation in the South China Sea.

Yet Xi Jinping sees a bright future for the BRI.  He best friend and recent BARF attendee Vladimir Putin could not speak more highly of the project even though he failed to secure new agricultural and pipeline investments from the Chinese.  The wild lending and optimism of the early days are gone, Chinese lending has slowed dramatically, and it is reported that China has had to restructure over 240 billion USD of BRI related debt since 2018.  Under such tough economic conditions, the Chinese have responded and adapted to the new difficulties.

Economics and trade infrastructure remains at the heart of the BRI but at the recent forum Xi Jinping looked to reframe the BRI as an opposing geopolitical pole to the US-led West.  Russia and China’s no limits friendship remains central to this and neither leader can comment on almost any international topic within criticizing the US and how the US is responsible for the Russia-Ukraine war, the Hamas-Israel war and every other crisis facing the world.  The leaders are clear what they are against, i.e. the West, it is less clear what they actually stand for beyond a rather chilling might is right approach to country to country relations.  Xi has made no secret of how he sees China’s development and Chinese civilization being a model for other countries to follow, the BRI fits into a pattern of big ideas which Xi calls his Global Security Initiative, Global Development Initiative and Global Civilization Initiative.  But do other leaders, even those countries who have benefited from the BRI really subscribe to Xi and Putin’s view of the world?  That is hard to judge but perhaps the fall in world leaders attending the BARF is a good indication that while the developing world might like Chinese infrastructure, they are less keen in Chinese ideas and governance.

Xi has brought ideology back to the heart of Chinese society and the CCP but they have also shown they can adapt as the environment demands.  The BRI has scaled back its lending and has become part of broader political initiative, not just an economic one to help build a geopolitical pole to counter the West.  The BRI isn’t going away, it didn’t succeed as some expected, but it has morphed into something new.  The test for the coming decade will be whether Xi vision of the future which attracts as many countries as his money did.

フレイザー・ハウイー(Howie, Fraser)|アナリスト。ケンブリッジ大学で物理を専攻し、北京語言文化大学で中国語を学んだのち、20年以上にわたりアジア株を中心に取引と分析、執筆活動を行う。この間、香港、北京、シンガポールでベアリングス銀行、バンカース・トラスト、モルガン・スタンレー、中国国際金融(CICC)に勤務。2003年から2012年まではフランス系証券会社のCLSAアジア・パシフィック・マーケッツ(シンガポール)で上場派生商品と疑似ストックオプション担当の代表取締役を務めた。「エコノミスト」誌2011年ブック・オブ・ザ・イヤーを受賞し、ブルームバーグのビジネス書トップ10に選ばれた“Red Capitalism : The Fragile Financial Foundations of China's Extraordinary Rise”(赤い資本主義:中国の並外れた成長と脆弱な金融基盤)をはじめ、3冊の共著書がある。「ウォール・ストリート・ジャーナル」、「フォーリン・ポリシー」、「チャイナ・エコノミック・クォータリー」、「日経アジアレビュー」に定期的に寄稿するほか、CNBC、ブルームバーグ、BBCにコメンテーターとして頻繫に登場している。 // Fraser Howie is co-author of three books on the Chinese financial system, Red Capitalism: The Fragile Financial Foundations of China’s Extraordinary Rise (named a Book of the Year 2011 by The Economist magazine and one of the top ten business books of the year by Bloomberg), Privatizing China: Inside China’s Stock Markets and “To Get Rich is Glorious” China’s Stock Market in the ‘80s and ‘90s. He studied Natural Sciences (Physics) at Cambridge University and Chinese at Beijing Language and Culture University and for over twenty years has been trading, analyzing and writing about Asian stock markets. During that time he has worked in Hong Kong Beijing and Singapore. He has worked for Baring Securities, Bankers Trust, Morgan Stanley, CICC and from 2003 to 2012 he worked at CLSA as a Managing Director in the Listed Derivatives and Synthetic Equity department. His work has been published in the Wall Street Journal, Foreign Policy, China Economic Quarterly and the Nikkei Asian Review, and is a regular commentator on CNBC, Bloomberg and the BBC.