What are the real needs of the New Silk Road now?
The New Silk Road, also known as the Belt and Road Initiative (BRI) or One Belt One Road Initiative, was launched by President Xi Jinping in 2013. Designed with the goal of promoting Chinese geopolitical and economic ties with countries west and south of China, the project aimed to connect Asian, European, and African continents and strengthen trade and infrastructure development in the region. So far, over 60 countries have agreed to take part in the initiative, making up over 66% of the entire world population and affecting over 40% of global GDP.
While China has invested an estimated 4-8 trillion USD in 118 projects to date, success of BRI has been mixed, including both high profile successes and more controversial projects which have failed to live up to expectations.
Resounding BRI successes include the China-Pakistan Economic Corridor, the China-Myanmar Economic Corridor, and the Jakarta-Bandung high speed rail project. They have created significant work opportunities for local labor, filled critical infrastructure gaps, and either already demonstrated economic gains or are expected to do so for recipient countries.
Officially launched in April 2015, the China-Pakistan Economic Corridor (CPEC) involves construction of highways, oil pipelines, railroads, and power plants from Khunjerab to the Arabian Sea. Creating over 70,000 jobs for Pakistanis, China’s plans in Pakistan have already contributed to an estimated “two-percentage points in GDP growth”. Along with construction of the Gwadar airport, CPEC has led to the completion of Pakistan’s first electric-powered public transportation system, positioning Pakistan for future economic growth and more integration into the global economy.
The China-Myanmar Economic Corridor connects China’s Yunnan Province to Myanmar. In addition to road and rail transportation, construction on gas and oil pipelines began in 2008, finishing in 2013. With the capacity of carrying over 12 million tons of crude oil every year, these pipelines provide a more direct path for Chinese crude oil imports rather than using the Malacca Strait; the project has been crowned one of the major successes of BRI given its strategic importance for trade and economic security.
The Jakarta-Bandung high speed rail project was announced by Indonesia in 2015. Following a fierce financing competition by China and Japan, Indonesia announced the joint venture between Indonesian state-owned companies and China Railway International in October 2015, of which Indonesia has 60% interest in the joint venture and China owns the remaining 40%. The project will connect Indonesian capital Jakarta to the textile hub of Bandung via a 150 km long railway traveling up to 250 km/hr, effectively cutting down travel times from the original 3-5 hours to just 36 minutes. China and Indonesia plan for the railway to be fully operational by end of 2022; the project has already created over 40,000 jobs in just construction alone.
However, there have also been heavy criticisms of various BRI projects and suggestions that China has used its BRI as debt-trap diplomacy designed to coerce recipient countries into giving China concessions once they default on project debt payments. One example is the Montenegro highway project. The project consisted of a highway that would run from Port of Bar to Belgrade, a distance of 170 km. Getting a billion USD loan from China in 2014, the highway remains unfinished, with only 40 km completed. Montenegro now faces financial instability as a result of the project, with its debt now amounting to more than 100% of its GDP. Another failure is the Sri Lanka Hambantota project. The Hambantota port, started in 2007 by current Prime Minister Mahinda Rajapaksa, was leased to China for 99 years in 2017 for 1.1 billion USD following issues related to debt repayments. The country still remains in debt to China from the initial construction of the port, totaling 5.8 billion USD as of June 2020.
The reality is that while not all BRI projects have been successes, emerging economies in Africa, Asia, and Europe desperately need investment into infrastructure projects and the developing world faces a massive investment shortfall. The African Development Bank (ADB) estimates that there is an annual investment deficit of 93 billion USD annually in Africa, and 459 billion USD annually in Asia. This investment will be necessary to support future development of these emerging economies. While the US and wealthy western European nations contribute significant development funds annually, the level of investment is not enough to improve conditions sufficiently or quickly enough to support long-term growth. China’s investment is sorely needed to close the gap and to jumpstart emerging economies.
The previously highlighted projects show that when done right BRI projects can have significant positive economic impact for both China and recipient countries. However, it is also possible for projects to go very wrong and create undue economic pressure. Moving forward, it is essential for China and its partners to focus on three key areas to make BRI a long-term success.
First, China needs to take the time to truly study the long-term feasibility of proposed projects and maintain transparent, consistent oversight of projects to ensure that only the right projects are undertaken and that funds are used responsibly towards stable economic gain. This will require a greater degree of multilateral cooperation with other global lenders so that project assessments and standards are unified across organizations granting project funding. Not an easy task but one that will create better long-term outcomes for projects.
Second, given the high-profile nature of BRI and China’s desire to be more involved on the international stage as a global power, it will need to put in place stronger mechanisms to ensure renegotiations take place when necessary to restructure loan payment plans to reduce chances of defaults by host nations. To this end, China has already announced its partnership with the Paris Club, a host of twenty-two creditor nations, as well as G20’s Debt Service Suspension Initiative, an initiative that offers aid to 77 developing countries who have debt repayments due by 2020, to create a global debt relief effort alongside BRI.
Finally, China should focus on undertaking projects that emerging economies need but that also highlight China’s desire to take a leadership position in emerging technologies. This is already happening with high-speed rail projects, but China has an opportunity to massively speed up global sustainable energy initiatives. To date China has financed projects involving non-renewables 9.7 times more than in renewable energy. However, China has taken part in significant green projects, like the Karuma Hydropower Project in Uganda, generating 600 MV of electricity at full operation. Given a growing global emphasis on sustainable development and China’s desire to be a leader in renewable energy, expect to see future BRI projects that leverage China’s clean energy knowhow.
China’s BRI legacy as it stands today is mixed but there is promise around what its investments can bring to emerging markets. To make BRI a resounding success China should consider more stringent project review plans and project feasibility procedures as well as increasing focus on projects that more directly support hiring of local labor forces; this would go a long way towards improving project perception in recipient countries and lead to a higher long-term success rate for BRI initiatives.