Ten years ago, China embarked on a major effort to increase its economic power and influence across Asia, Africa, and into Europe. The name of this program came from Xi Jinping, China’s president, when he spoke of building an “economic belt” along the “silk road” that was the land route to China for many centuries dating back to antiquity. The effort became known as the “Belt and Road Initiative” or BRI, and it included building seaports, railways, and other infrastructure to facilitate the movement of Chinese goods being exported. At first, the grand design appeared to this writer to be “a bridge too far” to be a complete success. But after ten years, where does this program’s progress stand?
As Far West as Greece: In 2009, Greece was in the throws of a fiscal policy crisis as bankers in other parts of the European Union were reluctant to continue to finance the Greek governments deficits. The Chinese state-owned shipping company COSCO made an agreement to lease two piers at the major Greek port of Piraeus near Athens. Six years later the Greek government was under even more severe debt pressure and decided to sell to COSCO a fifty-one percent stake in the entire port facility. A major upgrade to the port, driven by COSCO was undertaken, and its efficiency and container-handling capability pole vaulted Piraeus into the top forty ports in the world from number ninety-three. Mr. Xi touted the success of Piraeus as proof of the serious nature of BRI, and the intent of China to make the program a success. Other European countries, including eighteen of the European Union’s twenty-seven members became interested and were willing to sign on to the initiative.
As Far South as Laos: In 2021, China completed building a railroad from the southern Chinese city of Kunming to Vientiane, the capital city of Laos. The line includes about 250 miles of rugged mountains in northern Laos where the only good road to China runs east through Hanoi in Vietnam. The result: a day-long bumpy ride by road was converted into a 3.5 hour smooth ride by rail. Laotian farmers are now able to grow crops that are in high demand for export to China shipping them by train, and bringing a greater economic return to one of Asia’s poorest countries. China’s goal was to extend this railway another 1,200 or more miles through Thailand and Malaysia all the way to Singapore, but the cost of the Laotian installment was almost $6 billion. The rewards would be higher once they did reach Singapore and along the way through Thailand and Malaysia, but the cost to complete would be staggering.
As Far Southwest as Pakistan: In the early days of the BRI expansion China worked with its longtime ally Pakistan in developing what became known as the China-Pakistan Economic Corridor or CPEC. The goal was to develop and upgrade roadways to stimulate trade from the mountainous area where Pakistan borders China down to the port of Gwadar on the Indian Ocean. Perhaps $30 billion or more was invested, and China did work on upgrading the port facilities in Gwadar. But Gwadar is more than 400 miles west of Karachi, the largest city in southern Pakistan, and another 1,100 miles to the Chinese border. Pakistan required heavy financing in order to participate, and that became a tremendous burden for the government to manage. Political instability has further interfered with Pakistan’s efforts. CPEC has not ground completely to a halt, but the major gains made in Greece have not been replicated in Pakistan.
Overtures in Africa: China has worked hard to make economic overtures in Africa, a major source of various raw materials for Chinese industries. Although long-term plans are sitting on planner’s desks in Beijing, not much in the way of tangible results can be pointed out in sub-Sahara, Africa. Again, the goal is transportation infrastructure connecting industrial or agricultural locations to market places, but some of the projects were too grandiose in nature and resulted in much higher costs than were anticipated. As debts mounted and returns were not sufficient to provide an offset, some of these projects have ground to a halt. Certain African nations have been stretched to the point of default owing to massive debts.
Rising Debt Issues: By design, China furnishes the lion’s share of capital entering into these infrastructural upgrades, but very little of it constitutes aid to the underdeveloped partner. Most of it is in the form of loans from Chinese banks. The bankers set strict terms conducted on a standard commercial basis, and did not show any willingness to write off any unperforming debts. Several of the areas where the BRI construction took place are in poor countries and in some of the poorest and most underdeveloped regions of these countries. There is no tidal wave of defaults imminent, but in one case, the Chinese developers involved with building a port in Hambantota, Sri Lanka, received ownership of the facility upon default by the borrowing government. The problem for China appears to be an unsatisfactory risk assessment prior to making large infrastructural loans in these underdeveloped areas. Learning from their mistakes, Chinese lenders may have capped their riskiest exposure. They have resorted to bail-out loans to keep the borrowing entities afloat, and they’re extracting higher interest rates for these loans than the IMF, for example (5% vs 2%). In other cases, they are looking at debt restructuring, but these scenarios are dampening down the early enthusiasm for huge infrastructural payoffs.
Political Aspirations: This expansionism by China was meant to be economic, but it also brings with it some political aspirations that China has in the underdeveloped regions of the world. What is disconcerting for Western politicians is the concept that China would be interested in extracting political concessions from these areas of infrastructural development where the local host country is unable to pay their portion. One example was the rising concern that China would turn the port in Gwadar, Pakistan, into a naval base in return for cancelling their uncollectable debts. It would be safe to say that in the leastways China is extending its influence in these areas that it considers to be strategic for the success of BRI. As China comes to grips with the major amount of debt owed by these third-world partners, there could be consideration in other forms such as military bases that is achieved instead. However, as of this writing there is no evidence of a naval base being built in Gwadar.
Conclusions: With lessons learned Mr. Xi has called for a new phase to BRI with future projects being on the order of “small but beautiful.” This comes in line with China’s weaker economic growth at home coupled with the existing debt situation. However, in a tribute to Mr. Xi, the Chinese Communist Party has put the BRI program into its charter making it permanent and on-going.
Sources: The Economist, Where To From Here?, September 9th, 2023.