Why Belt and Road Initiative will matter in the next decade
The world’s focus is understandably and justifiably on the catastrophic pictures from Gaza and the geopolitical uncertainties emanating from the conflicts in the Middle East and Eastern Europe. Analysts ponder the ramifications on commodity prices as well as the access and safety of trade routes. While such analysis is timely, important, and urgent, other long-term geoeconomic themes risk being forgotten.
Earlier this month world leaders congregated in Beijing to take stock of the first decade of the Belt and Road Initiative, which is China’s quest to build the “New Silk Road” connecting Asia to Europe, Africa, and Latin America. The last BRI summit in 2019 had a very different characteristic. Thirty-six heads of state attended the forum in 2019. This number shrunk to 22 this year. While seven EU nations had made the pilgrimage to Beijing last time around, only Hungary’s Victor Orban and Serbia’s Aleksandar Vucic graced the summit this year.
This stood in contrast to many African and Asian leaders and Russia’s Vladimir Putin who all attended. In other words, BRI has morphed into more of a South-South initiative, which goes hand in hand with a changed geopolitical landscape and increased polarization in the world.
Why should we still watch closely what happened with BRI and the direction it will take going forward? The Asian giant invested roughly $1 trillion in gigantic infrastructure projects and generated trade worth $19 trillion with participating countries. However, some of the bigger projects had mixed results: There were problems with cost overruns and corruption. The most important negative side effect was increased indebtedness in recipient countries.
There is the China-Pakistan Economic Corridor. China is keen to gain connectivity to the Arabian Peninsula and beyond. The Chinese built the roads connecting Western China to the $300 million port of Gwadar in Pakistan’s Balochistan province. The trade route is not as buoyant as expected. Islamabad had insisted on and received additional electricity generation projects and received 14 projects including the $1 billion Thar power plant, which is coal-fired with no CO2 mitigation, such as CCUS attached.
Pakistan’s foreign debt doubled since 2015 and now stands at roughly $100 billion — 30 percent of which is owed to Chinese creditors. According to the IMF, the South Asian country spends around half of its revenues servicing foreign debt necessitating a $3 billion loan from the Washington-based lender. It would be unfair though to attribute all of Pakistan’s debt woes to Chinese creditors, as the country has a history of overstretching its finances. Still, the ambitious CPEC projects certainly played a role in the current debt woes. There is also the port of Hambantota in Sri Lanka which might be one of the most famous projects standing for the inability of the country to service its debt. Hambantota is now leased back to China for 99 years.
Debt is an issue: China granted $104 billion in rescue loans between 2019 and 2021 according to the World Bank and rolled over $5.9 trillion in loans that became due over the last two years.
It would be too easy to come to a conclusion of the BRI on the back of failed projects. As mentioned above, the initiative began new trading routes, mainly between China and participating countries. Experts claim that particularly the smaller projects seemed to have been beneficial. In a time that is increasingly characterized by trade wars and geopolitical strife South-South trade routes will become increasingly more important. As many as 300 delegates attended the Belt and Road CEO conference and signed agreements in areas as wide-ranging as AI, clean energy, financial services, and modern agriculture.
There is some truth to the accusation that BRI in its first decade may not have paid sufficient emphasis on environmental considerations. However, if we are to believe China’s Vice Premier He Lifeng and if we look at the projects signed, BRI will put increasing emphasis on environmental and social issues in the coming decade. The fact that Saudi desalination and renewable energy giant ACWA Power attended the CEO roundtable supports the argument of increasing focus on environmental issues.
Whatever we make of the BRI, it did and will have an impact on how China interacts economically with countries of the South. The world population will grow by an additional 2 billion people by 2050. They will predominantly live in Africa and South Asia. Therefore, South-South cooperation will have an impact on shaping the future, whether we like it or not. This means that a balanced approach is key when evaluating the pros and cons of the Belt and Road Initiative.
• Cornelia Meyer is a Ph.D.level macroeconomist, energy expert and CEO of Meyer Resources, a business consultancy.