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Is China’s Belt and Road Initiative COVID-19’s Biggest Victim?

PLA Navy Vice Admiral Tian Zhong reviews Chinese and Djiboutian troops at the PLA Navy support base in Djibouti, August 1, 2017. (Source: China Daily)

The BRI was meant to solidify the global reliance on China as the world’s supplier. However, because of the pandemic, many private industries have either shut down, or shifted to manufacturing essentials. Both these routes disrupt the carefully orchestrated supply chain, creating issues for nations around the world.

Often called the 21st century ‘Silk Road’, China’s Belt and Road Initiative (BRI) will face an uncertain future once the worst of the coronavirus pandemic has passed. The initiative covers infrastructure projects in 71 countries that make up half of the world’s population, and a quarter of global GDP. What is the most ambitious geopolitical initiative of the century is now on the verge of shutting down. 

Adopted in 2013, the BRI comprises a “belt” of overland corridors and maritime “road” of shipping lanes. The project is not just about economic cooperation but represents Beijing’s ambitious plan to become the next global superpower. By providing loans for infrastructure projects in developing nations – particularly those in Africa – allow China to gain a global foothold while avoiding direct conflict with America and Russia. 

The Belt and Road Initiative includes includes 1/3 of world trade and GDP and over 60% of the world’s population. Source: World Bank

The initiative has given China unprecedented access to global markets, and Chinese firms have been favoured at the cost of local contractors. While infrastructure is the backbone of the BRI, there is a lot more to the project. Jonathan Hillman, director of the Reconnecting Asia Project at the Center for Strategic and International Studies in Washington describes the project as “a vehicle for China to write new rules, establish institutions that reflect Chinese interests, and reshape ‘soft’ infrastructure.

The Power of Perception

The push for a global Chinese presence through the BRI hasn’t been smooth sailing. Western nations, led by a very vociferous American President have often called out the BRI as a ‘debt trap’ that China plans to use to shore up its military presence by seizing global assets – the way it did in Djibouti and Sri Lanka.

A study by Rhodium Group found that, however, that it is not the case. The report concluded that “debt renegotiations usually involve a more balanced outcome between lender and borrower, ranging from extensions of loan terms and repayment deadlines to explicit refinancing, or partial or even total debt forgiveness.” 

Johns Hopkins professor Deborah Brautigam concluded something similar in her 2019 paper. She said that “the drumbeat of alarm about Chinese banks’ funding of infrastructure across the BRI and beyond is overblown.” She also found that many nations had a favourable opinion of the Chinese economic model, and considered the nation an attractive partner. 

While the evidence may point to the contrary, the US has been pushing nations against joining the BRI. Right now, nations are caught in a zero-sum game between the US and China. Rather than resort to skilful diplomacy to retain friends, the American approach of threats and retaliation is not helping their cause. On the other hand, China’s welcoming approach is willing new friends, all over the globe. 

By doing so, China has reshaped its image in the eyes of its new allies. It makes the BRI seem like a more friendly approach. Kishore Mahbubani, a former Singaporean diplomat wrote for marketwatch.com – “Sadly, the art of diplomacy has been lost in Washington D.C. This has created a massive opening that China has taken full advantage of, on its way to victory over the post-COVID-19 world.

Coronavirus Changes the Rules

Global lockdowns and travel restrictions have put a halt to almost all construction projects. BRI projects in Cambodia, Indonesia, Pakistan and Sri Lanka have all been affected as a result. While China is slowly easing out of the lockdown, other nations have just begun adding restrictions, limiting the flow of labour and supplies that are critical to BRI projects. 

The BRI was meant to solidify the global reliance on China as the world’s supplier. However, because of the pandemic, many private industries have either shut down or shifted to manufacturing essentials. Both these routes disrupt the carefully orchestrated supply chain, creating issues for nations around the world.

As of 2019, China invested in excess of $100 million in BRI projects, Qian Keming, vice-minister of commerce, said at a press conference. Most of this money comes from commercial banks and the Chinese government. Right now, neither of these entities can invest heavily in foreign markets. The pandemic has caused the Chinese GDP to fall by 6.8% in the first quarter of the year. Battling this economic fallout, and getting the local population back to work is now critical for the country. Rather than look outward, Chinese financial institutions will look to redeploy their investments inwards. 

The Lower Sesan II Dam in Steung Treng Province, Cambodia is just one of the many BRI-funded infrastructure projects. Sion Ang/SOPA Images/LightRocket via Getty Images.

Despite this, China is still attempting to maintain its global foothold. An example of this continued commitment is India, where China has invested over $8 billion to date. To combat the economic fallout India adopted new investment rules on April 18. The guidelines curbed investments in Indian companies by foreign nations that share a land border, to avoid opportunistic takeovers. China felt that the policy unfairly targeted them, and criticised the move. 

Through Ji Rong, a spokeswoman for the Chinese Embassy in India, the country replied by sayingThe additional barriers set by the Indian side for investors from specific countries violate WTO’s principle of non-discrimination, and go against the general trend of liberalization and facilitation of trade and investment. More importantly, they do not conform to the consensus of G20 leaders and trade ministers to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open.”

Economic Impact

Even before the pandemic, the International Institute for Strategic Studies (IISS) noted that China would face severe constraints on future investments and debt renegotiations. This is because the BRI invests primarily in developing nations, who already have high amounts of debt. Now that the global economy has come to a standstill, the threat of default has never been higher. Debt renegotiations will have to take place if China is to preserve its economic engine.

The current crisis is not the first time China has had to renegotiate debts with BRI members. Renegotiations in 2017 lead to a naval base in Djibouti, and a 99-year lease on Hambantota Port in Sri Lanka. By investing in such nations, China is guaranteed to achieve its goals one way or another. However, now that China will have to renegotiate debts with multiple nations, it begs the question – will China use COVID-19 as an opportunity to increase its foreign assets?

PLA Navy Vice Admiral Tian Zhong reviews Chinese and Djiboutian troops at the PLA Navy support base in Djibouti, August 1, 2017. Source: China Daily

If China wants to change the image of the BRI as a debt trap, it will have to resort to multilateral negotiation efforts. China isn’t the only source of investment, and western nations will also demand their pound of flesh from nations defaulting on their debts. To ensure that debt relief is shared amongst all the creditors, multinational cooperation will be necessary. 

Nick Crawford and David Gordon wrote for The Diplomat: “If China refuses to cooperate, other creditors will move to ensure that countries will not utilize the benefits of restructuring to repay BRI loans to China. In this circumstance, BRI countries will be much more likely to default on their Chinese loans.” The article also mentions how renegotiations will directly impact Chinese suppliers. “The effect on Chinese lenders aside, any defaults on BRI loans could be accompanied by the suspension or cancellation of BRI projects, with knock-on effects for the Chinese implementers, many of which are state-owned enterprises.” 

That hasn’t stopped China from attempting to engage in bilateral discussion, Crawford and Gordon note. They fear that such an attempt will only damage China’s economy in the long run, saying – “if BRI countries pursue bilateral negotiations with China, they will struggle to renegotiate their debts with other creditors, leaving the debt crises unresolved both for themselves and for Beijing.

Securing the Future

If China is to secure the future of the BRI, the first thing it has to do is engage in a multilateral discussion with western creditors. The IISS report noted that Beijing could look at co-financing as a viable alternative. The report states “Internationally, working with bilateral and multilateral partners to shape, finance and implement BRI projects could boost confidence and transparency, while also shrinking the windows for corruption.” 

The next step is for Beijing to look beyond infrastructure, and create a wider community through the BRI. A major avenue China missed out on was health. In 2015, China mulled setting up a branch dedicated to facilitating communication in case of infectious diseases. Although the idea is still just a theory, the coronavirus pandemic shows us just how China could have reshaped the global response if the system was set up and functional. Right now, China’s healthcare policy is a fractured network of bilateral agreements with individual BRI members. Ironically, in 2017, Chinese President Xi Jinping mentioned the need to create a ‘Health Silk Road’ in a meeting with Italian Prime Minister Giuseppe Conte.

Had the medical system been set up, it would have drastically changed China’s global image. Despite offering medical supplies, doctors and aid to countries affected by the coronavirus, China is now being accused of taking advantage of the pandemic to increase its geopolitical influence. It is very unlikely a health silk road would have changed that outlook, but at least it would’ve helped the world combat the coronavirus faster. 

Medics and paramedics from China salute as the board a Red Cross vehicle upon arrival at the Malpensa airport of Milan, March 18, 2020. Credit: AP Photo/Antonio Calanni

Andreea Brînză wrote in The Diplomat – “If the BRI had actually been designed as a network of countries able to share from health technologies to information and expertise, today China would have been praised for preparing the world to fight a new disease.” While that did not happen, Beijing must be praised for its quick response, sending out supplies to those nations in desperate need. 

The lack of transparency over the coronavirus in 2019 has shown that Beijing has miscalculated its goals to become the new global superpower. However, by engaging constructively with the world, China can give a new life to the BRI and expand its reach like never before. Funding the World Health Organisation is a great start. Such engagements will help cement the idea that China is there for the world, especially at a time when the USA is taking an isolationist approach. 

This article draws on the following sources

1 Brînză, A. (2020). Some Say China’s Belt and Road Helped Create This Pandemic. Can It Prevent the Next One? 2 China’s Massive Belt and Road Initiative. Council on Foreign Relations. (2020) 3 Crawford, N., & Gordon, D. (2020). China Confronts Major Risk of Debt Crisis on the Belt and Road Due to Pandemic 4 Deborah Brautigam (2020) A critical look at Chinese ‘debt-trap diplomacy’: the rise of a meme, Area Development and Policy 5 Gordon, D., Tong, H., & Anderson, T. (2020). China’s BRI: The Development-Finance Dimension 6 Kratz, A., Feng, A., & Wright, L. (2020). New Data on the “Debt Trap” Question 7 Mahbubani, K. (2020). How China could win over the post-coronavirus world and leave the U.S. behind 8 OECD (2018), “The Belt and Road Initiative in the global trade, investment and finance landscape 9 Wang, Y., Liang, X., Liu, Y. et al. The intentions, needs, advantages and barriers: a survey of twenty-nine countries participating in the “Belt and Road Initiative” health cooperation

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