In 2017, President Xi Jinping launched the ambitious Belt and Road Initiative (BRI), dubbing it the “project of the century.” However, as Xi convenes the third Belt and Road Forum, the future of this initiative appears uncertain.
While the BRI attracted approximately $1 trillion in its first decade, momentum has declined in recent years. China’s overall involvement in BRI (Belt and Roadway Initiative) countries has dropped by around 40% since its 2018 peak, partly due to the slowdown of China’s economy.
Accusations of irresponsible lending and strained relations with the United States have made the BRI increasingly divisive. Even Italy, the only G7 member participating, is set to withdraw. Some within China see the BRI as faltering, impacted by COVID-19 and domestic economic challenges, and hope that the upcoming summit, marking its 10th anniversary, can revive the project.
According to an anonymous senior American official, the U.S. believes that BRI is facing significant challenges. Beijing has less available capital for lending, and there is mounting pressure to recover outstanding loans.
Chinese President Xi Jinping will have the opportunity to respond to these criticisms as leaders from various Global South countries gather this week to express their support for the program and test China’s capacity for new agreements. Among these leaders are Russian President Vladimir Putin, Hungarian Prime Minister Viktor Orban, Indonesian President Joko Widodo, Argentina President Alberto Fernandez, and Thai Premier Srettha Thavisin.
This move, as noted by Alfred Wu, an associate professor at the National University of Singapore’s Lee Kuan Yew School of Public Policy, signals China’s intent to build alliances while challenging the U.S.-led global order.
The COVID-19 pandemic significantly impacted China’s infrastructure and trade initiative, as the economic slowdown raised concerns about debt repayment by borrower nations. Zambia became the first African country to default during the pandemic in late 2020, placing China, its largest creditor, in a prominent position.
As nations like Ethiopia, Sri Lanka, and Pakistan grappled with debt crises, the annual engagement in the Belt and Road Initiative (BRI) dropped to $63.7 billion in the first year of the global health crisis, as per a study conducted by the Green Finance and Development Center at Fudan University in Shanghai. This marked a significant decline from the peak of over $120 billion in 2018. The reduction in BRI activities has been attributed to both geopolitical tensions and domestic economic challenges within China, which do not seem to be easing. External factors such as the Ukraine conflict and potential future conflicts in the Middle East have exacerbated debt and inflation issues, according to Michael Kugelman, director of the South Asia Institute at the Wilson Center.
In response, China has shifted its focus towards smaller, more community-oriented projects aimed at improving people’s livelihoods, often referred to as “small but beautiful” initiatives. For instance, the state-run People’s Daily recently highlighted a Chinese firm’s upgrade of a water plant in Botswana and a technology partnership with a seed company in Costa Rica as examples of this approach.
According to the Fudan report, the average investment deal within the Belt and Road Initiative (BRI) has decreased by 48% from its peak in 2018, reaching approximately $392 million in the first half of this year. This report covers both the value of construction projects financed by China and those in which Chinese companies hold equity stakes.
Notably, China’s private companies are playing a more prominent role in a domain that was previously dominated by policy banks and state-owned enterprises, as highlighted by Christoph Nedopil Wang, the director of the Griffith Asia Institute and author of the Fudan study. This shift has led to significant investments that prioritize global markets over infrastructure development. For example, China’s Contemporary Amperex Technology Co. and Mercedes-Benz Group AG are planning to invest over $7 billion in a plant in Hungary, marking the largest single project in a BRI country since the initiative’s inception in 2013.
It’s worth noting that the Belt and Road Initiative has always had a loosely defined scope, with the label often applied to projects in countries with friendly relations with China. Additionally, the geographical focus of the strategy has evolved in line with President Xi’s foreign policy, with Saudi Arabia emerging as a top three recipient of BRI lending this year, reflecting China’s efforts to expand its influence in the Middle East.
Italy’s increased imports from China after signing a BRI cooperation agreement in 2019 were not reciprocated in the same way, as Italian exports to China only saw a 5% increase last year, lagging behind Germany and France, neither of which are part of the BRI.
While the Chinese Foreign Ministry has not announced plans for a leader’s roundtable as in previous events, the upcoming summit is expected to attract a smaller group of world leaders. For Global South nations, China’s efforts to position itself as a leader in the developing world have provided crucial funding. China extended $114 billion in development financing to Africa alone from 2013 to 2021. This has prompted Western governments to expand their engagement with developing nations to counter China’s influence, but many of their projects have faced delays.
China’s credit lines will face scrutiny when Kenya’s leader, William Ruto, requests $1 billion to finance stalled infrastructure projects. While this may not reverse the overall trend of a scaled-down BRI, it signals Xi’s ongoing commitment to the program as a cornerstone of his foreign policy. Despite the slower investment pace, Xi’s close association with the BRI ensures its continued significance as long as he remains in power.
(Source: Bloomberg | Japan Times)
