Big leap forward? Weighing pluses/minuses of Belt and Road Initiative after 10 years
 China's Belt and Road Initiative (BRI) offered an opportunity to stimulate economic growth, enhance connectivity and bridge infrastructure gaps for participating nations. Yet serious concerns arise regarding geopolitical influence, debt sustainability and transparency.
The success of the BRI relies on addressing these challenges through collective efforts from all participating nations, including China. All that can be said at this juncture after 10 years is that it remains a work in progress but if properly handled has the potential to become a transformative force for inclusive development and global cooperation.
BRI is a colossal infrastructure and investment project that aims to connect Asia, Europe, and Africa, fostering economic integration and trade cooperation.
While proponents argue that the BRI offers numerous benefits and potential development opportunities, critics raise concerns over its geopolitical implications and the economic risks involved. Perhaps it is best to outline its pluses and minuses before coming to any firm assessment.
First the pluses: One of the core objectives of the BRI is to create improved connectivity among countries along the routes, boosting trade and people-to-people exchanges. By investing in railways, roads, ports, and energy infrastructure, the BRI facilitates seamless transport and trade, reducing costs and enhancing market access for participating nations.
This, of course, leads to economic growth. Infrastructure investments under the BRI can stimulate economic growth in developing countries where infrastructure gaps hinder progress. Through financial support, technology transfer, and employment opportunities, the BRI can help bridge development gaps and uplift participating nations, fostering stability and poverty reduction.
All of which leads to trade expansion. By utilising existing regional trade agreements and facilitating the establishment of new ones, the BRI can create a more seamless trading environment and expand market access for goods and services.
In accomplishing the above, the BRI also closes the infrastructure gap: Many developing countries lack adequate infrastructure, hindering their economic growth potential. The BRI's investments in roads, railways, ports, and energy projects provide a much-needed boost to infrastructure development, addressing this deficit and laying the foundation for sustained economic growth in these regions.
Now to the minuses. First, there is a question of negative geopolitical influence. Critics argue that the BRI is more than an economic endeavor; it is an instrument for expanding China's influence. Concerns have been raised about a potential "debt trap diplomacy" where participant countries become increasingly dependent on China, risking compromising their sovereignty due to growing indebtedness. This undermines the principles of mutual benefit and equal partnerships that should govern such a significant global initiative.
There are also environmental concerns: Large-scale infrastructure projects can have detrimental effects on the environment. Critics raise concerns about the BRI's potential environmental impact, particularly with regards to deforestation, carbon emissions, and damage to biodiversity. It is crucial for China and participating nations to ensure the BRI projects adhere to robust environmental standards and promote sustainable development.
Also worrying is debt sustainability. The BRI's vast scale and funding requirements raise concerns about debt sustainability for participating countries. If these countries are unable to repay loans or manage debt commitments effectively, it risks causing financial instability and creating long-term economic vulnerabilities.
Clear assessment of risks, transparency, and mutually beneficial cooperation are essential to ensure debt sustainability and prevent potential future financial crises.
Unusually among developing nations, China has built up huge foreign exchange reserves, thanks to its model of export-led growth, so it has money to lend. It also has expertise and spare capacity in building infrastructure.
The biggest users of the country’s liquidity supports have been Argentina, Mongolia, Pakistan and Suriname. Egypt, Nigeria and Russia have also tapped these facilities multiple times.
Argentina, which established a US$19 billion swap with the People's Bank of China (PBOC) in 2009, tapped it in both July and August last year for a total of $3 billion to meet a scheduled repayment on a 2018 IMF loan.
Argentina was in desperate straits. It had negotiated a new $44 billion loan from the IMF and was due for a $7.5 billion disbursement, but it had exhausted its foreign exchange reserves, had no funds to meet the repayment on the earlier loan and had no access to private banks.
The IMF will not lend anything to a country that falls into arrears and nor will the World Bank. By using the swap agreement with China to meet a repayment on the old IMF loan, Argentina was able to keep the new IMF loan alive and, when the $7.5 billion disbursement was finally made, the first use of the funds was to repay the PBOC.
Argentina was in a position to use the swap agreement because its finance minister, Sergio Massa, had travelled to China and negotiated to double the portion of the swap line over which Argentina had complete discretion to $10 billion.
Reuters quoted the former head of the IMF’s western hemisphere department, Alejandro Werner, saying the deal demonstrated how "much more agile Chinese external financial diplomacy can be, and it’s an additional virtue that countries see in maintaining a constructive relationship with China". It’s unthinkable that the US Federal Reserve would countenance its swap arrangements being used in this way.
Critics argue that the BRI's decision-making processes lack transparency. Project contracts and agreements often lack public disclosure, leading to criticism of non-market-friendly practices, such as closed government tenders or preferential treatment of Chinese companies.
Greater transparency and open bidding practices would help to address these concerns, ensuring equitable practices and fostering international confidence in the initiative.
Weighing the BRI, it must be conceded that it has achieved significant progress in terms of building infrastructure in the developing world, as well as expanding China’s diplomatic and economic influence to many parts of the world.
The BRI was, and remains, a smart move for the reason that it creates new markets for Chinese exports. Perhaps it was a mistake of the West to allow China build out this programme of aid and infrastructure construction without making an alternative bid.
It is now becoming clear that the BRI is part of China’s and Russia’s effort to create an alternative framework for global economic cooperation outside the one dominated by the United States since World War II.
One question remains. How much money can China afford to spend on it over the next decade? The answer might be a lot, but for how long? In economic terms, China exports continue to fall, but the GDP growth was announced as 4.9 per cent. But how accurate are these Chinese numbers. There is no answer to that. Whether Belt and Road's pluses will outweigh its minuses only time will tell. So much depends on trust. |
