Chinese President Xi Jinping.
Credit: Reuters
China’s top leader, Xi Jinping, founded the Belt and Road Initiative a decade ago to use the country’s economic might to enlarge its geopolitical heft and counter the influence of the United States and other industrialised democracies.
China has since disbursed close to $1 trillion to mostly developing countries, largely in loans, to build power plants, roads, airports, telecommunications networks and other infrastructure. Xi has used China’s cash and infrastructure expertise to tie together countries across Asia, Africa, Latin America, and parts of Eastern and Southern Europe.
Belt and Road has established for China a role in global development rivaling that of the US and the World Bank. But for all the influence it has brought Beijing, the initiative has contributed to unaffordable levels of debt for dozens of poor countries. China also directed contracts to its own companies and in some cases built expensive, subpar projects that have not spurred economic growth.
Now, as representatives from many of the nearly 150 Belt and Road countries assemble in Beijing this week for a summit, the initiative is changing shape. China’s role has shifted from being the world’s largest bilateral lender to also its largest debt collector.
The government is now emphasising smaller grants for projects that are more environmentally sustainable. China in 2021 announced a new financial framework, the Global Development Initiative, to supplement the Belt and Road.
These changes underline how China’s mounting debt and economic troubles are limiting its ability to project financial power abroad.
Boston University’s Global Development Policy Center calculates that China’s issuance of overseas loans and other development finance peaked in 2016 at nearly $90 billion, then wilted to less than $5 billion by 2021, the most recent data available. China has taken a hard line in negotiations over debt relief to countries like Sri Lanka, Suriname and Zambia.
Wang Jisi, the founding president of the Institute of International and Strategic Studies at Peking University, published a paper in July 2012 that would reshape China’s foreign policy doctrine. Titled “Marching West,” it contended that China should pay less attention to confronting powerful allies of the United States to the east — like Japan, South Korea, Taiwan and the Philippines — and focus more on Central Asia and the Middle East.
Xi embraced that approach after he took power later that year. China had just started to send goods to European markets on trains that followed 2,000-year-old Silk Road routes across the steppes of Central Asia. Xi travelled to Kazakhstan, China’s western neighbour, and announced a “Silk Road Economic Belt” in September 2013.
Four weeks later, after Southeast Asian nations asked to be included, Xi announced a “Maritime Silk Road” to link countries across Southeast Asia and South Asia to East Africa.
The initiative then went global, encompassing more-affluent countries that seemed to China to have unsteady ties with the US. By 2019, Hungary, Portugal and even Italy, a member of the Group of 7 leading industrialised democracies, had signed agreements to cooperate with what by then had been renamed the Belt and Road Initiative. So did Iran, Saudi Arabia and countries across Latin America and Africa.
For China, broader economic influence has sometimes brought political complications. That was seen in China’s cautious initial statements after the Hamas attacks in Israel. State television and the rest of China’s global propaganda apparatus have emphasised Israel’s bombing of Gaza over the preceding Hamas attack, presenting China as a true friend of the world’s poor.
In the years before the pandemic, Chinese companies, particularly construction and engineering firms, rushed to do deals financed with large loans from Chinese banks. Many leaders of developing countries welcomed China’s willingness to lend with few of the environmental and human rights restrictions that multilateral institutions and Western lenders have long demanded.
Much of the work produced vital infrastructure like roads and rail lines. But other projects have contributed considerably to greenhouse gas emissions linked to climate change. In the early years of Belt and Road, China was the main international lender and builder for coal-fired power plants in developing countries.
Xi announced two years ago that China would not build any more such plants. But Chinese companies continued to work on coal-fired projects with previously signed contracts. Improving environmental sustainability will be a central stated theme of the next phase of China’s development lending. People’s Daily, the Communist Party’s main newspaper, said Friday that China would “build a clean Silk Road.”
Shifting to Investment
Chinese banks linked the interest rates for many of their Belt and Road infrastructure loans to international lending rates for dollars. As global interest rates have climbed and the dollar has strengthened, developing countries have been stuck with soaring bills to repay these loans. The economic shock that countries suffered from the pandemic exacerbated their financial problems. China has responded by allowing poor countries to defer some payments but has resisted calls for debt forgiveness.
China has also started funding less risky projects. China Development Bank agreed in late August to lend $400 million to the African Export-Import Bank to provide trade finance to small and medium-size businesses.
Kai Xue, a financing lawyer in Beijing, said that recent coups in Western-aligned countries in Africa’s Sahel showed that a better model was needed and that China could provide it by bankrolling many small loans.
“China’s lending for agricultural and transportation projects can raise families’ incomes and the hopes of people, so they won’t overthrow governments,” he said.
From the start, the BRI was about not just lending money but also imparting China’s political views, much as the West has long used development aid to push for democracy. China has aligned the initiative with autocratic countries like Syria and Myanmar that the West has condemned for human rights abuses.
That division will be on stark display by the expected attendance at the summit of President Vladimir Putin, who was invited by Xi during a visit to Moscow in March. Putin rarely leaves Russia, and this year the International Criminal Court issued a warrant for his arrest on suspicion that he ordered the illegal deportation of children from Ukraine. NYT