As the coronavirus continues its rampage across the globe, China’s Belt and Road Initiative — its slew of infrastructure and other projects around the world — is facing a significant shift in the international environment. In the post-pandemic era, China will sail into headwinds as it navigates these changes while driving the BRI forward.
US will create obstructions
As far as international geopolitics is concerned, as China-US rivalry heats up, the two countries will increasingly be locked in perpetual opposition to each other. With regards to the BRI, the US will further beef up its precautionary measures and counteractions. After all, the US sees China as its strategic rival. It will respond if it sees its rival using its economic muscle to propel its regional cooperation initiative, thereby posing a challenge to American superiority globally.
Even countries that are willing to work with China under the Belt and Road framework will have reservations about such cooperation because of concerns over America’s attitude.
In short, the US does not want China to gain a greater geopolitical and economic advantage on the back of the BRI. Covid-19 has already caused serious damage to the Western superpower, causing its economy to plummet and its unemployment rate to jump to the highest figure recorded since the end of the Second World War. Covid-19 deaths in America have gone beyond 119,000, higher than the nation’s combined casualties from the Vietnam War, the Gulf War and the counter-terrorist war in Afghanistan. When the pandemic is over, the US foreign strategy will pursue further “de-sinicisation”, maximally reducing the dependence on China on the part of global industrial and supply chains.
The US is presently mobilising its immense national strength to try to convince the international community (especially its allies) to stand against the BRI. Even countries that are willing to work with China under the Belt and Road framework will have reservations about such cooperation because of concerns over America’s attitude. This will definitely affect the BRI projects currently in progress, not to mention jeopardise the signing of contracts for new projects.
Even without such efforts by the US, the global Covid-19 situation itself, as well as China’s early poor response to the coronavirus outbreak, have made China’s international image more negative. The pandemic is affecting relations between China and some of the countries along the Belt and Road. Anti-China trends are emerging in some countries, such as the Philippines, India, Australia and the Czech Republic. All this will have a negative impact on the implementation of the BRI.
In particular, low-income countries like Kyrgyzstan, Laos, Mongolia, the Maldives, Djibouti and Pakistan bear enormous national debt pressure. In each of these cases, the ratio of the government’s overall debt to GDP exceeds the dangerous level of 60%.
China losing wind in its sails?
Due to the impact of the coronavirus pandemic, that the world economy is falling into recession in 2020 is a given. Both developed and emerging economies will sink into recession concurrently. According to the World Economic Outlook released by the IMF in April 2020, the world economy is expected to contract severely by 3% this year because of the pandemic. This would be a first since the Great Depression of the 1930s.
The coronavirus situation has thrown many countries along the Belt and Road into economic and fiscal crisis. In particular, low-income countries like Kyrgyzstan, Laos, Mongolia, the Maldives, Djibouti and Pakistan bear enormous national debt pressure. In each of these cases, the ratio of the government’s overall debt to GDP exceeds the dangerous level of 60%.
China itself is not without problems. The Asian powerhouse’s economic growth has slowed down significantly over the last decade. Its economy, which grew by only 6.2% in 2019, shrank drastically by 6.8% in the first quarter of 2020 alone due to the impact of the pandemic. This is the lowest figure on record ever since the country started making its statistical data public in 1992. For this reason, China’s financial institutions must prioritise the directing of credit capital to meet domestic needs, hold the domestic economy together, and tighten their outbound loans.
The large number of Chinese engineering-technical personnel and labourers who returned to their homeland to celebrate the Chinese New Year prior to the Covid-19 outbreak are unable to go back to their construction sites due to travel and entry restrictions imposed by the countries along the Belt and Road. The pandemic has disrupted industrial and supply chains for the relevant infrastructure-building equipment and materials. Many BRI projects under construction are stuck in hiatus as there is no way to acquire relevant building materials and supplies for engineering mechanical equipment.
The shift in the international geopolitical environment, the slowing of China’s economic growth and the impact of Covid-19 on the global economy pose a new resistance and challenge to China’s advancement of the BRI. With a different international backdrop and the ravages of the novel coronavirus keenly felt around the world, it has become necessary to tighten the battle lines of the Belt and Road and adjust the tactics of the BRI.
There needs to be timely adjustments made to the scale of BRI projects and the modes of cooperating with foreign parties.
China's four-step strategy to a better BRI
The BRI is at the core of China’s “grand diplomacy” under the leadership of President Xi Jinping. It is also an integral part of the “Chinese Dream” (中国梦). At the second Belt and Road Summit held in 2019, Xi Jinping pledged to better communicate and consult with the countries along the Belt and Road, have the Initiative work towards being “open, green and clean”, and strive to deliver high-quality development of the BRI. BRI 2.0 is what the international community looks forward to.
China needs to adapt to the new international geopolitical and economic macro-environment of the post-pandemic era. There needs to be timely adjustments made to the scale of BRI projects and the modes of cooperating with foreign parties.
Of particular importance are the four following points. Firstly, China needs to reconnect with its initial intentions behind launching the BRI, and strive to help the BRI corridor countries develop their infrastructure and enhance the conditions for interregional connectivity. Ultimately, all this is to expand the scale of bilateral trade, facilitate the movement of people, and bring about mutual benefit and win-win outcomes. As pointed out by the World Bank in its 2019 report entitled “Belt and Road Economics: Opportunities and Risks of Transport Corridors”, transport projects under the BRI can increase trade for BRI corridor countries by 2.8% to 9.7%.
... China needs to change the “spreading-the-pie” kind of approach, tighten the battle lines of the BRI, ensure the construction progress and quality of the key projects, get the completed projects up and running, and have them show results...
Secondly, China should advance the BRI on the basis of transparency, fairness and international rules to a greater extent. The "multilateralisation" of the BRI is very crucial. This will help to tone down the image of China as being the sole dominant force in the BRI, and give Belt and Road countries confidence in participating in the BRI as equals. Multilateralisation will also help to divide the financing risks of the infrastructure projects, and drive the BRI forward in a sustainable manner.
BRI projects need to attract not only investments from domestic and foreign private enterprises, but also the joint participation of international multilateral financial institutions such as the World Bank, the European Bank for Reconstruction and Development, the Asian Development Bank and the Asian Infrastructure Investment Bank. Doing so will help in two aspects: making the projects transparent, and expanding the pie of global infrastructure-building jointly. The process of enhancing the conditions for regional connectivity can thus speed up.
Thirdly, China needs to change the “spreading-the-pie” kind of approach, tighten the battle lines of the BRI, ensure the construction progress and quality of the key projects, get the completed projects up and running, and have them show results, so as to gain the trust of the Belt and Road countries.
Pakistan’s Gwadar port, Sri Lanka’s Colombo Port City project, Indonesia’s Jakarta-Bandung High-speed Railway and the China-Laos Railway are all major projects in progress that are highly significant for two things — one being the wave of Chinese companies venturing out into the world at large, and the other being the economic development of the Belt and Road countries. Chinese enterprises should build and run the relevant works well to gain a good reputation.
Building trust with BRI corridor countries paramount
The Greek port of Piraeus is a case in point. It is the biggest joint venture between China and Greece, as well as the most successful of China’s BRI projects in Europe. A Chinese company was given comprehensive rights to operate the port facility in 2016. Within just a few years thereafter, Piraeus saw its container throughput multiply by a few times, such that it became one of the busiest Mediterranean ports. The Piraeus project has increased Greece’s national tax revenue, created more jobs locally, and successfully stimulated the development of neighbouring areas.
In the wake of such results come the favour and support of Greece’s government, industrial and business community, workers and media. Within this country and, indeed, the international community at large, initial doubts about the Piraeus project have given way to the current virtual cessation of all criticism. Thanks to Chinese enterprises winning Greek support for the BRI with their operational prowess and performance in developing the port, Greece has become China’s most trustworthy partner in Europe.
Djibouti, Mongolia and Kyrgyzstan, for instance, owe China the equivalent of 69.7%, 27.7% and 22.5% of their GDPs respectively.
Fourthly, given that China is the chief emerging creditor nation, the international community would like it to grant low-income countries a longer grace period and deal with them more flexibly with regard to principal and interest repayments due. Due to the arising of domestic economic and government fiscal crises, some countries have difficulties with repaying due debts and run a high risk of defaulting.
Much of the foreign debts owed by many Belt and Road countries is to China, and much of this is linked to BRI projects. According to data published by Germany’s Kiel Institute for the World Economy and America’s Centre for Global Development separately, Djibouti, Mongolia and Kyrgyzstan, for instance, owe China the equivalent of 69.7%, 27.7% and 22.5% of their GDPs respectively.
Actively taking action on the G20 initiative to suspend debt repayment “for the poorest countries”, China announced in early June its consent to a temporary suspension of debt repayment (otherwise due by the end of 2020) for 77 developing countries and territories. Although no specific country was named and nothing was revealed about the exact amount of any debt temporarily put on hold, the stance taken by China has won it much applause from the international community.
Related: Sinophobia in Myanmar and the Belt and Road Initiative | Why the world needs the BRI | The most likely outcome of the BRI | From supply chain to BRI, a super-connected China impacts the world | Vietnam's cautionary tale on benefiting from the trade war and the BRI | Why the BRI needs the USA