China’s belt and road project can’t cover Asia’s infrastructure needs by itself, never mind the world’s
Anthony Rowley says while China’s critics fear possible debt traps, they miss the point that only Beijing is taking serious steps to meet infrastructure needs – and even that’s not enough
Infrastructure investment, as the document notes, is a key aspect of the belt and road but the initiative “is much broader in its objectives, encompassing all aspects of sustainable growth [for China] and including more balanced regional growth, the upgrading of China's industry and greener growth at home”.
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Perhaps the biggest potential obstacle to the belt and road is the lack of representation among the countries involved. It is overseen by an official “leading group” in China and hosted by the National Development and Reform Commission, which coordinates a number of Chinese ministries and other state agencies.
Chinese projects are debt-funded, often in difficult environments, and financial struggles may result. The cumulative value of troubled assets from Chinese overseas investment since 2005 has reached US$370 billion, the OECD suggests. (Cases where China is said to urge borrowers to accept large loans to convert these to equity in strategic assets are not mentioned).
Perhaps a bigger concern in the context of the overall infrastructure funding deficit is that China is beginning to restrict expansion of credit and reduce levels of indebtedness in its domestic economy. This will mean, the OECD says, that China “ will run into constraints on its ability to fund the huge needs of participating economies”.
This could be the “sting in the tail” of the OECD analysis. “As living standards rise”, it says, “history teaches that the role of markets becomes more important in allocation decisions. Property rights, competition, level playing fields and sound governance based on voice and accountability have helped to manage the transition.”
Such reforms, it is suggested, are “likely to become necessary in belt and road-participating economies and moving in this direction will encourage more funding from advanced economies and from multilateral lending institutions”.
This message is likely to resonate increasingly within a China facing funding constraints on its belt and road ambitions.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs