The View | New era of China’s Belt and Road Initiative will see less risk and more focus

Some of China’s Belt and Road Initiative projects have not been doing well, and it is not all China’s or the host countries’ fault. From the Covid-19 pandemic to Russia’s invasion of Ukraine, many developing economies are struggling. Add to this the environmental disasters from climate change, such as the massive flooding in Pakistan.

Since the initiative’s inception, China has disbursed about US$1 trillion across almost 150 countries, becoming the global leader in providing financing to developing nations. However, China’s outward foreign direct investment (FDI) only ranked fourth in 2021, behind the United States, Germany and Japan.

Borrowers’ capacities to repay debts are hampered by inflation and rising interest rates in an environment of high energy and food prices. According to the International Monetary Fund, about 60 per cent of low-income countries are struggling with debt distress.

While no one could have anticipated today’s adverse global economic climate a decade ago, many countries China ventured into are not well-governed or resilient economies. Guided by a grand vision and geopolitical considerations, some of China’s projects have not been sound business based on prudent economic analyses. Some countries facing particular challenges are in Central Asia and South Asia, including Tajikistan, Kyrgyzstan, Pakistan and Sri Lanka.

China’s engagements have been most visible in energy and transport. However, transport has been more in the form of construction projects rather than investment. As a sign of greater prudence, China’s belt and road construction contracts are getting substantially smaller.