Is China’s Belt and Road Initiative running out of steam?
- A decade after the initiative started, the amount being invested in projects in Africa has dipped to its lowest level
- While observers say the strategy will continue, it seems ‘small and beautiful’ is its new catch-cry with developers
At Kenya’s Miritini Railway Station, near the coastal city of Mombasa, a statue of legendary Chinese explorer Zheng He sits on a plinth greeting passengers, more than 600 years after his voyage to the town of Malindi, further up the coast.
The statue’s plaque explains the ties between Kenya and China that began with Zheng’s visit in 1418, saying: “Zheng’s fleet paid four visits to Mombasa, enhancing mutual understanding between China and Kenya and strengthening Kenya-China friendly exchanges.”
Never mind that back then there was no country called Kenya, and China was, in fact, the Ming dynasty.
China funded and built the railway line that runs from Miritini for passenger trains and from the port of Mombasa for freight trains to the capital Nairobi, with an extension to Naivasha, a town in the Central Rift Valley.
06:32
China’s Belt and Road, 10 years on
Before the China Exim Bank grew cautious over the commercial viability of the project, it had advanced US$5 billion to build a 590km railway line. But China declined to fund the section to Malaba, at the Uganda border, also over commercial viability concerns.
In Ethiopia, China funded and built the US$4.5 billion Addis Ababa-Djibouti railway line, while in Djibouti, China poured money into its maritime sector, including the country’s ports and free-trade zones, and built its first overseas military base near the strategic Bab el-Mandeb Strait between the Gulf of Aden and the Red Sea.
After starting in 2013 to boost global trade and commerce by improving infrastructure and connectivity with Asia, Africa and Latin America, the Belt and Road Initiative has seen China spend more than US$1 trillion across the last decade.
But recently, an increasing number of critics, especially officials in Washington and some other Western countries, have accused China of driving up the debt for a number of nations to unsustainable levels. The critics accuse Beijing of engaging in “debt trap diplomacy” – leaving countries saddled with loans they cannot afford.
Funding for belt and road projects has also been thrown into doubt as China’s economy is still facing headwinds. Beijing unveiled a package of policies this summer to stem further downward risks after economic growth rose only 0.8 per cent sequentially in the second quarter. There have been signs that the economy has stabilised, but its long-term reliance has become a global concern.
But China has denied the “debt trap” allegations. Instead, it has pointed the finger at multilateral financial institutions and commercial creditors which account for more than 80 per cent of the sovereign debt of developing countries.
“They are the biggest source of debt burden on developing countries,” China’s foreign ministry said early this year.
Austin Strange, assistant professor in international relations at the University of Hong Kong, said China’s global infrastructure financing drive is slowing down from a feverish pace over the past decade.
“It certainly appears that large infrastructure loans from Chinese policy banks have peaked in terms of their global volume, and that the Chinese government has increasingly highlighted the merits of smaller-scale projects,” Strange said.
But developing countries remain very important for China’s strategic interests, both political and economic, and less infrastructure lending does not mean strategic contraction, Strange said.
In 2016, China advanced US$28.5 billion to African countries, the highest amount ever, with most going to Angola. Since then, Chinese lending to Africa has slowed to a low of US$994.5 million last year, according to the Chinese Loans to Africa Database at Boston University.
But this does not mean that China will stop financing infrastructure projects abroad. “We are just likely to see a reduction in the number of projects,” Bagwandeen said, especially the financing of mega infrastructure projects worth billions of dollars that has come to typify belt and road infrastructure investments.
Observers say the Belt and Road Initiative is here to stay – at least as long as Xi is in power, since it is his signature foreign policy project and it has been elevated to constitutional status.
[Belt and road] investments and loans have become more selective to avoid both debt fallouts and political backlashes
Tim Zajontz, research fellow at the Centre for International and Comparative Politics at South Africa’s Stellenbosch University, said Beijing will continue to try to align the initiative with changing economic realities as well as with geopolitical developments.
“[Belt and road] investments and loans have become more selective to avoid both debt fallouts and political backlashes,” said Zajontz, who is also a research associate in the Second Cold War Observatory, a global research collective that investigates the impact of great power rivalry. “We can expect less large-scale infrastructure projects and more Chinese investments in low-tech manufacturing and processing ventures across Africa.”
The Belt and Road Initiative will also venture into non-economic spheres of cooperation to bolster Chinese influence in the cultural, educational and digital spheres across Africa, he said.
“We are also likely to see more cooperation in the security realm between China and African countries,” Zajontz said.
According to Kanyi Lui, an international project finance lawyer and head of Pinsent Masons’ China offices, the belt and road plan is a partnership based on mutual interests, and Chinese investments and financing are provided in response to needs identified by the host government and local conditions.
As a result, Lui said hotspots for belt and road activity tend to shift around the world.
“We have already seen at least two similar shifts involving Africa and Latin America over the last decade and the demand for economic development in the Global South remains very strong.”
Lui said there was a strong focus on basic infrastructure development such as power and transport during the first decade of the initiative because economic development cannot happen in the absence of basic infrastructure, which has historically been one of the main obstacles for many developing countries. But countries in different stages of development have different needs and challenges.
Since Xi announced the idea of “small is beautiful” during the third Belt and Road Initiative Symposium in November 2021, the phrase has become popular in official rhetoric.
China is now increasingly financing projects with small and shorter repayment periods. According to the South African Institute of International Affairs (SAIIA), those projects are typically financed with smaller loans with short repayment windows. This trend has seen the average deal size for construction projects fall from US$558 million in 2021 to US$325 million in 2022.
01:21
China-built hydropower station in Angola enters main construction phase
Lui said it is likely that developing countries which have already invested in key basic infrastructure will start to see increased interest in more sustainable “small and beautiful” projects which promote local manufacturing capabilities, industrialisation, international trade and local economic development.
“I expect we will continue to see the Belt and Road Initiative play a significant role in infrastructure investment in developing countries which still do not have the necessary basic infrastructure for further development,” Lui said.
Bagwandeen agreed that future belt and road projects are likely to be “small and beautiful”, less costly, and more likely to use commercial loans instead of concessional loans or grants.
“The Chinese are also likely to become more thorough in vetting a project’s viability and feasibility – they can’t afford to lose more money abroad,” Bagwandeen said.
Ovigwe Eguegu, policy analyst at Beijing-based Development Reimagined, said the Belt and Road Initiative is and will continue to progress at nodes that matter the most from China’s economic security and strategic perspective. He explained it is not one giant programme, but a decentralised mosaic of deals and projects that all loosely fall under the same umbrella of infrastructure development.
He said some projects are primarily of geostrategic relevance to China such as the Lao-China high-speed rail project, the China-Pakistan Economic Corridor and the China-Myanmar Economic Corridor, which links China’s Yunnan province to the Indian Ocean oil trade route, thus enabling China to address strategic vulnerabilities of its oil supply, and its competition with the US and India at the Strait of Malacca.
Eguegu pointed out that “small and beautiful” signals a shift in the scale of projects – not an end to financing for projects entirely.
“Beijing will further prioritise projects that are of direct strategic value to China or of strategic relevance of the recipient country,” he said.
