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Belt and Road: A double-edged sword?

By Lachlan Maddock
 — 1 minute read

China’s Belt and Road Initiative (BRI) could permanently alter the global economic paradigm. But is the devil in the details?

The BRI is China’s effort to massively expand its influence in the developing world by embarking on an infrastructure project of incredible scale. If everything goes to plan, the BRI could boost global output by as much as $7.1 trillion per annum by 2040 and decrease the share of the world’s population living in extreme poverty from 5.2 per cent to 3.9 per cent. 

That’s a powerful argument for the project, which has been met with much consternation from powers whose global influence is fading. But is the BRI as altruistic as its architects claim?


Sword or debt? 

While the BRI is usually seen as a monolithic project, directed by a shadowy cabal of Beijing powerbrokers, the truth is more mundane. While Beijing has a say, the nitty-gritty is usually left to whichever agency or organisation is working on a particular project, and the country with which it is working. 

The main players in the BRI are Chinese state-owned enterprises (SOEs), in-country partner companies, and lenders – usually Chinese state-owned banks that don’t like discussing projects or loan terms. 

That opacity is what leads many to picture Machiavellian scheming and plots for world domination. In reality, the BRI is a mishmash of competing interests. It’s also wildly corrupt. In 2011, the China Communications Construction Company – a major player in the BRI – was debarred by the World Bank for engaging in fraud in the Philippines. One of its subsidiaries, China Harbour, also tried to bribe officials involved in a highway upgrade project with $100,000 stuffed into a box of tea. 

According to Aviva Global Investors, the BRI could potentially lift eight million people from extreme poverty and 32 million from moderate poverty by 2030, primarily in Pakistan, Kenya and Tanzania. However, the projects themselves largely use Chinese companies and labour, with few opportunities for locals. Locals are also sometimes materially impacted by BRI projects; in Laos, Chinese and government officials asked households to relocate without compensation to make way for a $6 billion high-speed railway.

Many BRI projects also take place in countries where governance and institutions are weak, leading to problems like Djibouti’s public external debt doubling after receiving a loan equivalent to 75 per cent of GDP or China repossessing a Sri Lankan port it helped build after the country reneged on its payments. 

That’s led some to accuse China of practicing “debt trap diplomacy” – essentially, extracting diplomatic or military guarantees from countries by wiping their payments. 

Green or red? 

In a time when the environment and climate change are becoming more important in global finance, the BRI is decidedly dirty. Ninety per cent of energy sector financing from Chinese SOEs and banks is in fossil fuels. Thirteen coal plants are planned for the China-Pakistan Economic Corridor, despite the fact that Pakistan is one of the countries most at risk from climate change in the world. 

The BRI is set to increase carbon emissions in countries along key BRI routes by 0.6 per cent, and the lack of a centralised climate framework in the BRI – companies are only required to abide by host country regulations, and many of those countries are keen to industrialise – means that few green initiatives are planned. 

Biodiversity is also threatened by BRI, with planned corridors overlapping with the habitats of at least 39 critically endangered species and 81 endangered species, including tigers and giant pandas. And while China has itself launched a number of sustainable development initiatives, aiming to become a green energy powerhouse, these aren’t being incorporated into the BRI. 

A new way forward?

Speaking at the second Belt and Road Forum in 2019, President Xi Jinping vowed to correct the negative aspects of the BRI, noting that it had not created as many opportunities for participant countries as it could have.

“We need to take a people-centred approach, give priority to poverty alleviation and job creation to see that the joint pursuit of Belt and Road cooperation will deliver true benefits to the people of participating countries,” President Xi said. 

“We also need to ensure the commercial and fiscal sustainability of all projects.”

President Xi also said that the BRI would open up more of its initiatives to global investment, creating opportunities for international investors and fostering a culture of greater accountability and transparency within the occasionally opaque initiative.

But it remains to be seen whether a project as massive and decentralised as the BRI can change. And as America, Japan, and Australia establish a competing program – the Blue Dot Network – the BRI might have to kick into high gear to stay ahead of the pack.

Belt and Road: A double-edged sword?

China’s Belt and Road Initiative (BRI) could permanently alter the global economic paradigm. But is the devil in the details?

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