Belt Road Initiative (BRI) — a virtual trap for many countries
This write up comprises two parts. In the first part we discuss the background / development of the project and strategy, intention and challenges in the second.
Background
China launched the Belt Road initiative in 2013 with an objective to integrate global markets with Chinese production hubs. Integration would provide easier access of Chinese goods to potential markets all over the world. As part of the initiative, China has identified “infrastructure gaps” in Africa, Central Europe and Asia and within China and through the initiative, China intends to connect those gaps. China’s involvement in the projects include funding, building and operations.
Key BRI Projects
Africa — As per an article published by Centre for Strategic and International Studies — a think-tank based in Washington, China / Chinese entities has been involved in 46 sub Saharan African Ports. Out of the 46, 90% of them have been constructed by Chinese companies, about 50% are financed by the Chinese and manage the operations of 75% of those financed.
As per an article published by Brookings in 2018, China’s commitment in Africa is $60 billion. Out of which only $10 billion in the form of “investment” and the balance $50 billion is in the form of “credit lines, loans and grants”.
Asia — Two most talked about Chinese projects in Asia are “Hambantota Port” in Sri Lanka and “China Pakistan Economic Corridor” (CPEC) in Pakistan.
CPEC is building a road corridor from the China — Pakistan border up to the Gwadar port for direct access to the middle-east / western Africa. In addition to the road corridor the project is also entails energy projects and manufacturing zones along the route of the roadway. As per report published by Deloitte the total investment is expected to be around $75 billion.
The Hambantota port is a much smaller in size ie. $1 billion dollar. In addition, China has also invested in Central Asian countries most building road / railway infrastructure and energy.
Project Financing by China
Contrary to popular belief that “China invests…”, China usually finances large part of the projects with debts, often at higher than usual market rates. Actual investment in these projects is kept at minimum. In most of the projects, the cases terms and conditions of loans between China and the FDI inflow country is kept confidential.
It is thus expected that the project once finished, would generate enough revenue to pay back the interest and principal. These ambitious projects can turn into nightmares if the project is not able to generate enough revenue.
Take Hambantota Project in Sri Lanka as an example — the project took off in 2002. The port was a few nautical miles away from the busy lane for cargo ships. It was meant to facilitate (or control?) the busy lane. The port commenced operations in 2010 and since then, it has failed to make any repayments on loan. In 2017, after was mutual discussions, Sri Lanka agreed to give the port to Chinese Government on a 99 year lease — “A mini China is Sri Lanka”. Was this the outcome that Sri Lankan government had hoped for? I am sure not, but it is the best option for Sri Lanka looking at revenue generating capacity of the port.
It remains to be seen about what happens to the other projects in Asia and Africa.
Looking back, I think Sri Lanka has learnt its lesson and will be careful about their projects and partners that they engage. One question that the Sri Lankans are asking now — Is it what the Chinese objective was in the first place — to acquire Chinese working bases in Sri Lanka?
A few questions that we need to ask?
1. China’s objective / Strategy with the BRI projects?
2. Why do countries choose Chinese funding over IMF or ADB?
3. With the global trade war, will BRI be helpful for China?
4. What will be Chinese strategy after it acquires ports / roads in foreign countries?
5. What does it mean in today’s scenario after the coronavirus pandemic?
In my next article I will be discussions each of these questions. So stay tuned!!
Partha Mazumdar
Founder of Vertical Bricks.
