BRI stands at crossroads amid investment shift, says a report

LONDON: Since its launch in 2013, China’s Belt and Road Initiative has attracted equal measures of suspicion and admiration and after splashing billions of dollars into mega-sized overseas construction projects, the Chinese Ministry of Commerce has put a brake on fast overseas expansion in its 14th Five-Year Plan (FYP) for 2021 to 2025.
During the period, it plans for China to invest $550 billion (including spending in non-BRI countries), down 25 percent from the $740 billion spent over the 2016-2020 period, The Maritime Executive reported. In addition, Chinese contracting volume is planned to decrease from $800 billion in the previous FYP to $700 billion in this FYP.
Indeed, it might be BRI’s moment of reckoning. Despite some success after eight years of implementation, BRI stands at a crossroads. Some participating countries are having a second look at some high-profile BRI projects, and there are concerns that the risks may outweigh the benefits.
A recent report by AidData, capturing 13,427 Chinese projects across 165 countries over an 18-year period, found that 35 percent of BRI infrastructure project portfolio has encountered major implementation problems. Some of the leading factors include corruption scandals, labour violations, environmental hazards and public protests. Interestingly, the researchers noticed that infrastructure projects outside of BRI encountered fewer implementation problems.
Notably, concerns around debt sustainability are leading low and middle- income countries to mothball BRI projects. Specifically, large projects within the transport sector (shipping, road and rail) have attracted the most backlash. As they are considerably pricier and more conspicuous, these projects are the backbone of critics’ arguments about China’s “debt-trap diplomacy.”
The greatest BRI retreat has been felt in Europe as countries in the region come under EU and US pressure. The shift has been prompted by national security concerns amid talks of China’s aggressive geopolitical posture. Romania, Lithuania, Slovenia and Croatia have taken broad measures to suspend public tenders involving Chinese companies. At the beginning of 2021, Croatia cancelled a $3 billion agreement to commission Rijeka Port to a consortium of three Chinese contractors.
With the US- backed B3W (Building Back Better World) and EU’s “Global Gateway” strategies now functional, will the BRI deal size shrink in future? While it may be early to tell, it appears some competition is unfolding in the field of development finance.
Nigeria announced last July that it was turning to Standard Chartered Bank to fund $3.02 billion for the ongoing Port Harcourt-Maiduguri railway project. This resulted after lending delays from China’s Exim Bank.
Ecuador has also sealed an agreement with the US International Development Finance Corporation (DFC), a Belt and Road rival, which will see the US refinance up to $3.5 billion in Chinese debt.
In a recent BRI investment report for 2021 by Dr Christoph Nedopil, director at Green Finance and Development Centre, opines that there is likely to be a significant shift in BRI portfolio going forward.
“For 2022, we see better opportunities in investing in smaller projects that are faster to implement (for example, solar and wind farms) and an opportunity to scale back large and often-loss making projects (coal),” Nedopil said.
Following the launch of Guidelines for Greening Overseas Investment and Cooperation, issued in 2020 by the Chinese government, Dr. Nedopil estimates that BRI’s green finance and investments have slightly increased to a new high in 2021 at $6.3 billion (compared to $6.2 billion in 2020). – TLTP