New Silk Road under pressure: A combination of the post-pandemic recession and the global trend towards sustainable energy is putting Chinese President Xi Jinping’s Belt and Road Initiative (BRI) under scrutiny like never before. It is now seven years since Xi launched the multi-billion-dollar initiative in an attempt to resurrect the ancient east-west Silk Road trade routes and, as the years have gone by, it has become increasingly clear that he had several interlocking outcomes in mind when he came up with the scheme. On one level, it was a perfectly transparent means of facilitating the exports of goods and services from China’s industrial and manufacturing heartlands to the markets of Europe and beyond. Xi also made it clear from the beginning that he intended to use BRI to provide the people’s republic with regular supplies of hydrocarbons and other natural resources both from and via Central Asia. What has become increasingly evident, however, was the hidden agenda that has seen Beijing tap into the Chinese treasury’s considerable resources to extend China’s ‘soft power’ influence and, to the detriment and frustration of many local businesses, to secure lucrative overseas contracts for Chinese building and civil engineering contractors.
But perhaps Xi should have factored in the law of unintended consequences when he embarked on this journey, because what neither he nor anybody else could possibly have envisaged at the time was that the whole initiative could be put in jeopardy by one very unwanted and deadly export from those very same heartlands – COVID-19. With their economies devastated by the pandemic, many of the very countries to which Beijing was so happy to lend money are now knocking on its door seeking debt relief. By 2018, the writing was already on the wall when the OECD released a report warning that of 60 countries to whom China had recently extended funding for construction projects, only 17 had economies with an investment grade at BBB- or above, 29 had lower ratings and 14 had none at all. By extension, it only needed something to spark a global recession for the wheels to start coming off….
Tightening their Belts
And so it has come to pass. The first indication of the extent of the problem emerged last month when Pakistan’s foreign minister Mahmood Qureshi called his Chinese counterpart Wang Yi to inform him that his country’s economy was nose-diving, and that his government needed to restructure billions of dollars of Chinese loans. Since then, similar requests have followed from Kyrgyzstan, Sri Lanka and a number of African nations also asking either to restructure, delay repayments or forgive tens of billions of dollars of loans that come due this year.
China now finds itself facing a dilemma between trying to salvage its own economy or forgiving and renegotiating its partners’ loans. It also risks standing accused of devising the entire BRI project as a debt trap dressed up as altruistic assistance.
Enlightened self-interest would suggest that Beijing will reserve its most favourable responses for relief for Kyrgyzstan and its other Central Asian neighbours. For obvious geographical reasons these have long been key to its ambitions to establish overland links between its western provinces to South Asia, the Middle East, and Europe. Kazakhstan and Turkmenistan in particular also happen to be blessed with substantial hydrocarbon resources; and with over half of its oil originating from the Middle East, China has been banking on them to help it diversify and enhance its energy security.
Between 2007 and 2018 trade between China and Central Asia doubled to almost $40 billion and China is also the leading foreign investor in critical sectors such as energy, industry, and infrastructure. It is a two-way relationship and their fortunes would therefore appear to be inextricably linked.
Paint it Green
The BRI is now under threat from another quarter, too. This April, according to an FT special report, 260 environmental organisations got together and sent a written request to China’s finance minister asking him to not bail out 60 of those projects whose future the economic fall-out from the pandemic had called into question. Those projects ranged, the report says, from coal-fired power plants in Turkey to palm oil plantations in Cameroon, and are all of debatable environmental integrity.
The issue the request raises is greater than the sum of its parts, however, for it calls into question the emphasis that the BRI has so far placed on fossil fuel-based projects.Between 2000 and 2019, according to Boston University’s Global Development Policy Center, the majority of the $183bn extended in loans to BRI countries by the China Development Bank and Export-Import Bank of China went on oil, coal and hydropower compared to only $4.8bn funding for solar and wind projects,