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China’s Belt and Road Initiative is in trouble. After a spate of defaults from Sri Lanka to Zambia, Beijing’s grand quest for economic dominance seems to have ground to a halt with devastating consequences for developing economies and Beijing’s global ambitions. Mint explains what has gone wrong in the initiative.

What is the Belt and Road Initiative?

Unveiled in 2013 by President Xi Jingping, the Belt and Road initiative, also known as BRI, was once heralded as the most ambitious economic strategy ever unveiled by a major global power. The BRI’s stated aim was to invest trillions of dollars in business, infrastructure and development initiatives in close to 140 countries across Asia, Europe and Africa.

The BRI took inspiration from the historic Silk Road, which existed over 2000 years ago and forged trade links between China, Central Asia and the Western world. China’s grand plan was to contrast two new Silk Roads: one which ran over land through a series of connectivity projects and the other over sea through a series of Chinese developed ports and maritime infrastructure facilities.

What was BRI’s goal?

Firstly, the BRI was meant to announce China’s arrival on the world stage as a truly global economic power. Second, it hoped to develop new markets for China’s massive manufacturing sector. By funding infrastructure projects in the developing world, which would largely be built by Chinese companies, Beijing wanted to ensure that its businesses established a firm foothold globally. Further, since the infrastructure would be built on Chinese loans, it would enable a steady stream of revenue from interest repayments into Beijing’s coffers. After the infrastructure was developed, a boom in trading and economic activity was expected which Chinese firms would be well positioned to benefit from.

BRI’s critics have argued that apart from these economic goals, China also hoped to expand its political footprint with debtor nations. If Chinese aid became irreplaceable to developing nations, they would be likely to align with Beijing’s political aims globally.

Why the controversy?

Essentially, accusations of “debt-trap diplomacy" have haunted the program since its inception. Part of the BRI’s appeal was that its funds did not come with the stringent conditions applied to loans from multilateral organisations like the World Bank or Western lenders. Chinese funded projects, like the Kenyan SGR railway or the Mattala Rajapaksa airport in Sri Lanka, have made staggering losses even as borrowing countries have seen their debt levels spiral. Beijing is also secretive about the terms of its loan agreements which are rarely disclosed and fuel allegations of corruption. Chinese officials have been accused of lining the pockets of officials in developing nations to win their favour. A case in point was the questionable economic investments made in the home constituency of Mahinda Rajapaksa, a former President of Sri Lanka and political donations made to his aides.

What challenges has BRI faced?

While Chinese speed in approving loans and starting projects was often attractive, in practice this meant poor coordination and oversight from Chinese authorities and an even poorer selection of projects. This has resulted in lost revenues for China and large debt levels for developing countries.

Chinese companies are also accused of cornering the benefits that were supposed to accrue to local populations. Beijing’s much vaunted investment in Gwadar port in Pakistan has enraged local fishing communities who have seen their business drop substantially with no perceivable benefits. An estimated 89% of contractors in Chinese funded projects happen to be Chinese companies. This means local firms seem to benefit little from these investments when compared to multilateral organisations which look to provide a substantial percentage of contracts to local businesses.

What happens now?

China has already begun to change tack and cut bait. According to some estimates, Chinese investments in the countries part of the BRI fell 54% in just a year from 2019 to 2020. Investments in giant infrastructure initiatives based in Africa have also declined substantially.

However, it has also begun to engage in conversations about debt forgiveness. In August, Beijing cancelled repayments on some categories of loans for 17 highly indebted African nations.

Developing economies who had grown to rely on Chinese investments in projects will come off the real losers from this retrenchment. Faced with a yawning infrastructure gap, these nations have an uphill battle as they seek investments to boost connectivity and bolster economic growth.

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