China is on a mission to expand its political and economic relationships across the world. One of its main routes to achieve this is through its Belt and Road Initiative (BRI). Announced in 2013, the foreign policy plan involves strengthening trade with developing nations through building and investing in infrastructure as well as loaning money to these nations. As with many elements of Chinese government policy, finer details of the initiative are closely guarded. It is estimated however, that the initiative could cost up to $8 trillion and involves projects with over 100 countries. These countries, largely in Africa and Asia, account for 30% of global GDP and over 60% of the world population.
This huge influx of investment and infrastructure to developing nations can only be a good thing, right? Not necessarily. Critics argue China’s huge loans to developing nations are simply debt traps and even describe it as a form of neo-colonialism. Once developing nations can’t afford to pay money back for infrastructure projects, China simply takes control of relevant assets such as ports and cement authority in a region. This article will explore the BRI, looking at its inevitable benefits as well as the negative political and economic ramifications of the plans.
What is the Belt and Road Initiative?
The BRI is an abbreviation of the Silk Road Economic Belt and the twenty-first Century Maritime Silk Road. It is loosely based on the old Silk Road trade route that connected Asia to Europe and Africa for centuries. It is not one project but rather thousands of different projects as part of an economic objective. The “Belt” refers to roads and train links connecting central Asia to Europe, creating new economic connections. The “Road” refers to maritime shipping lanes to connect central Asia to Southeast Asia, Europe and Africa.
The BRI involves building and investing in new ports and ships. Overall, the BRI consists of an estimated 2600 projects in over 100 countries. China’s government aims to complete BRI projects by 2049, marking 100 years of the People’s Republic of China. As mentioned, details are limited but estimates of the total cost range from $2 trillion to a staggering $8 trillion. China has already made billions of dollars’ worth of investments in places such as Sri Lanka, Pakistan and Kenya. This included the building of airports, windfarms, roads, ports and railway lines.
The benefits of the BRI are largely self-explanatory. Such projects are hugely beneficial to the receiving developing nations as it creates much needed infrastructure. Better infrastructure improves productivity and this infrastructure along with greater trade links boost economic growth, ultimately benefiting the whole population. It is estimated that the BRI could bring 7 million people out of extreme poverty. China’s autocratic government also gives it flexibility to agree and execute projects in a relatively short space of time. When it comes to the development of green technology and infrastructure this speed would undoubtedly be beneficial for the global environment. Additionally, China’s BRI provides an alternative to the IMF and World Bank for developing nations and the benefits of this are discussed below.
One of the main criticisms of the BRI is that it is a debt trap for poorer nations. China gives billions out to nations for projects that they don’t need or can’t afford. Currently, 8 nations who received BRI loans are at risk of default. Looking at some current BRI projects, the numbers speak for themself. Djibouti received $14 billion in loans from China between 2012 and 2020 for new railway lines and a port. The East African nation, however, has a population of under 1 million people and its economy is worth just $3 billion. Over 70% of Djibouti’s total debt is owed to China and some analysts are concerned that it is at risk of losing its autonomy as a result.
Sri Lanka’s deals with China provide a good example of what can happen when things go wrong. Sri Lanka has been in debt trouble for some time. The country’s civil war ended in 2009 and by 2015, 95% of government income was going towards servicing its debt. Pre-BRI in 2009, China loaned Sri Lanka nearly $200 million to build a new international airport. By 2016, this was dubbed the world’s emptiest airport due to the lack of flights. Meanwhile, Sri Lanka was still struggling to pay back the loans on the loss-making airport.
Between 2009 and 2014, China provided Sri Lanka with over $1 billion in loans to build the Hambantota seaport. These were high interest loans of up to 6%. Again, the port was loss-making, and Sri Lanka soon struggled to pay back the loan. In 2017, China negotiated a deal giving itself control of the port for 99 years in return for $1.1 billion, aiding Sri Lanka meet its huge debt obligations. There were protests over the issue and Sri Lanka’s incumbent government has said the decision was a mistake. Ports and shipping infrastructure are crucial to the BRI so commercial access to ports is a priority for China. While the lending took place before the BRI it shows China’s willingness to use debt as a means to take control of strategic assets.
Linked with the debt trap element is China’s requirement for dependence. When China makes investments or lends money for infrastructure projects, Chinese firms will be contracted to complete the work. These firms will import Chinese workers and engineers to build the infrastructure and will continue to service it. In 2019, Chinese companies signed $128 billion worth of Belt and Road contracts1. In Trinidad and Tobago’s recent loan arrangement with China, a key condition was that 15% of the money must be spent on “Chinese elements” like equipment, vaccines and supplies. While the projects are beneficial for the wider economy, local workers and companies may lose out on important skills and business in the construction phase. The BRI is ostensibly beneficial for developing nations, the debt trap element along with the creation of dependence on China creates a worrying pitfall that could result in a loss of autonomy.
There are concerns that China could use the BRI as a means of espionage. As mentioned above, when building new projects, China seldom allows the use of local engineers and rather imports Chinese workers to complete these projects. In 2012, China gifted the African Union a new $200 million headquarters in Addis Ababa, Ethiopia. In 2017 however, it transpired that the computers were all bugged. Transfers of confidential data were taking place from the African Union over to Shanghai-based servers on a daily basis. China denied all allegations, but this demonstrates how easily BRI projects can be used as a means of espionage and surveillance.
Western powers are trying to deter allies and developing nations from signing up to the BRI. But what is their alternative? A primary Western alternative to China’s BRI is the International Monetary Fund (IMF). Based in the US, the IMF in conjunction with the World Bank provides loans to its 190 member states to foster economic growth. Loans are not issued for specific projects but rather to help distressed nations and boost overall economic stability. These loans however, often come with a series of strict economic and political conditions. It is these conditions that have led commentators to claim Western criticism of the BRI is hypocritical.
The IMF gives loans to developing nations on the condition that they implement “structural reforms”. These reforms include deregulation, removal of subsidies and privatisation. These reforms open up the economy and more importantly, its raw materials to Western investors and businesses. Zambia is a clear example of the harm such conditions can cause.
Throughout the 1980’s and 1990’s Zambia was facing a severe debt crisis sparked by a collapse in copper prices and rising oil prices. It secured a deal with the IMF and World Bank in 1983 obliging it to liberalise its economy, remove price controls and slash subsidies for domestic producers. This saw inflation soar and wages plummet, leading to hunger and riots. The IMF deal was abandoned by Zambia in 1987 and the government reintroduced import controls, subsidies, and fixed exchange rates to reduce inflation. Zambia saw brief economic growth but was quickly forced back into the IMF deal. Zambia’s other loan arrangements with Western lenders required them to have an agreement with the IMF. Zambia subsequently entered a new IMF deal, again, with economic liberalisation requirements. Its debt subsequently soared to $7 billion by 19902, over double its annual GDP.
Privatization requirements saw many of its once lucrative copper mines bought out by multinational firms. These firms pay little to no tax in Zambia as profits are channelled out of the country. Currently, Zambia is estimated to lose $2 billion3 every year through corporate tax avoidance. Around 60% of Zambia’s 18 million residents live in poverty. Copper is Zambia’s main export and despite rallying copper prices, the Zambian government now sees little benefit. While we cannot ignore factors such as corruption and mismanagement, the IMF loan conditions have contributed heavily to Zambia’s economic condition.
Due to the above, many developing nations today view China as a better alternative to the IMF. In 2021, Trinidad and Tobago accepted a $1.4 billion loan from China instead of the IMF. The government argued that although the IMF’s offered interest rate was marginally lower, the IMF required the aforementioned “structural changes”. With fewer strings attached to the loan, China’s offer was considered a “no-brainer”4. This illustrates that despite the diplomatic and cultural ties Western powers have with many developing nations, the Western alternatives to China’s BRI are not necessarily as attractive.
Western governments have also sprung into action looking to offer a new alternative to developing nations. At a recent G7 meeting, members launched the Build Back Better World initiative (B3W) to promote economic development and connectivity in developing nations. B3W aims to provide $40 billion worth of infrastructure by 2035. There are, however, few details about B3W and no timeline or budget. Most of what the B3W proposes is already being done by the IMF, World Bank and African Development Bank. The G7 also lacks the economic and political flexibility of China’s government so the approval of any funding or action will be slow and bureaucratic. B3W does not look like much of an alternative at this time.
China’s BRI has the potential to bring significant benefits to developing nations. There is, however, valid scepticism of China’s intentions as it pours trillions into developing nations with seemingly few strings attached. Some of its deals, like in Sri Lanka, give neo-colonial undertones and developing nations should be cautious in their deals with China. Crucially however, China’s BRI brings competition to the IMF and World Bank that could ultimately see a better deal for developing nations. The IMF and World Bank have had a monopoly on global economic development and stability aid, and they have arguably abused their power over the years. We could see a new era of fairer and less aggressive conditions offered to economically distressed nations. Fundamentally however, the BRI is China’s warning shot to Western powers that their political and economic influence over the developing world is under threat.