Belt and Road Initiative – A Path to Global Integration or Domination?

By Jay Han– 1 April 2021

China’s Belt and Road infrastructure project, also known as Belt and Road initiative (BRI) is a policy for Chinese investment in infrastructure which is targeted at connecting China with the rest of the world, in hopes of further developing the poorer parts of china’s economy, as well as stimulating the landlocked economies of North and Central Asia. The term Belt and Road initiative derives from the Silk Road economic belt, a concept introduced by the Chinese government in 2013,  proposed to economically link Europe to China through various countries across Eurasia and the Indian Ocean as well as Africa and Oceania. This ambitious project will involve the construction of various new ports, railways, bridges, oil and gas pipelines, and roads within China, across Europe and Asia, and throughout the Indo-Pacific region, to ensure that member countries have easy trade access to the countries who have agreed with it’s Memorandum of Understanding (MOU).

Impact of BRI on the Global Economy

The main benefit of the BRI is that the connections and platforms of cooperation created along the belt and road are likely to spur growth in weaker economic regions, especially Sub Saharan Africa and Central China,through the introduction of previously unreachable markets and construction of infrastructure, which would be integral in helping poorer regions produce goods and services competitive internationally. Current estimates show that BRI investments could lift over 8.7 million people from extreme poverty and 34 million from moderate poverty through the provision of low skilled labour in key development areas that the initiative tries to boost, with Asia and Africa receiving 54% and 27% of Chinese BRI investments in 2020. These investments have mainly focused on infrastructure development, energy and transport since 2013, making up 80% of Chinese overseas expenditure in 2020 compared to the tourism, agriculture and entertainment sectors which make up approximately 3% of expenditure.

An interesting point to note is that fossil fuel related investments have remained very consistent since the beginning of the BRI despite the growing concerns of global warming and the decreasing prices of alternative energy sources. Whilst the share of renewable energy sources increased to 57% of Chinese overseas energy investments in 2020, coal related spending increased in relative share from approximately 19% in 2019 to 27% in 2020 due to the decrease in overall spending in the energy sector.

The allocation of Chinese investments of different energy sources in the BRI between 2013-2020.

Controversies Surrounding the BRI

 According to the Belt and Road portal, over 140 countries across all continents have signed the MOU, representing more than 60% of the world’s population and contribute to approximately 35% of the global GDP.  The project would significantly boost the economic development of involved countries, especially countries who are geographically disadvantaged or low income countries, with estimates showing that the BRI could account for 40% of all global trade in the future.  However, it is important to note that due to the scale of the project, much of the details are still loose and are not legally binding due to the nature of the MOU. Specific contracts talk about win-win partnerships amongst the countries involved, but lack much factual or substantial information that may question the integrity of the initiative. These contracts state that China will respect the “interest and major concerns” of the other countries, however, if a country wishes to terminate their agreement they must do so with notice 3 months prior, in which it can only be removed through a “joint agreement” with the Chinese government, presenting possible issues for any countries that are looking to withdraw in the future. For example, Victoria signed a MOU with China’s national development and reform commission in 2018, it has been criticised for its lack of specific detail by former prime minister Malcolm Turnbull, who described the agreement as an “agenda”, stating that the countries best interests lies within specific projects and investment agreements rather than a guideline. The home affairs minister was heavily against Victoria’s involvement with the BRI, calling it a “propaganda initiative from China”.

As shown by the argument above, it is very clear that this project goes beyond stimulating growth in China’s economy, but rather stands as a geopolitical exercise designed to weaken power in the US and boost Chinese influence throughout its region and beyond. Indications of this stem from the locations of some of the routes involved in the project. One such route would be the overland route from Xinjiang to China’s far west through to Pakistan to its deepwater ‘Gwadar Port’ on the Arabian sea.

This trade route will allow China to gain access to the Arabian sea and open up new investment opportunities in Xinjiang, whilst also avoiding US maritime power for a more efficient and direct trade route. China’s aims to spread its culture and economic influence over Asia amidst the rising political tension between Pakistan and the US  due to sanctions imposed on its nuclear program in 2017. While China’s ownership of ports across the region will increase their strategic advantage, it will also alleviate US influence in these areas. However, the plans of the overland route has been estimated to be completed around 2030, and the continuous increase in projected costs from $46 billion in 2015 to $62 billion in 2017 within the project calls for greater concerns about China’s underlying intentions and brings up the question as to whether or not this project can come into fruition with so little substance and lack of transparency.

Current Events and Future Expectations

Currently, the progress of the BRI has been severely subdued by the effects of the COVID-19 pandemic on China’s economy The Chinese government has been forced to cut investments on BRI projects, with spending decreasing 54% to $47 billion in 2020, with BRI related lending decreasing from $75 billion to $3 billion in 4 years. The rapid pullback of funds can be attributed to the disruption of cash flow as a result of millions of local businesses becoming bankrupt, whilst the government has simultaneously reallocated much of its resources into resolving structural flaws within the Chinese economy, including stricter lending laws to decrease financial risk taking. In addition, China must address its citizens’ heavy opposition against overseas spending,  as millions of individuals who’ve lost their businesses or jobs due to COVID-19 rely on government spending to support their livelihoods. This may further setback its infrastructure development in developing countries who rely on incoming financial support to underpin its economic growth in the coming years.

To ensure the longevity and future success of the BRI, there are a few key points that need to be addressed . Firstly, current  investments are too focused on large scale projects such as the overland route between China and Pakistan. These projects are not only time consuming and require a constant flow of investments, it is also too risky as they do not account for changing global conditions that could affect cash flow and development time. For example, investing into solar infrastructure in developing countries would be a cost effective method to help these regions achieve self-sufficiency whilst supporting the facilitation of larger scale projects. Furthermore, Chinese investments made towards health related projects have remained stagnant since 2013 despite the COVID-19 pandemic heavily reducing China’s ability to spend on the BRI. In order for investment levels to return to pre pandemic levels, it is necessary to prioritise investments towards the health sector in the coming years, and these resources could be reallocated from fossil fuel related expenditure, due to its decreasing relevance in modern times. Thus, the timely response to the COVID pandemic, as well as readjusting investment priorities in certain sectors can be regarded as the most important factors that underpin the future success of the BRI.

 

References:

Maliszewska, M., 2019. The Belt and Road Initiative- Economic, Poverty and Environmental Impacts. [online] Openknowledge.worldbank.org. Available at: <https://openknowledge.worldbank.org/bitstream/handle/10986/31543/WPS8814.pdf?sequence=6&isAllowed=y>.

WANG, C., 2021. China Belt and Road Initiative (BRI) Investment Report 2020 – Green Belt and Road Initiative Center. [online] Green-bri.org. Available at: <https://green-bri.org/china-belt-and-road-initiative-bri-investment-report-2020/>.

Ebrahim, Z., 2017. What’s happening at Pakistan’s Gwadar port? – China Dialogue. [online] China Dialogue. Available at: <https://chinadialogue.net/en/business/9869-what-s-happening-at-pakistan-s-gwadar-port/>.

Gholizadeh, A., 2020. A geo economic and geopolitical review of Gwadar Port on belt and road initiative. [online] Emerald.com. Available at: <https://www.emerald.com/insight/content/doi/10.1108/MABR-11-2019-0051/full/pdf?title=a-geoeconomic-and-geopolitical-review-of-gwadar-port-on-belt-and-road-initiative#:~:text=On%20the%20land%2C%20the%20port,better%20access%20to%20South%20Asia.>.