REPLACING SILK WITH SPICES

The Belt and Road Initiative (BRI) launched in 2013 by Xi Jinping as an ambitious project to boost global development and expand China's international influence has long been considered the world's largest infrastructure project with no rivals from the US and its partners.

Over the past ten years, more than 150 countries have joined the initiative to varying degrees. In July, China's total investment in BRI exceeded $1 trillion. According to Chinese customs data, in Jan-Aug 2023, trade turnover with the BRI member states reached $1.72 trillion. This is 3.6% more than in 2022, prompting the World Bank to recognise BRI's significant contribution to increasing trade among its members.

Strengthening economic ties with developing countries has also contributed to China's influence in the international arena. For example, thanks to BRI China has not been isolated at the UN. In 2019-2021, Western countries submitted four joint statements to the UN Human Rights Council expressing concern about the situation in Xinjiang and Hong Kong. But each time the majority of the member states supported Beijing, leaving the collective West in minority.

Debt diplomacy

But because of the ongoing global economic slowdown and high inflation rates, many countries find it increasingly difficult to repay their huge debts to China. Chinese banks provide typical loans at an interest rate of 5 per cent. This is well above the IMF's average interest rate, which over the past ten years has been around 2 per cent for non-concessional lending.

The debt of South Asian countries to China rose from $4.7b in 2011 to $36.3b in 2020. The rising debt of many BRI countries is believed to be a direct consequence of Beijing's pre-2020 efforts to maximise benefits from the initiative. Many experts, including the Chinese ones, admit that China has lent to many infrastructure projects that could not find other sources of financing, offering loans under commercial or unfavourable terms and making debt repayment even less likely.

Many regard BRI as a purposeful "debt trap diplomacy", with Beijing deliberately trapping borrowers in loans they cannot repay in order to exert political pressure later.

In some cases, however, the utilisation and revenues from such projects have been significantly lower than estimated. This was the case, for example, with the construction of a seaport in Sri Lanka and a railway in Kenya.

The term "debt diplomacy" has become popular after a number of countries, including Pakistan, Laos, Sri Lanka, Zambia and Mongolia, demonstrated rising indicators of external borrowing. While China has been willing to provide additional loans or restructure debt in such cases, the negative perception of BRI has gradually increased.

The BRI has been increasingly criticised for the desire to gain strategic influence over borrowers, attempts to redirect the economies of sponsored countries towards China, lack of attention to local needs, lack of transparency in funding, disregard for sovereignty, negative environmental impact and corruption.

The recent slowdown in the Chinese economy has become another major challenge for BRI. With rising debt (by some estimates, China's total debt has exceeded 300 per cent of GDP), high unemployment, diminishing consumer demand, and concerns about the financial health of some large companies, China is being forced to refocus its priorities inward.

"The Belt and Road project is obsolete," Carnegie quotes a Chinese business lobbyist in Singapore. He added that many entrepreneurs have moved on to new platforms such as the Comprehensive Regional Economic Partnership (CREP), which also includes China.

In addition, there are several projects specifically designed against the expansion of the Chinese influence in the world.

BRI alternatives

Soon after the coronavirus pandemic, the US, EU, G7 and their partners have launched a number of major global projects as alternatives to China's BRI.

In 2022, the G7 countries initiated the Partnership for Global Infrastructure and Investment (PGII) to fund projects in developing countries.  It is planned to provide $600b by 2030 under this programme.

Also in 2022, the EU approved the Global Gateway Programme (GGP) providing $333b until 2027 to strengthen relations with the developing countries. In late October, the Europeans will invite business leaders, officials and heads of state from Africa, Latin America and Asia (but not China) to a forum to promote GGP.

On September 9, India, Saudi Arabia, the EU, the UAE, France, Germany, Italy and the US unveiled another trade and infrastructure project connecting India, the Middle East and Europe during the G20 summit in New Delhi. It is intended to create power grids, ports, data networks and energy pipelines along the route of the modern so-called Spice Route.

The declared goal of the project is to create a credible alternative to China's Belt and Road Initiative and to address the problems of countries suffering from China's debt trap.

The Middle East corridor will consist of two separate parts. The eastern part will link the Indian port of Mundra on the west coast with the port of Fujairah. Then the goods will be transported by rail through Saudi Arabia and Jordan to Haifa, Israel. The western corridor will run from Haifa to the ports of France, Italy and Greece.

The project is also seen as an attempt to create an Indo-Abrahamic Alliance bringing together India, Israel, the UAE and the US.

Xi's legacy

For Xi Jinping, the BRI is too important to let it fail. Despite all the problems associated with lending, Beijing will not give up on the mega-project because it is closely related with Xi's legacy. In 2018, Xi supported the inclusion of the BRI into the Chinese constitution. Thus, the BRI has been the de facto basis of China's foreign policy until 2049, the centennial anniversary of the People's Republic of China.

It is likely that the number of projects and investments will be reduced, and China may pursue smaller projects overseas with increased control and oversight. However, Beijing needs to continue to showcase BRI as a success story, which is supposed to serve the interests of the global community.

This is how the China's leader is preparing for his third, anniversary BRI forum slated for October 2023.

To be monitored closely

The first BRI forum was held in 2017 and was attended by 29 heads of state, delegates from 30 countries and representatives of 70 international organisations. The UN Secretary-General praised Xi Jinping's brainchild as a platform "based on a shared vision of global development", comparing it with the UN's 2030 Sustainable Development Goals. By all accounts, the forum was a great success.

The second forum was held in 2019 with the participation of 37 heads of state. However, the geopolitical environment has changed significantly: the US and the EU have labelled China a "revisionist power" and "systemic competitor", respectively. Trade and tariff contradictions between the US and China have hardened, while the criticism of BRI projects has intensified. Therefore, the focus was on image changes in response to various criticisms. The Chinese leader assured everyone that his project would respond flexibly to any challenges.

But the geopolitical and geo-economic changes between the first two forums can hardly be compared with the global developments before the anticipated third summit. Amid strained relations between the US and China, deteriorating global security, unstable global trade and economic situation, emergence of new partnerships and alliances, as well as serious problems in the Chinese economy President Xi is trying hard to maintain the reputation of his brainchild.

Given the newly emerging circumstances and repositioning of some partner countries, the forum will be closely monitored around the world both in terms of representation and proposed innovations. Beijing needs to prove that the BRI is still attractive and continues to enjoy broad support despite many challenges.