The last 40 years have seen China’s GDP grow by a record 9.1% per annum, attracting a plethora of investors and businesses worldwide. With its newfound capital, it has gained international influence through trade and become the world’s largest trading partner in 2012. China seeks to optimize this trade network through the Belt and Road Initiative (BRI), a scheme unveiled in 2013 by Chinese President Xi Jinping that funds infrastructure projects (ports, railways etc.) in 139 countries, mainly lower-income countries. It is “a bid to enhance regional connectivity and embrace a brighter future,” according to a government official involved in the project.
The plan has promising potential. According to a World Bank study published in March, 7.8 million people will be lifted out of extreme poverty, and 32 million people out of moderate poverty globally. By 2040, the BRI is forecast to increase the world’s GDP by $7.1 trillion and reduce trade costs by 2.2%. China’s economy also stands to reap benefits, such as being able to expand its export markets and promote the Renminbi as an international currency. China will also garner considerable political gains as more countries become increasingly dependent on it for economic growth.
Despite these benefits, the BRI has three glaring issues. The first is that it creates unsustainable debt; Chinese lending has led to fears of debt distress in some BRI recipient countries, and they will need external support to service their loans, which could result in a debt trap. China is also unlikely to forgive debt, making other creditors, such as the IMF, better options.
Secondly, the BRI has been accused of being environmentally harmful; many studies have shown that its projects lead to habitat disruption and there are concerns about mining extraction. These effects will also be detrimental to Chinese citizens – Richard Nash of the WWF points out the link between the scheme’s development and increased pollution and depletion of China’s rivers. However, these pale in comparison to the consequences of the initiative’s perpetuation of fossil fuels (mostly coal) resulting in greater greenhouse gas emissions.
Lastly, corruption is rampant within the BRI, with the top ten countries on the TRACE Bribery Risk Index all receiving investment from the scheme; 60-80% of Chinese firms have reportedly paid bribes to speed up projects. Furthermore, the fact that these BRI participant nations tend to have relatively weak governance exacerbates this risk. The World Bank released a report stating that Chinese state-owned firms funded the construction of miscellaneous Malaysian infrastructure mega-projects and attempted to inflate the costs of these projects so the government could use the excess elsewhere, in return for Chinese companies receiving large stakes in national railways. When this episode was discovered, it cast serious doubt on the BRI’s credibility.
The first issue can be solved simply by forgiving more debt; it is highly unlikely that debtor countries will be able to pay large sums of money back in the near future anyway, and this change will entice more BRI participants to request Chinese loans. The IMF could play a greater role, too; it has already warned of unsustainable debt levels, predatory lending, and the absence of project transparency, yet has done little to offset these risks. The fund might ask to see the terms of BRI loans, which are infamous for being opaque, before approving a credit line, and also analyze potential investments to ensure that they are debt sustainable.
China has a domestic target to hit carbon neutral by 2060, yet this has been largely absent in BRI, undermining its image as a leader in green energy, which it works very hard to maintain (climate being one of the many areas in which it wishes to compete with the US). To fix this, it should push solar power, its main source of renewables, over traditional coal-fired plants, even though solar panels are slower to build and more costly. Moreover, it should demand that participant nations enact at least the same climate standards that China does, and insist that the financial bodies fulfilling these commitments put environmental qualifications on them, as well as disclose the carbon emissions of projects.
By far the most difficult obstacle to overcome is that of corruption; nevertheless, the CCP has already taken pivotal steps to mitigate it. Xi’s anti-corruption crackdown at home signals to corporations working overseas that bribing will be punished severely, and thus discourages them from participating in dubious activity.
This year, the United States, along with its G7 allies, launched Build Back Better World (B3W), which strives to be more reliable than its Chinese counterpart. It may be in Mr Xi’s best interests to pay more attention to the BRI’s flaws and neutralize B3W’s competitive edges.