The False Rebirth of the Belt and Road Initiative.
(Delegates and World Leaders stand together for a photoshoot at the Second Belt and Road Forum, Creative Commons)
It has been more than 4 years since China hosted its second ever Belt and Road Forum, addressing delegates from 37 heads of state (36 if not counting Indonesia’s Vice President) and delegates from over 150 countries in a reorienting and rebirthing of their immense foreign investment program. The program emerged in 2013 with the goal of creating an economic sphere of influence driven by Chinese Investment (phrased as “international friendship” and “multilateral cooperation mechanisms”), like the parade of a generous emperor bearing gifts (loans) of trillions of dollars (of debt) to all those who would seek it.
Six years after the initiative’s birth, many delegates come to the forum to shake hands with President Xi, and, if possible, ask him to forgive or extend this term of their debt. A recent study by AidData found that 31 to 1 of China's cash transfers are loans, as opposed to grants, many of which are considered “high-risk” by the OECD, which several countries are now looking to renegotiate the terms of. As demonstrated by the case of Hambantota Port, full-on Asset Seizure is on the table, and while countries might be pleasantly surprised to find that debt write-offs are an often occurrence in renegotiations, the amount written off is generally a meager percentage of what is owed.
The phrase “Debt-Trap Diplomacy” is not addressed ia litany of speeches, but it’s no doubt a concern hovering in the minds of everyone in attendance. When the final number comes out to 64 Billion Dollars in deals signed at the summit, it’s a lot, but far less than the 124 Billion Dollars promised by President Xi around 2017. The lowered amount could certainly be interpreted as part of Xi’s commitment to pursue “higher quality” deals and more carefully consider the risks of lending.
When it first launched, the Belt Road Initiative (BRI) was primarily focused on Eurasia, with romantic goals of building a belt resembling the Silk Road of the past, a great cooperation of European and Asian neighbors. Throughout those years, however, came many economic concerns and issues with the program that made headlines, concerns that the Second Forum was to the international community, made an address to.
Of these concerns, the story of Hambantota Port comes to mind. Funded through an immense BRI loan, this ended up being a pretty rough deal for Sri Lanka to create a massive port worth at least a billion, only for it to fail and be given to China to erase a billion in debt. That year, Sri Lanka’s government was expected to generate 14.3 billion dollars in revenue when it owed about 12.3 billion dollars to China. It is worth noting that Hambantota was a special case, since, in the case that borrowers were unable to repay loans through the BRI, Asset Seizure is extremely rare. But the low likelihood of such a drastic measure is of little comfort to countries with similar cases of expensive projects with a tendency to fail.
The “Highway to Nowhere” in Montenegro was a painful experience that sombered the tone of BRI in Europe, costing the country in higher taxes, scrapped social benefits, and the partial freezing of public sector wages, all for a 165 kilometer highway with low predicted traffic and revenue (less than 2 percent internal rates of return according to the URS). More alarming perhaps, was the fact that China paid economics professors at the University of Montenegro to release a “study” claiming that the highway WAS economically viable. Many hoped that the Second Forum would be an opportunity for the BRI to turn away from such corrupt practices, with President Xi Jinping even promising that “Everything should be done in a transparent way, and we should have zero tolerance for corruption.”
And yet, two years after the Second BRI Forum, AidData found that a staggering 35% of BRI programs within the sample of 13,427 projects encountered “corruption scandals, labor violations, environmental hazards, and public protests”. Furthermore, AidData estimated that about $385 Billion Dollars in Debt went unreported through a shuffling of primary borrowers, a rather unethical oversight considering the BRI is a lending business.
Though China should be obligated to represent itself accurately, transparency hasn’t improved either. Stories of embarrassment in Beijing are repeatedly pushed down at the detriment of China’s own people. Take, for instance, the export of chinese labor. When confronted with reports of predatory agencies bringing vulnerable Chinese workers to places where they are likely to be exploited (Cambodia with 57% of their imported Chinese construction workers having their passports withheld), Chinese Embassies are unresponsive, reports are suppressed, and protests lead to deportations. After Xi Jinping promised “zero tolerance for corruption”, the only real stand against unethical practice through the BRI was the disavowment of a project in cooperation with criminal groups in Myanmar, a move that would require immense charity to interpret as anything but a response to bad press.
As for the debt trap allegations, the situation seems bleak. According to AidData, as of 2021, “42 countries now have levels of public debt exposure to China in excess of 10% of GDP”, and it’s unlikely that renegotiations will meaningfully correct this. Since the “rebirth” of the BRI in 2019, it has become increasingly clear that China, the lone source of aid for the developing world, will address the flaws of its program, the only source of infrastructure-based aid for many developing countries not through action or reform, but through propaganda. China will likely continue such a policy until a meaningful competitor, like the US or EU, takes on more of the burden by increasing the scope of their relations to developing countries to provide alternatives to the BRI’s infrastructure development plan, perhaps through trade deals instead of predatory loans. Hunger is a potent seasoning, the starved will devour a poisoned meal if it’s all they have.
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