China's Belt and Road Initiative(BRI) in the post-pandemic world

Overwhelmed by an unforeseen calamity, most of the world struggles to cope with a pandemic that has put economies, health systems and even political systems on the brink of collapse. It is yet to be seen how the global power structure will be altered after this pandemic and who the victor of this crumbling situation will be. Much speculation points towards China, however with its geopolitical dreams slowly crumbling, it would be too early to make such assumptions. China’s economic problems, internal political duress and public dissent are yet to play out in the face of the coronavirus. It has also become evident that along with its own economic crisis, China is now facing a massive public relations disaster internationally, which has only increased pressure on its Belt and Road Initiative(BRI).

China’s government has touted the BRI as “a bid to increase regional connectivity and embrace a brighter future.” However, most have seen a deeper-seated motive of this initiative which points toward it being merely a tool for China to exert its dominance on global affairs, through a China-centric economic order. Whether true or not, speculation regarding this has only prevailed with even more countries becoming entrapped in what has been termed as China’s “debt-trap diplomacy.” While the term has been criticized by many, certain instances have perhaps pointed to the truth in it. Sri Lanka’s Hambantota port was one of the first to fall victim to the BRI where due to rising debts, the country was forced to lease the port to China for 99 years. In Africa, Asia and elsewhere, debt owed to China has only seen a gradual and rather frightening increase. This would perhaps best reveal China’s not-so-benign intentions and has signalled a gradual shift away from support for the BRI.

The plan for this massive BRI was laid out by President Xi with two facets to it, the overland economic belt and the maritime silk road. Through this, China has made inroads into Asia, Africa, Europe and even South America, constructing bridges, railroads and ports among other projects. However, with the coronavirus pandemic affecting most of global trade and movement, all of China’s BRI projects have come to a virtual standstill. After initially attempting to coverup the outbreak of the virus, the country imposed a series of strict measures in confining its rapid spread. It halted most international travel, imposed lockdowns across the country and quarantined cities and regions throughout China, restricting almost all movement. To add to this over 130 countries have placed travel restrictions on the entry of Chinese citizens travelling from China. Quarantine measures have thus stopped most travel internationally, preventing Chinese workers from travelling to projects abroad. This massive disruption in both labour and supply chains has halted the Belt and Road Initiative in its tracks. Whether China will be able to revive and sustain the BRI hereon is a question in itself.

The current problems are a cause of China's own actions. In the construction of this initiative, Beijing has ensured that in granting massive loans to countries, most of the benefits of the BRI would be China’s to reap. Most BRI project contracts have therefore been granted to Chinese companies and rely heavily on both Chinese labour and supplies. The initiative also depends heavily on huge amounts of cheap credit from Chinese banks in acquiring funds faster. However, this has meant that with such a global pandemic, certain foreign dependencies on China have created a shortfall in most projects. With a freeze on the flow of Chinese labour, thousands of workers are unable to return to their countries of work. The extensive lockdowns and restriction on travel have cost both the Chinese economy and also countries tied into the BRI, who are now facing serious ramifications due to a slowdown in China.

If China is to resume work along the BRI it will have to find ways to manoeuvre around a fast-approaching negative economic scenario. If not handled appropriately, the effects of the pandemic will be devastating for the initiative. The BRI is expected to hit a massive shortage in funding due to China’s own economic downturn. The country was already seeing a depreciating growth rate even before the outbreak and with a global economic recession soon to hit, the projected growth rate remains between 1 and 4 per cent against the original target of 6 per cent. Around 5 million jobs have reportedly already been lost due to the quarantine measures and unemployment is expected to reach around 9 million by the end of this year. It would then seem that China’s priority would be to ensure domestic economic growth and maintain low levels of unemployment in doing so. President Xi’s BRI has already seen internal opposition for being an overly ambitious and assertive foreign policy, along with many believing it to be a waste of money overseas. Therefore, in the face of possible social instability and political unrest in post-pandemic China, the government would not risk extensive external expenditure and concentrate most of its resources on the country’s domestic situation.

The impact of the outbreak on the construction of the BRI has been regarded as only temporary, at least according to China’s official rhetoric. However, in the face of economic damage both in China and along the BRI, uncertainty is only on the increase. While the full extent and effects that this outbreak will have on the world are yet to be assessed, most countries will emerge out of it worse off than they were before. Though there will undoubtedly be an ever-growing demand for infrastructure in Asia and Africa, the resources needed to fund such projects would be absent. It is believed that cases of insolvency, bankruptcies and project failures will grow exponentially along the BRI in the years to come. From Italy and Djibouti to Pakistan and Laos, BRI projects are thus expected to stall. Nonetheless, the Chinese government seem relentless in pursuing the BRI and only time will tell if they will be able to sustain it.

In doing so it has already begun devising new methods and trajectories for the BRI to follow, especially since China is not only facing an economic but also public relations disaster. International opposition and finger-pointing have increased in regard with the initial coverup of the outbreak. In an effort to “redeem” itself, it would seem like China is now talking about "mask diplomacy and a “Health Silk Road.” While not a new concept, President Xi made his latest reference to it in Chinas announcement to sell Italy ventilators, masks, protective gear and test kits to combat the virus. China has since assured medical aid and assistance to many countries within the BRI, from Malaysia and the Philippines to Sri Lanka and the African Union. However, this new initiative is not to be confused with philanthropic efforts and seems to be merely a tool through which China can revamp the BRI. And while opposition around the world may increase, countries will be unable to do anything if they slowly slip further into China's debt-trap.

Regional Initiatives – What does the future hold?

Starting in Central Asia, China’s immediate neighbourhood to the west which provides it with a crucial linkage to Europe, there have been a string of anti-China protests over the past few years. These protests have been part of a growing backlash against China’s investments in Central Asia as part of the BRI. In Kazakhstan, the construction of Chinese factories saw massive opposition, wherein the Kazakh government arrested prominent activists and “anti-China” protestors. While Kazakh officials have often referred to their country as the “buckle” in that Chinese “belt”, it would seem that the general public has become highly resentful towards growing Chinese investment in Kazakhstan. In Kyrgyzstan, conflict between Kyrgyz and Chinese workers has become rampant. One such incident, in August 2019, 500 Kyrgyz villagers stormed a Chinese operated mine and fought with its Han workers leading to the hospitalization of many.

Much of this opposition is aimed at China's repressive nature, which people in Central Asia view as highly assertive. Kazakhstan, Kyrgyzstan and Tajikistan share a 2050-mile border with China’s Xinjiang province, the source of much instability in recent years. Beijing’s clampdown on the 2 million Muslims in Xinjiang which include both ethnic Kazakhs and Kyrgyz sparked widespread outrage in both Kazakhstan and Kyrgyzstan. Along with this, many critics in these countries fear a massive influx of Chinese migrants which are generally part and parcel of the BRI and its projects. Therefore, while many have seen great benefits in the BRI they also fear the not-so-benign motives behind it. Protestors have thus demanded that there should be greater scrutiny into Chinese funded projects, and appropriateness of locked loans. China accounts for a large amount of external debt in these countries, equalling almost half of Kyrgyzstan and Tajikistan’s foreign debt. As of October 2019, Kyrgyzstan owed nearly $2 billion out of its $4 billion debt to china. Similarly, Tajikistan owed nearly 1.38 billion out of its $2.9 billion debt and was forced to sign over ownership of a lucrative gold mine to China. In this, it has become clear that countries in Central Asia are also inching closer towards defaulting on their debts and may see some serious repercussions of the same.

This includes not only the two stated above but also Uzbekistan and Turkmenistan who have also been at the receiving end of massive debt dues owed to China. Central Asia is an essential component in China’s dream of a Sino-centric economic order as it provides a transport link for its exports to Europe. It has therefore sought to establish its hold on most of the countries in the region, providing both investment and “stability”. And it would seem, that most governments, are highly receptive to this investment that is pouring into their countries. On the other hand, much of the general public has shown only greater resentment towards China over the years. Up until now, the governments have been relatively capable of keeping local anti-China resentment and protests in check, however, the coronavirus outbreak might signal a change in this as well. The foundations of the global economic order are perhaps teetering on the edge of free fall decline and countries in the region are suffering immensely. Kyrgyzstan is already one of those who have approached the International Monetary Fund seeking help in fighting the crisis. If further economic problems prevail, it may give rise to greater instability and in the long run, undermine China’s security and economic interests in Central Asia.

The rest of Asia presents some of the most successful and yet controversial projects initiated by China under the BRI. Southeast Asia and South Asia constitute an essential portion of what shall be key linkages in China’s 21st century maritime silk road. China has thus undertaken massive projects in developing ports and other infrastructural projects in countries along the BRIs maritime routes. Many of these countries today are facing a massive economic downturn of their own and it is unlikely that any further loans by China will do anything but lead these countries into a possible debt-trap. While Sri Lanka was already forced to hand over its Hambantota port and 15000 acres surrounding it to China; Mongolia, Pakistan and Laos are also at a high risk of defaulting on loan repayment and may soon be forced to cede sovereign control over areas of interest to China. This has been the case for over a year now and with the enormous economic recession expected in the coming months, the countries may default on these loans sooner than expected.

One of the most important and controversial projects of the initiative in Asia has been the China-Pakistan Economic Corridor, which would provide a crucial link between its overland economic belt and maritime silk road project. The entire project was initially valued at $46 billion but had risen to $62 billion as of 2017. This is perhaps the largest investment by China in the BRI, with infrastructural projects spanning the length and breadth of Pakistan. Under the CPEC, a vast network of highways, railways and pipelines are under construction. Gwadar is central to the CPEC project and will consist of an expanded port, located near a 2282-acre special economic free trade zone. However, in this project Pakistan has seen its first massive debt problems, wherein the special economic zone was handed over to the China Overseas Port Holding Company in 2015 as part of a 43-year lease. Nonetheless, it has allowed China to proceed with funding railway projects, Liquified natural gas lines, and roadway projects.

Most analysts have seen tangible benefits from partaking in this initiative, concluding that it could bring about an end to major energy shortages in Pakistan that had crippled economic growth. However, while Pakistan is perhaps the strongest supporter of most Chinese activity, these projects have also seen internal public opposition. Questions regarding the transparency and long-term economic impacts of such projects have not only been raised by outside observers like the US but also by many in Pakistan, including some politicians. Nonetheless, such oppositions and questions are both unlikely to be answered or have much effect on the CPEC and the progress that it has made. China’s extensive quarantine and lockdown measures have also halted all work along the CPEC because of the absence of Chinese labour. China has nonetheless lobbied with Pakistani political establishment in easing travel restrictions for its workers and work may resume soon. Yet the lockdown is not the only problem that this initiative will face. Pakistan has been poised to sustain a loss of US $8.2 billion and fall into major recession according to the World Bank. This may in-fact pose to a massive problem for the BRIs most extensive infrastructural project yet.

In much the same way, other projects in Asia will face similar problems, not to say that they already have. Before the outbreak of the coronavirus spread globally, projects in countries like Indonesia, Bangladesh and Thailand were already seeing a drastic slowdown due to finance and liability issues. A high-speed rail project in Indonesia which has been estimated at around $6 billion has reportedly slowed down. In Bangladesh as well, the Payra coal power plant project has been facing delays and in Thailand, China’s ambitious high-speed railway project has also gone down the same path with questions over the financing of the $9.9 billion initiative being raised. Projects in Laos have been facing a similar crisis if not worse. China began a massive project in Laos for a 414-kilometer high-speed railway line connecting southern China with Thailand and the rest of Southeast Asia with plans to extend till Singapore. However, while problems in the project have persisted since the beginning, the coronavirus outbreak is set to derail things further.

At the beginning of the outbreak, many countries in Southeast Asia downplayed the severity of the threat, out of fear of offending the country on which their economies rely. While there were persistent dangers of allowing travel from Hubei province at the time, most countries in the region enforced travel restrictions way after it should have been done. Many have observed that this is due to a fear of reprimand that these countries may face from China. It would seem like such speculation may indeed be true in the way things are playing out. Countries like Vietnam and Thailand have not only supported China during this crisis but also gone so far as to promote the Chinese narrative within their own countries. Many have openly defended the initial outbreak of the virus, calling blame on China “unfair” or even blaming “Caucasians”. However great the support for China may be though, it has become evident that countries in the region are failing to cope with the BRI and in the face of these new travel restrictions and bans, coping may only become harder. Nonetheless, countries in the region are unlikely to deter away from Chinese investment and only time will tell whether they will be able to maintain economic stability or cede part of their sovereignty to China.

China’s plan for the BRI stretched much further than its immediate neighbourhood and seeks to extend greatly into Europe as well. While it has generally been considered a US strongpoint, the BRI has now found many takers on the continent. Last march, Italy became the first and only G7 country to join this initiative, becoming the first major economy to do so. Other than Italy though, around 20 other countries have also signed MoUs and agreements on multiple infrastructural projects in the BRI. A few of these include Luxemburg, Greece, Poland, Austria and Switzerland among others. Though only Italy, Greece and Poland are officially part of the BRI, other countries have voiced tremendous support for the same. China has been making inroads into Europe for a while now but over the past two years its reach has extended vastly. Italy signing on last year signified a new achievement for the BRI, where China is now modernizing the Venice, Ravenna and Triste ports as part of the five ports initiative. And while Italy had received warnings from both the EU and the United States, it had its own reasons for partaking in the initiative.

Italy has been facing a downturn in its economic situation for the past two decades now where it has seen three recessions in ten years. Its failure to rise out of this situation was caused by its aging industries, over rigid regulations, inefficient banking system, corruption and constant political turmoil. According to its latest Prime Minister, Giuseppe Conte, the best option was then to open Italy up to Chinese investment. This many would call an “easy” way out of structural decline. Italy thus opened an array of sectors to Chinese investment, from infrastructure to transportation. It has also advanced cooperation in multiple fields, from the natural gas sector and steel to solar plants and the shipping industry. While Huawei introduced a $3 billion investment into Italy to create 1000 jobs, the Bank of China granted a credit line to China’s energy company Eni to advance collaboration in solar energy. This has signified a new dependency on China that Italy has acquired and will be hard pressed to get rid of.

Today, due to the pandemic, Italy has been one of the hardest hit countries, with over 23000 deaths and 170000 cases. It has also been observed that the first case was perhaps spread from Chinese citizens in Italy at the time. Among others, Lombardy and Tuscany have seen maximum Chinese investment and in February, the first cases of the coronavirus are believed to have emerged in Lombardy. Many have thus linked their situation today with Italy’s closer ties with China. Whether true or not, many believe it to be so and this has served to incite outrage against China. In much the same way, many in Europe and across the world also hold China accountable for the devastating consequences they now face. Whether this frustration with China leads to Europe turning away from Chinese investment or not is yet to be seen. Even if it doesn’t, the economic effects of the pandemic, clubbed with the reliance on China is bound to have massive repercussions on those tied into the BRI. In this, countries like Italy who are already undergoing massive economic challenges will have no choice but to reassess their dependencies on a single investor.

This dependency and increasing indebtedness to China can perhaps best be seen in Africa. Most countries in Africa are incapable of dealing with the pandemic and face some serious challenges today. China has been investing in Africa since the 1960s and today accounts for nearly 17 percent of African debt. Since 2012, Chinese lending averaged more than $15 billion per year and has been ramped up since then. This lending has been introduced in nearly 50 countries in Africa, and among the largest borrowers are Angola, Kenya, South Africa, Zambia and Egypt. Through the BRI, China has lent $1.3 billion for the Addis Ababa-Djibouti Railway in Ethiopia, $1.4 billion for the Karuma hydropower station in Uganda, $350 million for the Entebbe-Kampala Expressway and around $2 billion for railway lines in Kenya. China has also constructed its first overseas military base in Djibouti at a cost of $590 million. While these have been some of the larger projects that China has financed in Africa, it has also undertaken numerous smaller projects as well.

With this financing and projects though, have come other problems. While Chinese spending in Africa has been seen as significantly beneficial to the continent, it has also been observed that such spending may not be sustainable in the long run. On the one hand countries like Angola and Nigeria have been able to sustain low external debt, but on the other, Zambia who is one of the biggest borrowers from China has been steadily falling into economic crisis. The public debt owed by Zambia has been rising unsustainable over the years, with a dramatic increase from 36% in 2014 to 61% in 2016. It was estimated that the country’s sovereign debt could reach as much as 96% of its GDP by the end of 2020. While Zambia is already restructuring, renegotiating or refinancing the extensive debt it owes China, it has been facing significant pressure as well. Chinese companies have been pressurizing the Zambian Finance Ministry to avert further delayed repayments on their loans and have also been refusing to restructure existing debts. Those, such as the China Civil Engineering Construction Corporation who have agreed to restructure loans, have sought assets such as coal mines being placed as collateral. Many other countries in Africa have also followed a similar trend and have been steadily falling into crisis.

Many of those countries who have been able to carefully manage their debt over the past few years have also seen difficult times lately. Uganda in contrast with Zambia borrowed extensively from China for key projects in hydropower and transport, but maintained its external debt at 40% of its GNI (Gross National Income). This had proved to be relatively advantageous to the country. However, by the end of last year it was reported that Uganda too was heading towards a debt crisis and by February this year, its debt had crossed over 40% of its GDP. Angola and Nigeria which are resource rich countries have maintained their low external debt through a steady repayment of the loans. However, the over reliance on oil to repay loans will cause massive problems for Angola and Nigeria, where oil accounts for more than 70 percent of the total government revenue. Amid the coronavirus outbreak and falling oil prices, three-quarters of Nigeria’s and Angola’s oil production for export in April remain unsold, according to reports.

Therefore, even though a few countries in Africa seemed relatively well off from integration into the Belt and Road Initiative, today things have changed. This is especially true due to the fact that along with the economic and health crisis that looms large in Africa there are also other concerns. The large number of Chinese workers that are part of the projects, pose a significant problem for Africa. Given the young population in most countries, Africa needs to create about 20 million jobs per year. However, large scale migration of semi-skilled workers from China have thus offset much of Africa’s larger developmental goals.

Nonetheless, the major challenge for Africa today is in dealing with the coronavirus outbreak. The cases in Africa have surpassed 20000 as of the second week of April and it is expected that even with strict measures in place, it could hit 10 million within the next 6 months. A report by the United Nations Economic Commission for Africa has projected a drop from 3.2% to 1.8% in Pan-African growth, a decline of 1.4% which will devastate many already weak-economies across the continent. With many countries sinking in large debts, the IMF and World bank have called on countries to suspend debt payments by the poorest nations to battle the impending crisis. Interestingly though, China has been placed in the driver seat for any debt relieve granted to the continent owing to it being the largest trading partner of Africa. And while countries are hopeful, only the coming days will show how much China is actually willing to lead debt relief.

Conclusion

China’s BRI is thus quickly approaching a crossroads that would be critical to its future. While much of what is stated above points to a scenario wherein the BRI may flounder or fail, it is too early to make any predictions. Around the globe, the BRI has been facing a constant backlash in both public opinions and on the international front. But such opposition will not serve to do much if a country is highly indebted to China. In this, the coronavirus could, in fact, pose as a perfect opportunity for China to only expand its grasp upon those partaking in this initiative. Nonetheless, it would seem like China could choose to go down two paths. As the pandemic causes global economic devastation, China could either acquire strategic assets at an accelerated pace from debt-struck nations, or it could boost its soft diplomacy by waiving off the debt. Many have pointed to the former, wherein China has been seen as a country who would leap at an opportunity to increase whatever debt leverage it had over such countries. It is more likely than not that China’s debt diplomacy will thus get a boost by the pandemic. China itself has seen its slow decline in economic growth be quickened by the effects of the pandemic.

At this critical stage then, China’s government, in order to sustain itself is unlikely to favour soft diplomacy over its hard-line approach on debt repayment. Economically still weak and struggling to open up its economy, China is unlikely to achieve any significant growth in the coming year or so. It is therefore inevitable, that the country and its companies will call in debt defaulters. Many of the countries highlighted above will be unable to repay China, with their fragile economies being massively devastated by the pandemic. This will leave them at the mercy of China where the world may witness massive concessions of sovereign territory in return for an easing of debt. Whether this comes into play or not though, China will have to restore much of its international image in the face of this “public relations disaster”. Many in countries along the BRI and around the world are pointing fingers at China and its ineptness to control the initial outbreak of the virus. In this, China would be hard pressed to portray its projects as being beneficial or without an ulterior motive.

Nonetheless, China has taken measures to mitigate this negative perception of the country. While already deflecting blame away from its self, China has also taken on another venture. China has already invested plenty into its other new approaches of “mask diplomacy” and the creation of a “Health Silk Road”. As mentioned earlier, these plans have been initiated as a mere tool in redeeming Beijing’s international image and revamping the BRI. This new Health Silk Road clubbed with the possibility of China calling in debts would then provide the country a perfect platform to project both its soft diplomacy and yet make good of its economic situation. Along with these, also extend its global influence. The Chinese government would not risk external expenditure, due to the risk of increased opposition within China. Therefore, these non-capital-intensive initiatives would both soften the domestic economic effects of the pandemic and also public opinion of China. At least this is what China hopes. Now only time will tell, what China will be able to revive and sustain its Belt and Road Initiative. 

Pic Courtesy-Denys Nevozhai at unsplash.com

(Zeus Hans Mendez is Research Intern with Centre for Security and Strategy Studies, CS3 at www.cescube.com. The views expressed are personal)