Wednesday, August 1, 2018

China’s Belt and Road Initiative is falling short

By Financial Times Editors


31 July, 2018

China’s Belt and Road Initiative is commonly seen as a programme to fund and build infrastructure in some 78 countries around the globe.

It is also Beijing’s bid to reshape the world by offering an alternative developmental vision to the United States-led world order.

In the Chinese context, it is the linchpin of President Xi Jinping’s grand design to create a “community with a shared future for mankind”.

As such, the Belt and Road (BRI) is officially intended to showcase an open, inclusive form of development which benefits all countries that participate.

To criticise BRI, therefore, is to censure a rising China’s proposition to the world.

Yet there is growing evidence that the infrastructure projects are falling short of Beijing’s ideals and stirring controversy in the countries they were intended to assist.

Debt sustainability, governance flaws and general opacity are some of the main issues.

RWR Advisory Group, a Washington-based consultancy, has found that projects worth US$419 billion (S$570.5 billion), or 32 per cent by value of the total in Belt and Road countries since 2013, have run into “trouble” — such as performance delays, public opposition or national security controversies.

In Malaysia, about US$23 billion in China-backed infrastructure undertakings were suspended this month as Kuala Lumpur ramped up its investigations into corruption surrounding 1MDB, a scandal-ridden investment fund.

Mahathir Mohammed, the country’s newly-elected prime minister, has pledged to review all Chinese projects and “ unequal treaties”.

Pakistan is facing an external debt crisis exacerbated by ballooning debts to China incurred as part of a US$62bn injection into the BRI.

At the start of June, Islamabad’s central bank had just US$10 billion in foreign currency left, considerably short of the US$12.7 billion in external repayments due next year.

Cambodia is also under stress.
A surge in imports of capital goods for use mainly on China-funded infrastructure projects has widened Phnom Penh’s trade deficit to 10 per cent of GDP.

Sri Lanka had to transfer ownership of a the port of Hambantota to China after it could not afford debt repayments.
In several other countries, including Myanmar and Montenegro, debt sustainability questions are emerging.

Certainly many Belt and Road projects have met with success. The Greek port of Piraeus, which was acquired by a Chinese company in 2016, has seen its container throughput grow sharply.

A Chinese-built railway between the Kenyan port of Mombasa and Nairobi has halved journey times. A cotton factory in Tajikistan built with Chinese investment has boosted the country’s processing capacity.

In important respects, however, China is falling short of its pledge to ensure inclusive development.
In projects funded by the China Development Bank and Export-Import Bank of China, it eschews open tenders in favour of the construction work to large Chinese state-owned contractors.

A study by the Center for Strategic and International Studies, a Washington-based think-tank, found that 89 per cent of contractors on China-funded transport projects were Chinese.

Chinese projects court further publicity by failing to publicise impact studies. China has the financial firepower and construction capacity to satisfy much of the developing world’s desires for infrastructure.

But unless it lives up to Mr Xi’s professed ideals of openness, it risks damaging the reputation of the BRI beyond repair.

Instead, it should co-lend with western institutions, offer competitive tenders to all comers and be transparent over environmental and social risks.

[But that would undermine the other hidden objective of the BRI: to continue to stimulate Chinese economy.]


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