Belt and Road Initiative

What does the future hold for the Belt and Road initiative at a time of heightened geopolitical tensions, as governments around the world try to deal with both the coronavirus and climate change?

China’s Belt and Road Initiative (BRI), has grown from a scheme evoking the ancient Afro-Eurasian silk roads, aimed at boosting regional trade corridors and cooperation, into a template for global connectivity. As well as creating infrastructure to bolster trade and commerce, it seeks to support Chinese priorities such as policy coordination, connectivity, financial integration and cultural connections. It is arguably the most ambitious development strategy ever.

At its simplest, BRI is an umbrella term for extraterritorial Chinese participation in the creation of ‘traditional’ infrastructure, such as roads, ports and power stations. In a stereotypical BRI deal, a Chinese entity finances an infrastructure project which is typically then undertaken by Chinese contractors. This model has already delivered infrastructure worth hundreds of billions of dollars, often in countries which have previously found it challenging to finance such projects. However, amid concern in some capitals about the expansion of Chinese influence, BRI has also evolved to encompass a far wider range of infrastructure developments.

Over the past year, aspects of BRI such as the Health Silk Road and the Digital Silk Road have attracted increasing amounts of attention, boosted respectively by China’s provision of medical equipment and vaccines to many BRI countries, and by its successes in implementing tech systems ranging from telecoms and cloud computing to mobile banking and surveillance systems.

Other concepts still unfamiliar in the West, like the Polar Silk Road (creating new routes across the Arctic as the ice retreats) and the Silk Road in the Air (developing airfreight infrastructure) are well-established in China and figure in its latest Five-Year Plan. The Space Silk Road is an ambitious attempt to become a global space power, centred on the BeiDou satellite navigation system.

BRI has also become something of a brand for China’s global economic participation, suggesting a degree of coordination that does not always exist. There is no BRI leadership unit or secretariat, and while BRI is certainly subject to considerable central influence, the extent and strength of central control is debateable. Some commentators have detected competition between different Chinese entities involved in BRI, and not all BRI projects have been of the quality that the Chinese government wants to promote.

Promoting sustainability

Not every BRI project has been a success. Particularly in the early days of the initiative, some Chinese entities made unsustainable deals, with insufficient due diligence. Some governments, too, saw BRI as an easy way to realise political vanity projects, or to build high-profile but unviable schemes that more cautious funders had refused to support.

But while a few troubled projects made the headlines, many hundreds of others went ahead successfully. A recent CMS survey of BRI participants worldwide showed that, while the politics of BRI can add an extra layer of complexity to some projects, the problems that arise in BRI schemes are often just those familiar from other infrastructure work.

This may be even more so in future, as BRI projects increasingly come to resemble non-BRI schemes. In 2018 China announced a package of ambitions – labelled BRI 2.0 – to make the Belt and Road a more sustainable venture, with a far greater emphasis on principles such as ‘open, green and clean cooperation’, as well as multilateralism, partnerships and transparency.

BRI 2.0 also highlights the need to ensure commercial and fiscal sustainability. While BRI was never really the limitless debt-dispensing machine of popular caricature, it is clear that Chinese lenders have become more selective in backing projects, while BRI financing has been opened up to an increasingly varied list of institutions and businesses, including non-Chinese sources of capital. 

Many recent statements from China’s leaders, including President Xi, have confirmed that China now sees the ideas of ‘high quality development’ and ‘high-quality cooperation’ as integral to the future of BRI. And the average BRI project is getting smaller, quicker and cleaner – it’s increasingly likely to be a solar farm or a smart city reconfiguration, rather than a flagship piece of infrastructure that takes a decade or more to develop. 

Belt and Road tensions

BRI is a truly global scheme. About 140 nations and over 30 international organisations have signed various BRI cooperation documents. One indication of its success is the series of attempts by Western governments to create rival schemes, with the aim of challenging what many see as the strategic geopolitical advantage BRI has gifted China.

At the recent G7 summit, the latest proposed alternative to BRI was given a name: Build Back Better World (B3W). Briefings from the White House – which has taken the lead in promoting the idea – and the G7’s closing communiqué provided a few details, although they were more about aspirations than practicalities. Notably, they offered no insight on the likely size of B3W, or specifics about its financing. In reality, the initiative is still very much on the drawing board, with the G7 pledging to establish a taskforce that will develop proposals and report in the autumn.

Many of the G7’s ideas for B3W – such as creating resilient infrastructure, health systems and security, developing digital solutions, promoting “clean and green growth”, strengthening partnerships with developing nations, implementing sustainable projects, mobilising more private sector capital and so on –  are already familiar from BRI 2.0. This may be inevitable: they are themes we can expect to see at the heart of infrastructure development over the next decade, whoever is backing it. But they also highlight the aim of some Western nations – particularly the US – to compete with and push back against BRI.

The biggest current flashpoint between China and the US in relation to BRI is standards and technology. China’s plan to become a tech superpower by 2050 looks set to see it develop systems and standards that compete with Western offerings, and potentially dominate some geographical markets. Many in the US see this as a question not only of competition and influence but also of security. At the time of writing a slew of bills in the Senate and the House seek, in a variety of ways, to counter China’s progress in this area. Most have strong bipartisan support.

Even before this, the Trump administration pushed back against aspects of the Digital Silk Road, notably in its attempts to discourage various nations from striking 5G deals with Chinese providers such as Huawei, and in its Clean Network Program, intended to restrict or eliminate Chinese involvement in, for example, telecoms networks that connect to US networks, and cloud systems and apps that handle US data.

BRI and the future

Some BRI projects have been knocked off course by Covid-19, and some investment has been reined in, but the initiative as a whole has continued throughout the pandemic. According to the Xinhua news agency, Chinese entities signed contracts worth over USD 31bn in countries along the Belt and Road in the first quarter of 2021. BRI figures in both this year’s Chinese government work report and its new 14th Five-Year Plan – again with an emphasis on “high-quality” development and cooperation.

The most immediate concern for BRI is the US ambition to limit its growth. However, while the US hopes to discourage Chinese investments in certain areas – particularly certain technologies – it may not be in America’s broader interests to block other Chinese FDI and lending. The world’s infrastructure gap is almost unimaginably large: in trailing its B3W initiative, the Biden administration spoke of a USD 40tn infrastructure need in the developing world, while suggesting that B3W would “catalyse hundreds of billions of dollars of infrastructure investment”. Hundreds of billions will clearly be welcome (although it is not yet clear how much of B3W will be ‘new money’) but will still leave a need for many trillions more. It is not easy to see how that gap could be bridged without extensive Chinese funding.

The International Energy Agency, for example, believes that annual clean energy investment in emerging and developing economies will have to increase from around USD 150bn now to more than USD 1tn by 2030 if global targets for zero emissions by 2050 are to be reached. Much of that existing funding comes from China, and Chinese participation looks to be essential in achieving the sort of funding increase suggested by the IEA’s analysis, as well as project-level expertise, and the general intentional engagement necessary to tackle climate change.

As long as BRI options are available on relatively attractive terms – and particularly where there is a shortage of viable alternatives – demand from governments seeking to develop badly-needed infrastructure and to boost their economies after the pandemic will ensure that there continues to be a substantial pipeline of BRI projects.