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China’s course correction

The Chinese Belt and Road Initiative (BRI) was announced by President Xi Jinping at a function in Kazakhstan in 2013.

China’s course correction

Half-truth: The notion that BRI encourages ‘debt traps’ is somewhat over-the-top.

Manoj Joshi
Distinguished Fellow, Observer Research Foundation

The Chinese Belt and Road Initiative (BRI) was announced by President Xi Jinping at a function in Kazakhstan in 2013. It began as a Chinese national project, funded with Chinese money to serve Chinese national goals. Six years down the line, it is mutating and imposing a Chinese-designed layer on to the existing pattern of globalisation.

It has taken aboard criticism that its projects were creating debt traps to make countries vulnerable to Chinese geopolitical designs. Last week the second Belt and Road Forum (BRF) for International Cooperation was held in Beijing, providing us an outpouring of speeches, opinion pieces and research. It  was as much a stock-taking exercise as the platform to announce the new directions to what is now a set Chinese policy that  will impact the world in the coming decades.

These new directions have been shaped by the criticism of the BRI in India and other western countries, as well as the issues raised in the ongoing trade and technology war, where the US has charged Beijing with denying western companies market access, subsidising the activities of its state-owned enterprises abroad, compelling companies to make forced technology transfers and using opaque policies in issuing tenders and so on.

In his speech inaugurating the BRI Forum, President Xi signalled that China was willing to adjust its policies and shape a BRI which would emphasise international collaboration, transparency, high-quality products, procedures and processes, enhance market access, and promote imports of goods from developed and developing countries.

It must be noted, to start with, that the criticism of BRI has been somewhat over-the-top. Take for example the notion of that it encourages ‘debt traps’. For India this has been a major issue because of the manner in which the Sri Lankan port of Hambantota slid into the hands of a Chinese company under a 99-year lease. In an article in the New York Times last week, Deborah Brautigam of Johns Hopkins University noted that specialists studying the subject have found ‘scant evidence’ that Chinese banks were lending to projects that had little prospect of profit for the sake of gaining strategic advantage for China. Looking at the data of two major US institutions studying the subject, she concluded that ‘the risks of BRI are often overstated or mischaracterised’. In both Latin America and Africa, fears that China ‘was deliberately preying on countries in need are unfounded’.

Even so, Beijing has moved to address these issues relating to the 

$440 billion worth of loans it has so far provided for BRI projects. At a meeting of finance professionals at the second BRF, Yi Gang, China’s Central Bank Governor, acknowledged the need for China to address the issue of the countries to service their borrowings at the time they were given the loans. At the same meeting, Li Kun, finance minister of China, said his country would develop a ‘debt sustainability analysis framework’ which will use World Bank and IMF methodology as well to ensure that risks from debts did not go out of control. Both these measures have won praise from Christine Lagarde, IMF Managing Director, who was present at the meeting.

The new financing criteria are also designed to attract foreign investment partners in the BRI financing. Western firms have always sensed the opportunities that the BRI would present. Their problem was that they were more or less frozen out of the action by the Chinese who tilted the playing field against them. However, and this is to the credit of President Trump, those walls are now crumbling and the Chinese are understanding that it may actually be advantageous for them to have others share risks as well as the gains.

Another major development in the BRI has been the evolution of the ‘third party’ cooperation model aimed at promoting shared development and spreading China’s risks. The origin of this model lies in the political decision of Japan to cooperate with BRI in practice, if not in name. As part of this, the two countries agreed in 2018 to jointly execute 50 infrastructural projects across Asia. This would combine China’s financial support and production capacity, with Japan’s rich overseas experience, advanced technology and risk management mechanisms. The UK has also expressed interest in getting involved in such projects. Both London and Tokyo figure that BRI is going to be around for a while and to oppose it is to deny their own companies the opportunity for profit. In the coming period, as the Chinese make their policy more open and market- friendly, other private players are also likely to jump in.

Chinese-led globalisation is a fact of life. BRI has already created facts on ground—rail lines, highways, ports and pipelines—which cannot be denied, leave alone reversed. Now, facing economic and political headwinds from the US and Europe, China is readjusting its policy. A great deal depends on the sincerity with which it can implement the changes it has spoken about.  

Notwithstanding everything, BRI remains a Chinese-led project aimed at securing Chinese goals. They are not in it for altruistic purposes, but to enhance their own economic and political standing in the world. That is what all countries would do if they were in China’s position.  

But where BRI v1.0 provided a vision of a stark approach aimed at maximising China’s advantage, v 2.0 indicates that Beijing has understood that it cannot be a zero-sum game and that if it wants its boat to rise in the harbour, it has to ensure that the other boats, too, do the same. 

The writer was recently in Beijing to attend forum meetings  

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