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Belt and Road Initiative (BRI) shows the genius and might of China. Is it the same for their partners?

Article by Kevin Tutani

As the Chinese government has managed to lift over 800 million citizens out of extreme poverty, since 1970, there remains less to prove domestically, for the ruling Communist Party of China (CPC). Resultantly, for the past 10 years, the focus of the party has been on the internationalization of the currency (RMB), use of excess industrial capacity through finding export markets, and growing the country’s influence on the global stage. To achieve this, the most ambitious Chinese foreign policy was launched by President Xi Jinping, in 2013. Initially launched as: “The Silk Road Economic Belt”, the program has evolved into different names, until the ultimate establishment of the phrase, “Belt and Road Initiative (BRI)”.

Inspiration for the program was drawn from the ancient trade routes which spanned from China, through Central Asia , Western Asia and ultimately, Europe. Through these routes, trade, ideas, culture and religion were exchanged from one end to the other. The Chinese sent gemstones, medicines, spices and silk, whilst from the European direction, horses and armaments were brought eastwards. It becomes clear that the routes eventually earned their name from the lucrative silk trade which flowed from China to European royalty and wealthy clients. China has thus set itself on a path to renew these routes by investing in road, railway and other infrastructure in the countries in the traditional trade paths, from Kazakhstan, Russia, Turkey, Pakistan, to Greece, Italy and Norway. Being conversant that most trade now travels through the sea, investments are also being made at ports in Sri Lanka, Indonesia, Myanmar, Djibouti and Kenya, etc. The focus of the BRI has evolved to include various infrastructure projects beyond transport and logistics, such as, high-rise buildings, coal-fired power stations, dams, etc. To date, more than 150 countries have partnered with China in the BRI project, receiving massive investments from the Asian nation, for the mutual benefit of China and the recipient countries. This has successfully added to the clout of the nation on the international platform, although some countries remain unwilling to participate in the initiative. The project is expected to run into 2049, with a total expenditure commitment of $8 trillion. Investments will usher efficient international trade, thereby impacting the Chinese and world economy. It is imperative for the Asian nation to invest in such a program so that imports (mainly raw materials) may flow without logistical constraints, export markets may grow and to reap the benefits of reduced costs of trade.

Unwilling to participate
India has turned down the opportunity to be a part of this ambitious program. One of the main reasons is their objection to the China-Pakistan Economic Corridor (CPEC). Since Beijing has invested and made future commitments for infrastructure development in the contested Kashmir region, India may have taken this as a defiance against it by China. The territory is the subject of fierce disputes between India and Pakistan. Additionally, India seems to be unwilling to support the rise of China on the international stage by supporting the nation’s goal to gain military dominance in the Indo-Pacific Region. Chinese investments in the sea trade routes, seem to be slanted towards a heavy military presence, sometimes overshadowing commercial developments. This is expected, as Beijing targets to eliminate the U.S.-Japanese traditional eminence in the same region. In the case of an outbreak of war, it is not strategically smart for China to fail to continue with trade, owing to domination of its routes by rivals. It is on this same basis that India may be gearing for a maintenance of a multi-national influence, instead of a unilateral power of China. Since New Delhi has its own security needs, a multilateral system may guarantee stability. With a goal towards the internationalization of the Rupee, the country may also view China as a competitor, instead of an obvious collaborative agent.

Japan is another prominent nation which has been indifferent to the program. Both China and Japan have competencies in the development of high-speed railway systems, for example. They committed to partnering on a rail infrastructure project in Thailand, in 2018, but have been doing projects separately since then. Instead, Tokyo has launched its own foreign program called, Partnership for Quality Infrastructure (PQI), offering developments for both an economic and diplomatic return, globally. The PQI, established in 2015, set out with a pledge of $100 billion in infrastructure developments, offering nations in the Indo-Pacific region, a competitor to the BRI. Prime Minister Modi, of India, has since endorsed it, unlike the Chinese initiative. Japan also favors a free and open Indo-Pacific, instead of Chinese unilateralism. It may be that, both India and Japan perceive that the BRI will replace the current multilateral order, with a system of obedience and servility to China, if its prevalence in not balanced. This explains their indifferent, and sometimes negative attitudes towards the Chinese program.

The partners
Having gone through the disagreeable neighbors of China, it may also be necessary to offer a review of some of the participating countries.

South Africa
In 2013 Transnet acquired ship-to-shore cranes from Chinese manufacturer, ZPCM. The following year, South Rail Zhuzhou Electric Locomotive and China North Rail Rolling Stock were awarded contracts to build electric and diesel locomotives. In June, 2015, $2.5 billion was loaned out through China Development Bank, for building of 60%, of the then required, 1064 trains. Upon President Xi’s visit to South Africa in December, that same year, deals worth $6.5 billion were signed, with another $2.5 billion going to Transnet and $500 million to Eskom, amongst other commitments. Transnet’s credit was meant for the acquisition of mechanical and electrical equipment from Chinese businesses. Additionally, the other portion was to finance operation costs, maintenance and other service expenses from Chinese enterprises in South Africa. Between 2016 and 2017, China Development Bank signed more loan agreements with Eskom, worth $500 million and $1.5 billion, respectively. The largest tranche of funds was proffered in September 2018, when government officials confirmed that a package worth R370 billion was secured from the Asian nation. It was further reported that the funding would be directed towards infrastructure development, speeding up of industrialization and stimulating the economy, in order to solve recessionary pressures. Further details on the massive financial input were not available, indicating that the facility was offered on the basis of confidentiality clauses. Responding to questions in parliament, a week before reports on the R370 billion facility, President Ramaphosa also refused to divulge details on other Chinese loans to Eskom and Transnet, on account of legality and confidentiality. It is evident that China has been playing a massive role in supporting South African state owned enterprises, through financing expansions and purchases of capital goods. However, critics of the bilateral relationship insist that credit must strictly be supported by growth of the economy or government revenue collection, without which, the debt will become unsustainable. It is a fair argument, considering that between 2007 and 2017, only, debt to GDP ratio nearly doubled, from 27.8% to 53.1%. The diplomatic offensive of China, has so far, worked wonders as both President Zuma and Ramaphosa’s administrations, maintain amicable relationships with Beijing. The ruling ANC also continues to value the positive diplomatic ties, with no sign of swerving, in the future.

For the Southern-African country, there were limited options to access funding for capital projects, since sanctions were invoked by Western institutions, two decades ago. Nevertheless, China has been integral in filling the funding gap. Robert Mugabe Airport underwent upgrades for $153 million, with funding originating from China Exim Bank. Hwange Power Station went through an expansion process at a cost of $1.5 billion. The tender for the project was awarded to Sinohydro, a Chinese, state-owned engineering firm. Another $3 billion coal-fired power station was on the cards, although reports suggest that it may no longer materialize. For $533 million, Kariba South Hydro-power station was capacitated with an additional 300 MW and commissioned in March, 2018. Victoria- Falls airport was renovated by China Jiangsu International Technical Cooperation Group, from 2013, at total cost of $150 million. The nation was also gifted a $200 million parliament, in Mt. Hampden. NetOne and Huawei partnered on network expansion for $71 million, with capital sourced from China Exim Bank. It is clear that, without the emergence of China as an impeccable lender, much of the country’s long-term projects would not have materialized. However, there also remains the need for the nation to review if the benefits outweigh the costs. Zimbabwe is currently struggling with massive debt arrears (over $6 billion), which may be an indication of unrestrained debt accrual. Public and publicly guaranteed debt reached $13.35 billion, at the end of 2021. The $6.6 billion arrears of external public debt, will hinder access to new credit lines and the sustainability of debt, if they remain unresolved.

The nation has been a major beneficiary of the BRI program. Funding was provided for the Kafue Gorge Hydroelectric dam, totaling $1.5 billion, in 2016. Two tranches of $30 million were issued for the modernization of Mulungushi International Conference Centre and the Lusaka East Multi-Facility Economic Zone. From 2015, Kenneth Kaunda International Airport was upgraded by China’s Jiangxi International, at a total cost of $360 million. By May 2018, China was the natural first creditor to Zambia, with a 28% stake in the government’s external debt (currently $18.5 billion), according to then Finance Minister, Margaret Mwanakatwe. China has also financed roads, railways, and telecommunications in the country. Chinese-supported capital projects have been more dominant in the past decade. It is vital to state that infrastructure is integral for development, as long as costs and expected revenue from projects are not inflated. The country is currently in debt distress, and was the first African nation to default on debt repayments during the covid pandemic. It is also fair to say that, historically, more debt has been accrued from international banks and the IMF, than from China.
In 2013, $492 million was loaned out for the Addis-Ababa, Djibouti railway. Additionally, $322 million was issued for the water pipeline from Ethiopia to Djibouti. Another $344 million was provided for the construction of Doraleh port, in 2016. The port has since been developed to become an international business district. The nation’s strategic location, controls access to the Red Sea and the Suez Canal. This means it is a doorway for maritime access to the Middle-East, Europe and Africa thus making it a vital region for development under the Belt and Road Initiative. Controlling such routes, guarantees flawless movement of exports and imports into China, from the three continents, in the present and the future. It is in Djibouti that China established its first overseas military base in 2017. In the same year (2017), $150 million was proffered for the construction of the Djibouti Free Trade Zone. Ultimately, about 50% of the nation’s total external debt of $2.6 billion, is owed to China. The Export-Import Bank of China is behind much of the Chinese debt. The turn of events however, took a twist, as, in November 2022, Djibouti had to suspend payments on its loans, owing to fiscal pressures, effects of covid on the economy and a drought. This means that some of the projects have failed to realize profit as outlined in projections at the outset. It is also unfortunate that as a net importer of fuel and food (importing up to 90% of food requirements), external factors such as the wars in Ukraine and their neighbor, Ethiopia, have scuttled initial expectations. After the suspension of the G20 Debt Service Suspension Initiative, at the end of covid, debt repayments tripled to $184 million in 2022 and are set to increase further to $266 million, this year. Without natural resources to offer as collateral, in the case of a default, the nation may give up some equity in its port, railway, or telecommunications financed through Chinese funds. Since the nation is located where China has vast business and military interests, the port will be a prized asset, in the case of repossession, owing to debt default.

Sri Lanka
The Hambantota deep water port was built through Chinese funding, which culminated into a $1.3 billion loan. The interest was much above concessionary IMF and AIIB rates of 0.25% and 0.3%, respectively. The 6.3% rates were excessive for the nation as it failed to meet debt repayment obligations. With the inability to repay the debt for the facility, a 70% ownership stake was eventually transferred to Chinese control, in a debt-to-equity transaction.

In conclusion, it may seem that the unfettered lending by China has resulted in the Asian nation also placing itself in a debt trap. This is because several of recipients of the nation’s loans are in debt distress and reports suggest that the lending practices were too relaxed, that they were in fact, risky. However, it is fair to say that the advanced status of China infers that there is more to the Belt and Road Initiative debt, than financial return on investment. With the world’s largest foreign exchange reserves, at $3.1 trillion, in December 2022, the nation can afford to provide debt relief even to most of its borrowers. The genius of the CPC is in the fact that, going forward, more nations will be loyal to Chinese foreign policy. This includes all beneficiaries of the BRI but more importantly, the ones in debt distress. If the Asian nation decides to take ownership of collateralized assets (pledged as loan security), it should still be able to redeem the value of its bad loans. In terms of securing access to imports (largely raw materials) and exports to markets through established BRI trade routes, Beijing will have an advantage over other advanced economies, as it has thoroughly invested along the trade channels. However, recipients of BRI funding need to ensure that projects are feasible, transparent, and figures of costs and revenues are not inflated. If that is attended to, then there can be mutually beneficial results for both China and recipient countries. From a peak of 151 projects with a worth of $80 billion in 2018, the BRI has now taken a more steady approach with much less commitments, in recent times. With a 12% stake in total African private and public external debt (around $83 billion), the influence of China on the continent is set to solidify.

Kevin Tutani is a political economy analyst- tutanikevin@gmail.com

Disclaimer: The views expressed in this article are those of the writer and do not necessarily represent those of the Zimbabwe Broadcasting Corporation.

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