The Chinese State Funds Belt and Road but Does Not Have Trillions to Spare
The Belt and Road Initiative (BRI) has been primarily about construction rather than investment. State-owned enterprises account for more than 95 percent of the $208 billion in construction projects since 2014.With the BRI focused on developing countries, there is considerable commercial risk. Private Chinese firms have thus been hesitant to take on BRI projects, including investments.Much BRI construction and investment is ultimately financed by China’s foreign exchange reserves. China no longer has money to spare, and the BRI will not hit $1 trillion in value until well into the 2020s.
The Belt and Road Initiative (BRI) is characterized as an explosion of Chinese investment in Eurasian and African countries promising deals worth trillions of dollars. This is largely wrong. The BRI is better understood as construction projects worth hundreds of billions of dollars taken on by state-owned enterprises (SOEs). Belief in endless Chinese money notwithstanding, SOEs cannot by themselves deliver a multi-trillion-dollar BRI.1
A cargo train is launched to operate on the Standard Gauge Railway (SGR) line constructed by the China Road and Bridge Corporation (CRBC) and financed by Chinese government in Kenya’s coastal city of Mombasa, May 30, 2017. Reuters
Is the private sector willing to help? Probably not. Private investment in the BRI is rising, but it is still outpaced by SOE investment. BRI construction activity by private Chinese firms is almost nonexistent. With the BRI focused on developing countries, there is considerable commercial risk. SOEs can ignore much of this risk because they do not go bankrupt and usually have access to cheap financing; private firms are not as fortunate. The evidence to date indicates private firms are hesitant to participate, at least using their own funds. If that continues, the BRI will not be nearly as large as some anticipate.2
Dan Blumenthal and Derek Scissors, “China’s Great Stagnation,” National Interest, October 17, 2016, http://nationalinterest.org/ feature/chinas-great-stagnation-18073.Josh Zumbrun and Jon Emont, “China’s Financial Reach Leaves Eight Countries Vulnerable, Study Finds,” Wall Street Journal, March 4, 2018, https://www.wsj.com/articles/chinas-financial-reach-leaves-eight-countries-vulnerable-study-finds-1520190000.