AUGUST 23, 2019 00:15 IST
Given mounting criticism of BRI, will China incorporate best practices in the project?
China’s raging trade war with the U.S., mounting criticism of its Belt and Road Initiative (BRI), and growing schism in its Politburo on handling these issues has compelled the Chinese leadership to review the ininitiative. The BRI was conceived as a response to the vast overcapacity in infrastructure-related industries due to credit-fuelled growth in China in 2008 following the global economic recession, when its exports started dwindling. In 2009, former Deputy Director of China’s State Administration of Taxation, Xu Shanda, came up with a proposal called the Chinese Marshall Plan which suggested that China should utilise its vast foreign exchange reserves, expertise in building infrastructure, overcapacity in iron, cement, aluminium, glass, coal and shipbuilding industries and unemployed labour to meet the infrastructure demand in Southeast, Central Asia and Africa.
Announced by Chinese President Xi Jinping in September 2013, the BRI consists of a belt of rail routes, highways, oil and gas pipelines and other infrastructure projects extending from Xian in Central China through Central Asia, Russia, West Asia and Europe. There is also a branch extending from Kashgar in Xinjiang to Gwadar in Balochistan via Pakistan occupied Kashmir (PoK). The ‘road’ segment comprises a network of ports and coastal infrastructure stretching from eastern China across Southeast Asia and South Asia, the Gulf, East Africa through the Mediterranean up to Rotterdam in Europe.
According to China, more than 120 countries have signed and joined the BRI. China’s trade with these countries since 2013 has crossed more than $5 trillion and investment has totalled about $200 billion for 2,600 projects. In the first seven months of 2019, China’s trade with BRI countries was 6% higher than the growth of its global trade.
However, BRI has not succeeded in the full utilisation of overcapacity in infrastructure industries. China has been forced to close many companies. About one-third of its projects are failing due to several anomalies. There is no open tendering, competitive bidding or practice of an independent pre-feasibility or environmental impact studies, as per global norms. Many projects suffer from lack of local inputs, protests on land procurement, pollution, performance delays, corruption, financial viability, unsustainable debt and low investment returns. The interest rates charged by China are high, upward of 3% on government loans and 17%-18% on commercial loans with sovereign guarantee of the local government. As many loans turn non-performing assets, China is becoming selective in giving new loans.
Some BRI projects do not make economic sense. For example, the cost of transportation by the 12,000 km-long Yiwu-London rail line will be twice more expensive than shipping. Similarly, the cost of supplying crude oil and gas from Gwadar port to Tianjin in northeastern China via the 7,000 km-long pipeline proposed by China will be $10 per barrel costlier than ocean freight. Many countries such as the Maldives, Pakistan, Sri Lanka, Bangladesh and Malaysia have asked China to restructure or downsize the BRI projects. India has rightly decided not to participate in BRI over concerns relating to sovereignty (the China-Pakistan Economic Corridor passes through PoK), lack of transparency, openness, financial sustainability, high interest and the ‘tied’ nature of these loans.
The real challenge
After a chorus of international criticism, the old swagger about BRI has faded. President Xi promised at the second Belt and Road forum in April that China would ‘finetune’ the BRI with open consultation, clean governance and green projects. The growth of BRI is down as China’s investment in these projects in the first quarter of 2019 grew only by 4% compared to 22% in 2018. The real challenge is whether best practices can be incorporated in BRI or it will remain only a ‘Chinese’ scheme given that state-owned enterprises play the lead implementing role.
Yogesh Gupta is a former Ambassador