The coronavirus pandemic has meant delays and higher costs for the Belt and Road Initiative, but has also presented new possibilities. Beijing needs to find a balance between stability and expansion, says Frank Sieren.
The coronavirus pandemic has slammed the brakes on China's Belt and Road Initiative (BRI). Otherwise known as "The New Silk Road," the project was presented by Chinese President Xi Jinping in 2013. It is a global infrastructure network of roads, railways, air and seaports designed to connect business between Asia, Europe and Africa.
Yet, the coronavirus crisis has not only significantly slowed Western economies, now building sites along the BRI are at a standstill, too. Materials cannot be delivered due to disruptions in supply chains, and thousands of Chinese workers are unable to travel to and from countries where projects are currently underway. As a result, many contract obligations cannot be fulfilled. Some will have to be renegotiated, and others will have to be cancelled due to lack of financing.
How much help for partners?
That last point is especially true for countries that simply do not have enough liquidity to survive the current global crisis, which presents Beijing with a dilemma — it cannot simply abandon partners on the one hand, but it cannot carry their debt forever, either – China is having a hard enough time getting its own economy up and running again.
Last month, for instance, Islamabad asked China to accommodate them regarding Pakistan's loan repayments on shared projects. Pakistan is in dire financial straits and the China-Pakistan Economic Corridor (CPEC), valued at around $62 billion (€58 billion), is one of the BRI's key projects. Several African states have also come knocking on Beijing's door, asking for extensions or reductions on repayments.
Out of respect for Chinese sensitivity, most countries have refrained from mentioning the coronavirus pandemic originated in China, preferring instead to say they found themselves in this difficult financial situation through no fault of their own. Countries have also reminded the Chinese that the "One Belt, One Road" initiative was entered into the country's constitution in 2017 as a national objective. That was and remains a seal of quality guaranteeing Beijing's reliability and commitment to partner countries.
Beijing must also be careful to ensure that warnings raised by the West calling the project a Chinese debt trap in the guise of assistance, do not become a reality.
Compromise, but no substantive changes
The Hambantota Port project in Sri Lanka, for instance, serves as a glaring example of just how that scenario can play out. In 2017, Sri Lanka announced it could no longer service its debt to China, at which point Beijing accepted a debt-for-equity swap, agreeing to lease the strategically important Indian Ocean hub for the next 99 years. Although such incidents have not been repeated, the damage to the BRI's image was enormous.
That is why Beijing signaled a willingness to compromise last year when Malaysia's Prime Minister Mahathir Mohamad stopped construction on a new rail line in order to renegotiate the terms of the agreement. Ultimately, Malaysia ended up paying $11 billion less than previously scheduled and is already thinking about new projects with the Chinese.
China is also working hard to send clear signals of strength despite the coronavirus pandemic. In mid-March, President Xi announced there would be no "fundamental changes" to the BRI. In fact, Beijing has signed a number of new agreements with countries – such as Myanmar, Nigeria and Turkey – since the beginning of this year. And in late April, Chinese state news agency Xinhua announced that an important section of the 411-kilometer-long (255 mile) high-speed rail line between China's Yunnan Province and Laos had just been completed.
Construction of the Jakarta-Bandung high-speed rail line in Indonesia, on the other hand, has been at a complete standstill due to quarantine measures. Things are similar in Pakistan, Sri Lanka and Bangladesh. Still, it is highly unlikely that the BRI will be suspended or fail, there is simply too much at stake for Beij
Balance between expansion and stability
Political help counts double in times of crisis, Xi knows that and, as difficult as times may be now, he will likely have a better bargaining position than the West. After all, China got over the coronavirus pandemic before anyone else and is already in a phase of economic recovery.
China's state banks, which have extended most foreign loans over the past 15 years, have enough cash on hand to decided whether to grant loan extensions, lower interest rates or even forgive loans on a case-by-case basis. Xi's biggest problem: Chinese citizens need help, too, and they will have little understanding for cash flowing to Pakistan or Nigeria. Despite Chinese censorship, anger over such developments can quickly boil over on social media.
Nerves are raw in China after the shock of the coronavirus crisis. Now President Xi's biggest challenge will be to find the right balance between foreign expansion and domestic stability