Belt tighteningQuestions, concerns mount over
China’s leaders are eager to exploit the coronavirus-induced global economic crisis to expand Beijing’s already ambitious Belt and Road investment campaign through a flood of loans to the growing number of nations in need around the world.
But the hundreds of billions of dollars in grants, loans and contracts already committed under President Xi Jinping’s signature program has some analysts warning that China is likely to overextend itself as markets and supply chains struggle to recover from unprecedented fallout over the coming years.
Beijing may already be feeling a backlash from countries struggling to pay their current debts and increasingly concerned that the Belt and Road Initiative is intended to underwrite the Chinese Communist Party’s model for global economic development in the coming decades.
Few doubt that the pandemic has created an inflection point in the battle for global influence between China and the West, and some warn that Washington should be more wary of Beijing’s desire to replace the U.S. as the world’s most go-to economic partner.
“My concern is that they’ll steal a march on us or that they’re already in that process,” said Daniel S. Markey, a former State Department official now at Johns Hopkins University’s School of Advanced International Studies.
The stakes are particularly high over who recovers first — China, or the U.S. and its European partners — from the economic crisis tied to coronavirus, said Mr. Markey, whose new book, “China’s Western Horizon,” examines how Washington might manage Beijing’s rising global influence more effectively.
“If we’re the ones who end up in a deep recession, if not depression, for an extended period of time, and if the Chinese are somehow able to dig out faster, then a lot of countries are going to have little choice but to see the Chinese as the only game in town economically,” Mr. Markey told The Washington Times.
Chinese foreign policy elites have embraced that narrative as the number of nations facing economic collapse has expanded in recent weeks. Much of Africa and other parts of the developing world have not even reached the peak of the crisis.
An op-ed last week in Global Times, a newspaper closely tied to the Communist Party, proclaimed that the Belt and Road Initiative “is expected to lead the global economic recovery.”
“China has successfully combated its epidemic and has taken the lead in production resumption. The Chinese economy’s performance in March recovered significantly from February,” wrote Jia Jinjing, an assistant dean at Beijing’s Renmin University. “The reconstruction of the global industrial chain and the global supply chain after the pandemic is also expected to bring greater opportunities for BRI participants.”
The crisis may well present Beijing with an opportunity to gain inroads in poorer countries from the Middle East to South and East Asia, Africa and Latin America, even countries that otherwise may have viewed China’s offers of aid and infrastructure financing with ideological or economic suspicion.
Reviving trade routes
Since the inception of the Belt and Road Initiative in 2013, China has said its aim is to use a network of ports, bridges and power plants to revive ancient trade routes that once linked Beijing to the rest of the world. A mountain of cash as China emerged as an industrial powerhouse exporter gave Beijing a pot of investment funds to dangle before participants.
Chinese leaders have marketed the initiative as a benevolent pathway to lead countries out of poverty. They have compared it to the U.S. Marshall Plan, which helped rebuild countries devastated by World War II.
The Belt and Road Initiative is a loosely defined catchall term for predominantly China-financed, and usually China-built, projects that have pumped billions of dollars into infrastructure in more than 60 countries in recent years. Chinese money has helped finance port projects in Sri Lanka, Greece and Pakistan, new railroad lines in Kenya and Indonesia, and airports in Djibouti and the Maldives.
Although not all projects have come to fruition, the total announced lending by Chinese banks in the program’s seven years tops $460 billion, according to RWR Advisory Group, a Washington-based consulting firm.
Because it is designed to give Chinese government-owned companies access to new markets for their products, the initiative has helped Beijing amass greater global influence. That has created mounting concern in Washington and among some key U.S. allies.
Pro-capitalism and democracy advocates including Canberra, Australia; New Delhi; and Tokyo fear the Belt and Road Initiative’s real goal is to build a China-centered sphere of influence that undermines Western free market ideals by pulling developing nations into “debt traps” that give Beijing economic sway, and perhaps even authoritarian political control, over expanding territory around the world.
Some have gone so far as to claim the deeper vision of the project over decades is to lay the foundation for a worldwide network of Chinese military bases to one day usurp the United States as the pre-eminent global military power.
How the coronavirus economic tumult ultimately advances or hinders such goals is the subject of growing debate in foreign policy circles. Questions are swirling over the extent to which Chinese officials are being honest with their foreign counterparts.
This has been the case particularly with regard to the Belt and Road Initiative’s uneasy relationship with the International Monetary Fund and the World Bank. The two bulwarks of the Western postwar economic order were long the standard-bearers of global infrastructure financing prior to China’s arrival on the stage.
Using its clout
Beijing has sought to assert its growing economic clout in discussions on navigating a mounting coronavirus debt crisis. China made headlines in mid-April by urging the World Bank and IMF to allow “forbearance” to the least wealthy borrowing nations.
Chinese leaders also publicly signed on to a collective pledge by the Group of 20 industrial and emerging-market nations to suspend the collection of interest payments on loans to those borrowers. The move was touted as the equivalent to freeing up some $20 billion for poorer nations to respond to the pandemic.
However, Beijing gave signs afterward that its promises to be a lenient creditor may be hollow.
Benn Steil and Benjamin Della Rocca of the Council on Foreign Relations have said that Chinese officials “make a mockery” of the very G-20 pledge they signed by creating special “caveats” for Belt and Road Initiative loans.
“China is effectively excluding hundreds of large loans extended through its Belt and Road Initiative (BRI) for infrastructure development,” the two wrote in Foreign Affairs last week. They cited a Global Times article from mid-April that revealed Beijing’s plan to continue demanding interest payments on its loans to dozens of countries.
“Difficulties regarding repayments could be solved by multiple financial or other approaches,” the Global Times article said, adding that “debt-to-equity swaps” or “hiring Chinese firms” could be solutions for countries strapped by Belt and Road Initiative loans.
Some accuse Beijing of inducing the IMF and other international lending bodies to offer concessions to countries in need while continuing to turn the screws on those same countries.
Felix K. Chang at the Philadelphia-based Foreign Policy Research Institute said the IMF and World Bank “would be wise to refrain from any large-scale debt restructuring deals or aid packages for indebted countries without addressing Chinese debts as part of those arrangements.”
“At a minimum, those countries should be required to disclose their debts and other obligations to China,” Mr. Chang told The Times. “That way, the international community does not inadvertently fund a bailout of China’s BRI lenders.”
Mr. Chang also expressed skepticism that the current economic crisis will work to Beijing’s advantage in the longer run.
“China is likely to find it tougher to expand the BRI because the drop in global demand and trade is bound to make any new infrastructure construction less likely to be financially sustainable,” he said. “For new infrastructure to be sustainable, there must be enough trade to make it profitable. And, for that to happen, there must be enough demand to support that trade.
“Without growing demand, there will not be enough trade to support the profitable construction of new infrastructure, leaving BRI borrowers burdened with debts they cannot repay.”
More and more skeptics are asking whether that was Beijing’s goal from the start.
Mr. Chang noted in an analysis published by the Foreign Policy Research Institute last week that China found ways before the coronavirus economic crisis to benefit from big debts run up by Belt and Road members.
“The most widely known case is that of Sri Lanka,” he wrote. “Able to attract only a tiny number of ships to its BRI-financed port at Hambantota, it could not pay the interest on its loans. As a result, Sri Lanka was forced to give a Chinese port operating company a 99-year lease to the port and 15,000 acres of land around it so that Colombo could repay its Chinese creditors.”
“There are now concerns that something similar could befall Djibouti and its strategic port near the Horn of Africa, as the country’s debt to China has spiraled to over 100 percent of its annual GDP,” Mr. Chang added. “In April, rumors [also] surfaced that Zambia was considering offering its copper mines to its Chinese creditors in exchange for debt deferral or forgiveness.”
Opaque and predatory lending practices tied to the Belt and Road Initiative, in sharp contrast with those of the IMF and World Bank, have sparked a backlash. In mid-2018, Malaysia backed out of more than $20 billion worth of Chinese-funded infrastructure projects, citing concern over loan corruption and the risk of being trapped by high-interest Chinese debt.
While skepticism has persisted among many nations, Brian Harding, an Asia expert with the Center for Strategic and International Studies, said economic desperation from the COVID-19 pandemic could put Chinese loans in a more favorable light.
“The question is whether the increased scrutiny that Chinese investment projects had been getting over the last year or two will continue,” Mr. Harding said in an interview. “It’s possible that China will have more leverage because countries are going to be reeling, and they need the money.
“It’s also possible,” he said, “that the leverage will bring the potential for more malign [Chinese] activities.”
“We really don’t know yet how that economic recovery is going to play out,” he said. “If China bounces back slowly while the U.S. and Europe bounce back quickly, that might change how many countries prioritize their economic relationships with China.”
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