Since its launch in 2013, China’s gigantic ‘Belt and Road’ (BRI) initiative has divided opinion across the globe. This is hardly surprising, given the numbers involved. Projections for spending on the infrastructure juggernaut involving over 130 countries vary wildly from around US$560bn to over US$1,000bn in the coming decade. However, is BRI good for developing nations, and is there an alternative?

The BRI has often been described as a 21^st century silk road, made up of a ‘belt’ of overland corridors and a maritime ‘road’ of shipping lanes. In essence, BRI aims to connect China to the rest of the globe through investment in areas such as:

• Infrastructure.

• Education.

• Construction materials.

• Railways and motorways.

• Automobiles.

• Real estate.

• Power grids.

• Ports.

• Iron and steel.

However, while proponents of the BRI argue that it is a unique opportunity to improve competitiveness, enhance trade flows and accelerate economic development, it has also faced some criticism.

“It is crucial to put the BRI into the wider perspective of the global game of power politics,” says Andy Langenkamp, Senior Political Analyst at ECR Research. “China is trying to set up economic, diplomatic and security structures that bypass, exclude, or co-opt the West through its BRI, the Shanghai Cooperation Organisation, the Regional Comprehensive Economic Partnership (RCEP) and the Asian Infrastructure Investment Bank (AIIB). Its aim is to become less dependent on organisations where the West still largely has the upper hand, including both the IMF and the World Bank.”

Critics have also raised concerns about the environmental and social impact of BRI projects, saying that many of them are unsustainable white elephants which have left many countries firmly in Beijing’s pocket. Recently, a report by the Lowry Institute entitled ‘Ocean of Debt?’ claimed that BRI has exposed the issue of unsustainable debt for smaller countries with fragile economies.

“The evidence suggests China has not been engaged in such problematic debt practices in the Pacific as to justify accusations of debt trap diplomacy, at least not to date,” says the report.

However, it continues: “The sheer scale of Chinese lending and the lack of strong institutional mechanisms to protect the debt sustainability of borrowing countries mean a continuation of business as usual would pose clear risks. China will need to substantially restructure its approach if it wants to remain a major player in the Pacific without fulfilling the debt trap accusations of its critics.”

A number of countries have indeed run into trouble with BRI projects, often after a change of government, a political backlash or both. To take a few examples, in 2017 Sri Lanka borrowed extensively to build a new port at Hambantota, but then defaulted on the loan.

This resulted in a state-owned Chinese company being given a 99-year lease in exchange for debt relief. The port currently has little business, but for China it’s a strategic berth for its ships inside a key shipping lane. However, last month the President of Sri Lanka’s new government, Gotabaya Rajapaksa, made no secret of the fact he wants to take the port back as a “national interest”.

Also in 2017, China was set to lend Pakistan US$8bn to upgrade its railway from Karachi to Peshawar. But when a new government was installed, and with the country already heavily in debt, the government asked for the debt to be cut in half, but China refused as the project had already begun.

And in June this year, a court in Kenya stopped the construction of a Chinese-backed power plant in Lamu, a major tourist destination, ordering a new environmental impact assessment.

Connecting the dots?

So why is this happening? According to Langenkamp, China is still lagging behind America economically but it is catching up fast. “The rest of the world is still unsure of how to deal with China’s ambition to become one of the pre-eminent global technological players within the next few years. On the one hand, other countries see this development as a threat. At the same time, they view it as an economic opportunity.”

In addition to the US-China trade war and the associated tech fight, Langenkamp points towards the geopolitical game for dominance in the Pacific and Indian Ocean regions, where the US has “ruled the maritime roost” for the past two decades. Langenkamp also believes that Beijing no longer accepts this and the country is trying hard to gain ground on the US, among others via the militarisation of unpopulated islands.

So in order to counteract increasing Chinese dominance in Asia, the US, Japan and Australia, recently came together and announced the launch of a ‘Blue Dot Network’ (BDN), which some observers claim is a rival to BRI. However, current details are vague.

The US Overseas Private Investment Corporation (OPIC) issued a press release stating: “The Blue Dot Network will evaluate and certify nominated infrastructure projects based upon adherence to commonly accepted principles and standards to promote market-driven, transparent, and financially sustainable infrastructure development in the Indo-Pacific region and around the world.”

Keith Krach, US State Department Undersecretary for Economic Growth, Energy and the Environment, explained that the standards will be based on respect for transparency and accountability, sovereignty of property and resources, local labour and human rights, rule of law, the environment, and sound government practices in procurement and financing.

The establishment of the BDN could be seen as a swipe at China’s BRI and for creating so-called debt traps. However, the establishment of BDN also raises some significant questions about how the BDN initiative defines ‘commonly accepted principles and standards’ and who will be responsible for setting and monitoring these.

If it is the US, Australia and Japan which plan to set the principles, it raises another problem in that if they are established by just three countries they can hardly be considered to be ‘commonly accepted’.

Nevertheless, governments in developing countries across the Indo-Pacific region and around the world are well aware that generous loans for infrastructure projects come at a cost. Given China’s increasing willingness to invest, regardless of the risks involved, the BDN’s emphasis on setting good investment standards, and of promoting financially sustainable development, will not fall on deaf ears.

Langenkamp points out that Beijing views the BRI as a key component of China’s strategy to take back its place at the top of the table.

“Xi Jinping has minced no words claiming it is time for China to take centre stage in the world and become, in his words, the ‘global leader in terms of composite national strength and international influence’,” he says. “The BRI is one of the leading vessels on which Beijing wants to sail towards the global top spot.”

Whether or not China achieves this goal, what is clear is that the BRI and the establishment BDN are two global initiatives that cannot be ignored. It seems that 2020 will be another year for treasury to keep looking both East and West.