Has China's Belt and Road Initiative been a success? | FT

Summary

The 10th anniversary of China's Belt and Road Initiative (BRI) is marked by an extensive lending of nearly $1 trillion for global infrastructure projects, primarily in developing nations. While it has spurred economic growth and local employment, the BRI has faced controversies due to high-risk investments and the need for bailouts. China's domestic economy has also benefited from the initiative, but there's a growing emphasis on sustainable 'green BRI' projects as the initiative evolves amid global challenges like climate change and population growth.

Takeaways

• 🎉 The Belt and Road Initiative (BRI) marks its 10th anniversary, being the largest development program ever by a single country.
• 💼 Over a decade, Chinese financial institutions have lent nearly $1 trillion to finance infrastructure projects globally, mainly in developing countries.
• 🌐 BRI was initially seen as China's offer of global public good, providing infrastructure and connectivity to foster trade and economic development.
• 🏭 It also served to address China's domestic economic issues, such as excess capacity and overheating post-global financial crisis.
• 🚄 Significant infrastructure projects have been undertaken, including railways in Nigeria, Ethiopia, Kenya, and high-speed rail in Southeast Asia.
• 🏗️ BRI investments have led to local employment, income increases, and urban transformation in recipient countries.
• 💡 However, the high-risk nature of infrastructure investments and the long-term payoff have raised concerns about the economic rationale of some projects.
• 📉 There have been instances where Chinese projects struggled post-construction, leading to bailouts by the Chinese government for indebted countries.
• 💸 The Chinese government's bailouts are more about protecting its own banks than directly aiding recipient countries.
• 🔄 A shift in China's approach post-2015, marked by a more conservative stance and reassessment of overseas risks, especially after losing a quarter of US dollar reserves.
• 🌿 The future of BRI may see a focus on 'small and beautiful' projects and a greener, more sustainable approach to infrastructure investment.
• 🌍 The impact of COVID-19 and China's policy banks' risk aversion could lead to a decline in BRI lending, but China remains a key player in climate investment and renewable technology for developing countries.

Q & A

What is the Belt and Road Initiative (BRI)?

The Belt and Road Initiative, also known as the BRI, is a global development strategy initiated by China, aimed at enhancing regional connectivity and economic cooperation through infrastructure development and investment in nearly 70 countries and international organizations.

How long has the BRI been in existence?

The BRI has been in existence for 10 years as of the time of the transcript, marking its 10th anniversary.

What has been the total amount of Chinese financial lending under the BRI over the last decade?

Over the last 10 years, Chinese financial institutions have lent close to $1 trillion to finance infrastructure projects around the developing world as part of the BRI.

What were the initial purposes of the BRI?

The BRI was launched with multiple purposes: to serve as China's global public good offer, particularly to the developing world, by providing infrastructure, finance, and connectivity to foster trade, growth, and economic development; and to help China's domestic economy resolve its own problems and achieve strategic and economic interests.

How did the BRI help China domestically after the global financial crisis?

Following the global financial crisis, the Chinese government pumped a large amount of capital into domestic economic stimulus, leading to massive infrastructure construction and investment in heavy industries. The BRI helped by pushing companies and exporters to seek better returns in international markets and by injecting capital into China's policy banks and financial institutions to support Chinese companies to win overseas contracts.

What are some examples of large-scale infrastructure projects undertaken under the BRI?

Examples of large-scale BRI projects include standard gauge railways in Nigeria, Ethiopia, and Kenya, high-speed railways in Southeast Asia, and port investments in Kenya and Pakistan as part of the China-Pakistan Economic Corridor.

What kind of impact has the BRI had on recipient developing countries?

The BRI has brought local employment, increased incomes in some areas, and transformed the landscape of cities across countries like Ethiopia and Kenya by providing much-needed infrastructure.

What are some of the controversies surrounding the BRI?

The BRI has faced controversies due to the high-risk nature of infrastructure investments, which are long-term and slow to break even or make a profit. Some projects have struggled to make economic sense after construction, leading to the Chinese government having to bail out countries that have borrowed through the BRI.

How has China's approach to the BRI changed over time?

China's approach to the BRI has shifted from a period of exuberance in the early 2010s to a more conservative and risk-averse stance after 2016, particularly after China lost a quarter of its US dollar reserves following the 2015 stock market crisis.

What is the current stance of the Chinese government on continuing BRI bailouts?

The Chinese government is not necessarily bailing out recipient countries but rather its own banks. The finance lent to borrowing countries ultimately goes back into paying China's policy banks or commercial banks, and the central bank aims to keep these financial institutions afloat and financially healthy.

What is the future of the BRI in light of the changing global landscape and China's internal reassessment?

While the BRI as a narrative continues to hold top-level political commitment, the rhetoric has shifted towards supporting 'small and beautiful projects' and a greener, more sustainable BRI focusing on cleaner forms of infrastructure investment. The impact of Covid and growing conservatism in China's policy banks suggest a decline in overseas lending.

How can China contribute to the developing world's infrastructure needs amidst climate change and population growth?

China can play a significant role in climate investment by supporting the energy transitions of developing countries through the provision of renewable technologies, such as solar panels and wind turbines, which are manufactured and produced at scale in China.

Outlines

00:00

🌏 Belt and Road Initiative: A Decade of Global Development

The first paragraph discusses the 10th anniversary of China's Belt and Road Initiative (BRI), the world's largest development program by a single nation. Over the last decade, Chinese financial institutions have lent nearly $1 trillion to support infrastructure projects globally, particularly in the developing world. Yunnan Chen, a researcher at ODI, explains that the BRI served to offer global public goods, especially to developing countries, to foster trade and economic growth, while also addressing domestic economic issues in China, such as excess capacity and overheating. The initiative encouraged Chinese companies to seek international opportunities, with financial support from Chinese policy banks.

05:03

📈 Impact and Controversies of the BRI

In the second paragraph, the discussion centers on the impact of the BRI on recipient countries and the controversies surrounding it. Large-scale projects like railways in Africa and high-speed rail in Southeast Asia have been undertaken, along with port investments and the establishment of industrial zones to attract foreign direct investment. While these projects have brought local employment and economic transformation, they also pose high risks due to their long-term nature and the difficulty in achieving break-even or profitability. The Chinese government has had to bail out countries that have struggled with BRI-related debt, raising questions about the sustainability of this approach and the moral hazard it may create.

10:05

🛠️ The Future of BRI: Shifting Focus and Sustainable Development

The third paragraph explores the future of the BRI, noting a decline in overseas lending due to China's policy banks becoming more risk-averse, especially after the 2015 stock market crisis. The narrative has shifted towards smaller, more sustainable projects and a 'green BRI' that prioritizes cleaner infrastructure investments. While the BRI may not be ending, its focus is evolving in response to global challenges such as climate change and population growth. The paragraph also mentions competitive offers from the G7 and the EU's Global Gateway as alternatives to the BRI, and highlights China's potential role in supporting the energy transition of developing countries through the provision of renewable technologies.

Keywords

💡Belt and Road Initiative (BRI)

The Belt and Road Initiative, often abbreviated as BRI, is a global development strategy adopted by the Chinese government involving infrastructure development and investments in nearly 70 countries and international organizations. It is central to the video's theme as it discusses the 10th anniversary of the initiative and its impact on global development. The script mentions the BRI as the world's largest development program undertaken by a single country, highlighting its scale and significance.

💡Infrastructure

Infrastructure refers to the basic physical and organizational structures needed for the operation of a society or enterprise, such as roads, railways, and ports. In the context of the video, infrastructure is a key component of the BRI, with Chinese financial institutions lending nearly $1 trillion to finance projects in developing countries, aiming to foster trade, growth, and economic development.

💡Chinese financial institutions

These institutions are the entities responsible for lending the funds required to finance the BRI projects. They play a crucial role in the video's narrative by providing the capital necessary for the development of infrastructure in various countries. The script specifically mentions that these institutions have lent close to $1 trillion over the last decade.

💡Developing world

The term 'developing world' is used to describe countries that are in the process of economic, social, and political development. The video discusses the BRI's impact on these countries, particularly in terms of infrastructure development and economic growth. The script highlights how the BRI has been seen as China's offer of global public good to the developing world.

💡Connectivity infrastructure

Connectivity infrastructure refers to the networks and systems that enable the flow of goods, services, and information. In the video, it is mentioned as a key aspect of the BRI, aimed at fostering greater trade and economic development by improving physical connections between countries, such as through railways and ports.

💡Economic stimulus

Economic stimulus refers to government spending or tax cuts intended to boost economic activity during a downturn. The video script explains how the Chinese government pumped a large amount of capital into its domestic economy following the global financial crisis, which led to excess capacity and an overheated economy, prompting the push for Chinese companies to seek opportunities abroad.

💡Overcapacity

Overcapacity occurs when the production capacity of an industry exceeds the market demand for its products or services. In the script, it is mentioned as a result of the Chinese government's economic stimulus measures, leading to a situation where there was too much supply in the domestic market, which in turn encouraged Chinese companies to look for opportunities overseas.

💡Policy banks

Policy banks are financial institutions that are owned and operated by the government and are tasked with implementing the government's economic policies. In the context of the video, Chinese policy banks have been instrumental in providing financing for BRI projects, supporting Chinese companies to win contracts overseas.

💡Bailout

A bailout refers to the rescue of a financial institution or a country from financial difficulties by the government or other organizations. The script discusses the Chinese government's role in bailing out countries that have fallen into debt through the BRI, with a reported $104 billion paid out from 2019 to 2022.

💡Moral hazard

Moral hazard is the risk that a party has an incentive to behave improperly because they know they will not bear the consequences of their actions. In the video, it is mentioned in the context of the BRI projects, where borrowing countries, Chinese companies, and financiers may all have incentives that could lead to risky lending and investment practices.

💡Green BRI

The term 'Green BRI' refers to the concept of incorporating environmental sustainability and green development into the BRI projects. The video script indicates a shift in rhetoric towards prioritizing cleaner and greener forms of infrastructure investment, which is particularly relevant in the face of climate change challenges.

Highlights

China celebrates the 10th anniversary of the Belt and Road Initiative (BRI), the world's largest development program by a single country.

Over a decade, Chinese financial institutions have lent nearly $1 trillion to finance infrastructure projects globally.

BRI serves as China's global public good offer, particularly aiding developing nations with infrastructure, finance, and connectivity.

The initiative also addresses China's domestic economic issues, such as excess capacity and the need for international market expansion.

Chinese policy banks and financial institutions support companies to win overseas contracts, injecting capital to facilitate this.

Recipient developing countries have seen significant impacts from BRI investments, including large-scale railway and port projects.

BRI investments have spurred local employment, increased incomes, and transformed urban landscapes in countries like Ethiopia and Kenya.

Controversies surround BRI due to the high-risk nature of infrastructure investments and the long-term break-even periods.

Some BRI projects have struggled post-construction, leading to the Chinese government having to bail out countries involved.

Between 2019 and 2022, China paid out $104 billion to bail out countries with BRI-related debt.

China's bailouts may be more about protecting its own banks rather than directly aiding recipient countries.

A systematic issue of moral hazard has arisen with borrowing countries, Chinese companies, and financiers all pushing for BRI projects.

China experienced a conservative shift and reassessment of risks in the financial sector after losing a quarter of its US dollar reserves in 2015.

The future of BRI bailouts is uncertain, with banks reluctant to write down debts or offer concessions.

Covid-19 has contributed to a decline in overseas official lending and a greater risk aversion from China's policy banks.

China's political commitment to BRI remains, with a shift in rhetoric towards 'small and beautiful' projects and a greener BRI.

The developing world faces challenges from climate change and population growth, raising questions about the future of infrastructure finance.

Competitive offers from the G7 and EU, such as the Global Gateway, are emerging to compete with BRI during its decline.

China has a significant role in supporting developing countries' energy transitions through the provision of renewable technologies.

Transcripts

China this month celebrates the 10th anniversary of the Belt

and Road Initiative, which ranks as the world's biggest

development programme ever undertaken by a single country.

Over the last 10 years, the BRI, as it's generally called,

has seen Chinese financial institutions lending close

to $1tn to finance infrastructure projects

all over the developing world.

With me to discuss all this is Yunnan Chen,

a researcher at ODI, a global affairs think-tank.

Yunnan, could I start by asking you, in your view,

generally speaking, has the BRI been a success?

So when the BRI was launched it served multiple purposes.

It was seen as China's global public good offer to the world,

particularly to the developing world

in providing infrastructure, finance,

and providing the kind of connectivity infrastructure

that could foster greater trade, growth

and economic development.

But it was also a way for China's own domestic economy

to resolve its own problems, and to achieve

China's own strategic and economic interests.

Why was it helping China domestically?

So in this period following the global financial crisis,

the Chinese government pumps a huge amount of capital

into a domestic economic stimulus.

So you see massive infrastructure construction,

a huge domestic investment in heavy industries.

And around 2011 you're already seeing

excess capacity and a bit of an overheated economy.

And in this period is when we also

see the government trying to push companies and exporters

to go out to seek more lucrative better

returns in international markets.

And they also inject capital into China's policy banks

and financial institutions, which

enables them to provide the financing

to support Chinese companies to win these contracts overseas.

Right.

It's really extraordinary, though.

Over 10 years, nearly $1tn has been

lent by these Chinese financial institutions.

For some of the recipient developing countries

has this made a really big impact?

We've seen huge railway projects, some mega projects

as they're called, in the form of standard gauge railways

in Nigeria, Ethiopia, Kenya.

High-speed railways in south-east Asia,

in the case of Jakarta going through Laos.

Also, several port investments as well in Kenya,

in Pakistan with the China-Pakistan economic

corridor.

And in a lot of these places this hard infrastructure

is also tied into wider investments.

A lot of which has also come from

Chinese state-owned enterprises and private companies.

So you see the establishment of industrial zones,

which were trying to bring in greater

foreign direct investment.

And so really, I mean, that seems

like there's been a lot of very positive activity.

Have you seen clear impacts on the ground?

Chinese investments have brought local employment.

They have increased incomes in some areas.

And they also have transformed the landscape

of cities across Ethiopia, across Africa,

for example, in providing this kind

of much needed infrastructure.

But there has also been quite a lot of controversy

around the BRI.

Infrastructure, overall, is a very high risk sector.

They're very, very long-term investments.

They take a very long time to really come to break-even,

or to even make money.

But what they do serve is a bit more

of a public goods function.

That said, there have been a certain number

of Chinese projects that have really

struggled once constructed in making that economic rationale

make sense.

What we read about now is that the Chinese government

is having to bail out quite a few countries that

were part of the BRI.

One of the consultancies that we quoted in the Financial Times

recently said that over the three years from 2019 to 2022,

the Chinese government was paying out

$104bn to bail out countries that had fallen down

on borrowing through the BRI.

How does China feel about being, kind of,

the lender of last resort to these developing countries?

I don't think China is necessarily bailing out

the recipient countries, rather than bailing out its own banks.

In the end, a lot of this finance, you know,

it's lent to the borrowing country.

But ultimately it goes back into paying China's policy

banks or commercial banks.

And in the end it is the Chinese contractors

that win the project or that benefit.

Well, that's a very interesting point.

So in a sense this money is being lent by China

to prevent defaults by countries to

Chinese financial institutions that have lent to the BRI.

Exactly.

There's been a, sort of, systematic issue

of moral hazard with a lot of these infrastructure projects.

You have borrowing countries that

have wishlists of infrastructure projects

that they want to construct.

You have Chinese companies who want to win these contracts.

And you have Chinese policy banks and financiers

who want to support these companies to go out.

And so in all of this we've seen a period of exuberance,

particularly in the early part of the 2010s,

and then a bit more of a pullback,

particularly after 2016.

The real critical juncture is when

China loses a quarter of its US dollar reserves

after the 2015 stock market crisis.

And after that you really see a growing conservatism and a bit

more of a pullback, and a bit more

of a reassessment of the risks that the financial sector

is taking overseas - and also domestically.

Going forward, do you think that the Chinese government is

prepared to continue with these BRI bailouts?

Are we going to see tens of billions of US dollars

every year being spent by the Chinese government

to bail out these BRI projects, or are we

going to see something different?

Because of the way in which these banks operate,

they're also policy-oriented institutions.

What that has meant is that there's

been a little bit of a kicking the can down the road

approach when it comes to dealing with projects that

are facing difficulties, or borrowers who are struggling

to repay the loans.

Banks have, generally, been very unwilling to write down,

or make any kind of concession or debt relief

that requires them to take a hit on their balance sheets.

And in turn, I think what we've seen from the central bank

is...

as well trying to keep these financial institutions afloat,

and keeping them financially healthy.

So that they can continue to operate in the way

without having to agree to significant cuts or write-downs

in their portfolio.

Whether that's sustainable, I think, is to be seen.

So what do you think comes now, then?

I mean, is China falling out of love with the BRI?

Is China going to stop the lending to the BRI projects?

Or are we already seeing, actually, a decline

in the level of lending to BRI?

What do you think the future holds for all of this?

The impact of Covid, I think, was really already

a tail-end of a very dramatic decline

in overseas official lending.

And there's clearly been a bit more

of a pullback and a greater risk aversion

from China's policy banks, as well as the ability of China's

policy insurer to finance and to underwrite

this overseas lending.

I don't think this means the end of the BRI as a narrative.

And certainly, with the forum this month, there

is still a very top-level political commitment

to what the BRI represents in terms of China's relations,

and as a platform to engage with the Global South

and with developing countries.

But the rhetoric has shifted already.

We're seeing more mentions of small and beautiful projects.

A greater emphasis on a green BRI that's more sustainable

and prioritises cleaner, greener forms of infrastructure

investment.

So looking at it from the perspective of the developing

world, as we said, China has lent almost $1tn

over the last 10 years.

This has been a real boon for the ambitions

that those developing countries have to build

crucial infrastructure.

We've now got climate change coming up,

presenting huge problems mostly for the developing world.

And we've got a population explosion,

which is going to see continents like Africa

really increase their levels of population

over the next 10, 20, 30 years.

Doesn't this come at just the wrong time for the developing

world?

I mean, the fact that China's encountered so many problems

in the BRI, and is now retreating a little bit.

It does raise a question of where that infrastructure

finance is going to come from.

And we've seen a response of competitive offer from the G7,

and the partnership for growth and infrastructure investment

from the EU, in the form of the Global Gateway.

And all of these are, again, infrastructure focused,

trying to compete with the Belt and Road Initiative

in a period where the BRI has already

seen a bit of a decline.

But China can still play a huge role for climate investment

in supporting the energy transitions of developing

countries through the provision of renewable technologies,

for example.

China is the biggest manufacturer

and producer at scale of solar panels, of wind turbines,

and of renewable and clean energy technologies.

And the export of that, and the provision

of these at low cost to developing countries

will also be crucial in their ambitions

for a green energy transition and for a green development

pathway.