China’s Belt and Road Initiative: A Costly and Troubled Scheme that Beijing Will Support Nonetheless
A piece of news, largely ignored in much of the media, speaks volumes to Beijing’s ambitions for China and the costs those ambitions will impose on that country’s increasingly beleaguered economy. Through China’s Belt and Road Initiative (BRI), President Xi Jinping has recently committed to a massive 360 billion yuan ($51 billion) in new loans to African countries over the next three years and a step up in infrastructure projects that, he says, will employ “a million workers.” This would be a big step even if China were as prosperous as it once was. It will impose an especially heavy weight on China’s present and deeply troubled economy and finances. Yet, it will likely go forward and, as with everything in the BRI, it will, in an oblique way, benefit China more than the African nations at which the effort aims.
China’s Commitment to Africa Amid Economic Challenges
Xi made his promise to the Beijing meeting of the China-Africa Cooperation Summit. Fifty African nations were in attendance. Of the total Xi committed, some 210 billion yuan would come from new credit lines while the balance would come a bit from military aid but mostly from fresh investments by Chinese companies, almost all state-owned. Xi spoke of “a shared future in a new era.” He bound his listeners saying: “China and Africa account for one-third of the world’s population. Without our modernization, there will be no global modernization.” This promise is a major step up for China. At the last such summit in Dakar in 2021, Beijing promised only $20 billion in new credit lines and direct investment.
Economic Struggles Amid Rising Commitments
Beijing’s willingness to step up is even more striking when set against the background of China’s poor economic performance the intervening years. The property crisis, which began in 2021, has depressed real estate values and accordingly reduced household net worth across the country. It has created a backlog of questionable debt and held back rates of capital investment by private Chinese businesses. The collapse of real estate has impaired local government finances so that many now face unsupportable debt obligations of their own. Accordingly, Chinese economic growth has proceeded at its slowest pace in decades. Efforts to recapture the nation’s economic momentum have generally failed and added to the debt overhang now besetting Chinese finance and economics. Beijing’s decision to step up its commitment to Africa now speaks to the importance of the BRI scheme to Beijing and to Xi.
The Belt and Road Initiative: A Tool for Expanding Influence
For some years now the BRI has stood at the center of Beijing’s efforts to extend Chinese economic and diplomatic influence globally. In recent years, it has suffered setbacks that Xi, with this latest move, seems set to overcome or at least try to do so. The problem has been that most of the Chinese support depends on loans to recipient countries that they simply have been unable to support. Sri Lanka, Chad, Ethiopia, and Zambia have all had to renegotiate their arrangements with the BRI. Pakistan, an early and major participant in the program, has fallen so far behind on its financial obligations under the program that it has had to apply to the International Monetary Fund (IMF) for funds to meet its BRI debt obligations. At last measure the National Bureau of Economic Research estimated that some 60 percent of BRI participant counties suffer financial distress. It is then little wonder that Xi has had to promise more to hold the program together.
The structure of the BNI scheme made this distress inevitable. It serves Chinese objectives almost entirely. Here is the way it works: Beijing approaches a developing country that has raw materials that China needs or is strategically located. It offers loans from Chinese state-owned banks to finance impressive infrastructure projects of China’s choosing – roads, rail links, bridges, port facilities, and the like. Because these projects are something the recipient country could never afford on its own and very likely could not get credit for elsewhere, that nation’s leadership naturally sees the offer as a boon.
But other aspects of the scheme are not so beneficial to the developing country. Beijing insists on Chinese contractors – mostly state owned – to construct the project and Chinese staff to maintain it once it is complete. That gives China complete control indefinitely. If the recipient country fails in its obligations on the loan, ownership devolves to China. Beijing also insists on trade ties as part of the deal. So, while the developing country gets its project, it also gets a debt obligation that makes it beholden to China and so subject to political pressure from Beijing. Meanwhile, China secures the products – mostly raw materials — it needs. It also makes a trained native workforce as loyal to China as to their native leadership. What is more, these projects often take a longer time to pay out than the debt demands, all but guaranteeing an inability to support the loan. And because the projects Beijing chooses tend to have more of a political or diplomatic than an economic rationale, many simply cannot generate the returns needed to service the loan obligation. These failures may burden China financially, but they enhance the extent to which the recipient country remains under Beijing’s sway.
The Growing Realization of BRI’s True Costs
In recent years, the counties in the BRI have begun to wake up to the disadvantages implicit in the BRI scheme. Italy, a prize for Beijing because it is in the G-7 group of fully developed economies, dropped out of the arrangements. Other nations began to turn down China’s offers. Chinese loans in Africa, for instance, fell 86 percent from the peak of almost a $30 billion equivalent in 2016 to less than $5 billion in 2023, the most recent period for which data are available. If the program were not going to die for lack of interest on the part of the developing world, Xi had to make a gesture, and he has. He is ready to burden China’s economics and finance in order to continue to gain the clear material, political, and diplomatic advantages of BRI. Given how the structure ultimately burdens the recipient countries, he will have to make still more such commitments and promises in the future. It may be expensive, but it is less expensive than a military alternative for power projection.
Some further perspective on what China is doing might emerge from parallels to similar activities in different places and times. Indeed, the BRI might easily be viewed as a cross between the Mafia and the British Raj. The Mafia has long used loans to bind useful people to it and exact favors from them. The mob, as it is frequently called, will happily extend even more credit to those who cannot pay in order to bind these people even closer to its wishes. The British Raj did not deal in loans, but it developed and controlled critical infrastructure throughout the empire. That control gave Whitehall tremendous influence over local authorities. At the same time the British had a workforce – sometimes even police and soldiers — as loyal to the colonial as to any native authority. With this perspective, it is strange indeed to see how the current fashion to decry anything colonial seems to prefer condemnation of things long passed over a literal Chinese colonial expansion in Africa today.
