Remember the Silk Route? The historic trade route that stretched from Asia to the Mediterranean and connected China and the Far East to Europe and the Middle East transformed China into an economic and cultural force to reckon with.
In 2013, Chinese President Xi Jinping announced plans to revive the Silk Route as the Belt and Road Initiative (BRI), better known by the slogan ‘One Belt, One Road’.
What is it?
The BRI is a two-pronged initiative – the Belt referring to the roads, rails, and pipelines in Asia and Europe and the Maritime Road – which comprises maritime routes in the South China Sea and the Indian Ocean, connecting a host of Southeast Asian countries.
Why is it important?
The initiative aims to act as a stimulus package for a slow Chinese economy, stimulate Chinese investment around the world, and strengthen China’s foothold as a global superpower. The scale of this project is staggering – spanning 3 continents, 65 countries, and over 60% of the world’s population, and the total investment estimated at $2.5 trillion.
How does it work?
China mainly invests in infrastructure projects – like building roads, ports, railway tracks, pipelines, fiber-optic lines, electric grids, and airports in Asian, African, and Central European countries that aim to accelerate economic growth and strengthen their trade relations with China. The countries that China targets as investment opportunities are generally developing nations with stagnant economies like Pakistan or Sri Lanka, with corrupt and authoritarian regimes like Thailand and Saudi Arabia, and even countries strewn with conflict – like Iraq and Ukraine. There are a few reasons why these countries find Chinese investment favorable – the most significant ones being the flexible lending, involving minimal bureaucracy and red tape.
It would be much harder for these countries to secure investment from the West – due to their slew of legal and ethical requirements – which is why Chinese investment is welcome in the less-democratic and corrupt nations.
Despite the flexibility, China has a very important demand in all its deals – it requires these countries to employ Chinese firms and workers for their infrastructure projects – boosting business for Chinese construction companies, which has led to 7 of the top 10 construction companies in the world being Chinese. To date, Chinese companies have secured more than $340 billion in construction contracts.
Why should you be concerned?
If the numbers mentioned in the previous paragraph aren’t concerning – there’s another fact about this initiative that will definitely raise eyebrows. China has been accused of employing predatory lending practices by lending money to much poorer, developing nations like Sri Lanka, China, and Djibouti despite a high chance that they will default.
Many economic experts argue that China is doing this in order to establish control over land and sea resources around the world and then use it to build strategic military bases and further enhance their presence.
For example, China had lent Sri Lanka about $1.5 billion for a deep water port in Hambantota – but by 2017, it became clear that Sri Lanka could not pay back the loan – due to which they had to give up control of the port to China, on a 99-year lease. Similarly, China also controls the Gwadar port in Pakistan, which is the meeting point between the Belt and the Maritime Road, giving them military and strategic power in the region.
Experts have coined this the ‘String of Pearls’ theory – which predicts that China is trying to establish a ring of naval bases in the Indian Ocean that will allow them to station ships and guard shipping routes, and challenge India’s stronghold in the subcontinent.
So, while China is not getting their money back, they are achieving certain strategic goals through this practice of lending – better known as China’s debt-trap policy – such as challenging the superpower status that is held by the United States of America by building extensive foreign relationships, developing trade and cementing their foothold in various parts of Europe, Southeast Asia, and the Middle East.
Impact of COVID-19 on the BRI and Conclusion
The COVID-19 pandemic has undoubtedly impacted the BRI, due to the travel restrictions and the economic setbacks in the developing countries. The worldwide trend of dwindling Chinese reputation has not helped either. With the sustainability of financing for the BRI projects already posing a challenge and Chinese capital expected to be mobilized to meet domestic needs first, the pandemic and the worldwide economic slowdown will definitely stall ongoing projects and may even deliver the death blow to potential deals.
The pandemic has also exacerbated fears of dependence on Chinese supply-chains with many countries like the US and India actively trying to move away from Chinese products. Only time will tell if China can recover the lost faith and make it’s One Belt, One Road’ vision come true, or whether it will remain a distant dream.
– Article by Dhiraj Lokesh,3rd year Computer Science Engineering