By: Reta Anware
Coronavirus that originated in China grappled the entire world after the Beijing government kept the virus outbreak hidden for months. It led the lockdowns across the globe, bringing economies of different countries to halt. China too had had to pay heavy price for what it has done. Chinese President Xi Jinping’s dream of setting a new world order has coming crashing down after the Covid-19 slowed down the Belt Road Initiative, pushing it towards becoming financial inviable. China has been forced to cut back on new loans and investments under the BRI due to the country’s shrinking economy, which is aggravated by Covid-19. Chinese investment has reduced to USD 47 billion in 2020—a whopping slump of 54 percent in just one year, observed the Green Belt and Road Initiative Center, a research organisation. 1 Covid-19 caused the BRI investments to reach its lowest level since the inception of the mega project in 2013. Even Chinese government had to accept the fact. Wang Xiaolong, director-general of the Chinese Foreign Ministry’s International Economic Affairs Department, said 20 percent of the BRI projects were seriously affected while other 30-40 percent witnessed adverse impact.
In 2020, China’s economy saw growth rate of 2.3 percent in 2020, which was the lowest since 1976. 1 China’s overseas lending has been as big as the World Bank with some fluctuation in the past one decade. It saw a huge rise post-announcement of the BRI in 2013. However, it has slumped drastically now even if the world begins to recover from the economic crisis. There are reports that the lending under the BRI has come down from USD 75 billion in 2016 to just USD 3 billion in 2020.2 Besides, the BRI projects are embroiled under different problems such as corruption, lack of financial transparency, unfair loan conditions, fears of debt-traps, and negative social and environment impacts. Even in the China’s all-weather ally Pakistan, just 32 of the total 122 projects announced under the BRI could be completed so far.
In 2019, the China’s trade with the countries that joined the BRI had grown to USD 1.34 trillion, giving the loanee countries sense of economic growth. 1According to the Boston University’s research, half of the financial commitments were focused on transportation, infrastructure and distribution. Projects under these sectors are quite important for the loanee countries to boost their growth rate. However, now they are going to be impacted negatively as the lack of investment would delays the incomplete projects further and may end up getting grounded. The reduced growth rate has forced the Beijing government to tighten fiscal discipline and work on financial risk, which would translate into lower prospects of China pumping money in the BRI projects now. According to an independent research organisation Rhodium Group, the progress or growth of BRI projects had begun decelerating even before the COVID-19 outbreak. It asserted that Chinese investment became stagnant and even decelerated in the most of the developing world in the past three years.
China had been on investment blitz to woo developing or poor African and Asian countries, which actually loved economic engagement. The Covid-19 outbreak however has caused millions of Chinese businesses to go bankrupt and cash flow to be disrupted, thus making a huge impact on the country’s economy. Now the contraction in Chinese lending is going to widen the overseas lending gap as well. As the BRI stumbles, China diplomatic image as a dependable development partners would be dented.
Independent research groups are not much hopeful about the BRI getting back on the track. James Crabtree, associate professor at Lee Kuan Yew School of Public Policy in Singapore said China has to walk on tight rope since BRI loanee countries want their loans to be cancelled while Chinese people are against overseas spending in such difficult times. Saying the glory days of the BRI might be over, Crabtree said “Facing a crunching post-pandemic slowdown, China has far less money to splash out on expensive infrastructure in Africa and elsewhere.”
Bradley Parks, executive director of research lab AidData cited difficulties in construction activities, which would lead to “a significant slowdown” in the implementation of the BRI.
Global law firm Norton Rose Fulbright said the long-term impact of the pandemic on BRI projects was a real cause for concern. “With the sustainability of financing for the BRI projects already posing a challenge and Chinese capital expected to be mobilised to first meet its domestic needs, the pandemic as well as its induced economic slowdown will be a further set back and may even sound the death knell for some BRI projects,” it said.