LRI Monthly: May 2018
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LRI Monthly: May 2018 Email: [email protected] | Website: www.livericeindex.com | Tel: +44 (0) 203 904 4658 - © Copyright 2018 China’s Belt and Road Initiative: Truly a ‘win-win’ situation? May 2018 Is the Belt and Road Initiative an opportunity for significant global economic development or a method of extending China’s political and economic control? China’s Belt and Road Initiative (BRI) is The Initiative viewed as one of the largest infrastructure The BRI encompasses many different and investment projects in history. It was infrastructural projects, which can be divided into announced by China’s President Xi Jinping the Silk Road Economic Belt and the 21st Century during a visit to Kazakhstan in 2013 as a series Maritime Silk Road. of development projects that would connect and enhance cooperation between Eurasian The Silk Road Economic Belt includes countries countries. It covers more than 86 countries, situated on the original Silk Road, many of represents the economic interests of 65% of whom are also members of the China-led Asian the world’s population, accounts for 40% of Infrastructure Investment Bank. It includes the global gross domestic product (GDP) and has China-Pakistan Economic Corridor (CPEC), a US $62 the potential to accelerate economic growth billion collection of infrastructure projects aimed across the Asia-Pacific area, Central and at rapidly modernising Pakistan’s transportation Eastern Europe and East Africa. Many of the networks. There are also improvements to countries involved are major rice consuming transport links being made from western China to © Shutterstock/ thi and producing nations and the potential Turkey (the China-Central Asia-West Asia Corridor), economic benefits of the initiative to them from China to Myanmar (the Bangladesh-China- are numerous. Myanmar Economic Corridor) and from southern @Wikimedia Commons/ Shimshalee China to Singapore (the China-Indochina Karakoram Highway connects Pakistan with China However, many argue that the economic Peninsula Corridor). China’s direct investment in prosperity of these countries is not China’s regions along the Silk Road totalled US $170 billion conditions on debt management or is denied also benefits the global economy by improving real priority and that the investments could between 2014 - 2018, including a 3.5% year-on-year because of political or economic instability. For transport links on land and by sea. However, there do more economic harm than good. Some rise to US $14.4 billion in 2017. example, Sri Lanka accepted loans and financing are benefits that China alone enjoys through the see the project as a way to extend China’s from China after the end of the civil war in 2009 and BRI. influence across the world; analysts have The Maritime Silk Road is an initiative aimed at as the U.S. and Europe withdrew financial support. compared it with the U.S.’s 1948 Marshall improving transport links across bodies of water Myanmar accepted support from China when it was Economically, the BRI is allowing China to gain Plan, when the U.S. gave its Second World via international shipping lanes to complement imposed with Western sanctions following a military greater control over its supply chains. China War allies economic assistance, while the Silk Road Economic Belt. It includes the coup and Iran did the same when it was imposed accomodates 22% of the world’s population but excluding its enemies. There is a global need China-Indian Ocean-Africa-Mediterranean Sea with sanctions due to its nuclear weapons policy. only has 7% of the world’s arable land. Much of this for infrastructural investment; according to Blue Economic Passage, the China-Oceania-South U.S. and European investments have also dwindled land has been damaged by excessive agricultural the World Pensions Council, Asia (excluding Pacific Blue Economic Passage and cooperation in countries that have suffered from extremist production and pollution and the country relies China) will require as much as US $900 between Russia and China for development in the violence, such as Pakistan and Bangladesh. China’s on imports to ensure its food security. Improving billion worth of infrastructure investments Arctic region (the Ice Silk Road). willingness to invest in countries where other major bilateral trade with other countries protects the per year for the next 10 years. Although powers show reluctance may be the only way that Chinese economy from a slowdown in European China, through the BRI, is attempting to Benefits for the Belt and Road countries the infrastructural requirements for economic or American demand and also directly challenges fulfil a proportion of this requirement, the Many of the countries involved in the BRI have development are met. the traditional view of world trade by treating investments have given most of the countries few options but to turn to China for investment. Asia and Europe as a single space with China as a involved a high level of debt. Theoretically, Financial assistance from supra-national bodies Benefits for China focal point, rather than divided into the two main China can then use any defaults on debt or Western governments and institutions often The Chinese government has called the BRI a ‘win- trading regions of the trans-Atlantic (Europe) and repayments as political leverage, causing comes with a requirement for greater political and win situation’; improved infrastructure that not only trans-Pacific (Asia), with the U.S. as the focal point. countries to risk a partial loss of sovereignty. economic liberalisation, is delayed by stringent assists the respective BRI country’s economy but Since 2013, China’s trade volume with countries Email: [email protected] | Website: www.livericeindex.com | Tel: +44 (0) 203 904 4658 - © Copyright 2018 Page 02 May 2018 along the Belt and Road routes has exceeded The impacts of debt lack of transparency of China’s investments. In US $5 trillion and grew by 14.2% in 2017, a record A Harvard University report submitted to 2017, the governor of the State Bank of Pakistan jobs for local communities, an estimated 89% annual increase in 6 years. China’s imports the U.S. State Department accused China of went on record claiming that he did not know of projects that fall under the BRI have been from these countries were worth over US $666 ‘debtbook diplomacy’. It argues that China is the breakdown of China’s funding; ‘how much implemented by Chinese companies. Personnel billion in 2017, around 25% of the total value of using debt incurred by BRI investment to gain is debt, how much is equity, how much is kind flow between China and other countries and China’s imports. The BRI also eases the burden of political leverage with economically vulnerable [goods and services]’. regions involved in the BRI rose by 31% between excessive domestic industrial production as it can countries. Loans were made attractive by 2013 – 2017 to 26.5 million (+5% year-on-year). be outsourced to other countries where higher being offered on a longer-term basis and with Pakistan is considered as the BRI country most Chinese companies have been accused of demand has been created. extended grace periods and when the BRI at risk of debt distress. China has pledged undercutting local suppliers, failing to comply countries are unable to make their payments, investments totalling US $62 billion, which with local regulations and not consulting local Politically, the BRI strengthens China’s position China offers debt forgiveness for political represents 20% of the Pakistan’s GDP. If communities about projects. Chinese labourers on the global stage without creating conflict; it influence and strategic equities. completed, CPEC could generate a 2.5% growth have also been accused of cultural insensitivity. is an extension of ‘soft power’. Some view the BRI in the economy and could create 700,000 jobs. as a way of allowing China to reclaim its imperial According to the former president of China’s However, interest rates on the investments are There have been a number of projects that influence with investment and to maintain it with Export-Import Bank, most of the countries as high as 5% and its external debt increased have been stopped temporarily or cancelled infrastructure. Maritime investments (such as port involved in BRI projects do not have the funds to almost US $90 billion at the end of 2017. altogether. These include a US $2.5 billion developments) are viewed as particularly strategic; to pay for them. On average, the countries’ As a result, the country has leased its newly hydropower dam that was due to be built in 80% of China’s imported oil passed through the liability and debt ratios have increased to built Gwadar Port to China for 43 years. Laos Nepal but was cancelled due to a violation of Indian Ocean and the Malacca Strait into the South 35% and 126% respectively, higher than the is also at risk of debt distress as the largest bidding rules, a US $3 billion refinery contract in China Sea in 2016. The Chinese companies involved globally recognised warning levels of 25% for of its BRI projects, a railway linking Vientiane Myanmar which was cancelled due to financing in the port developments often seek to maintain liability and 100% for debt. According to the to the China-Laos border, will cost US $6.7 issues and a US $15 billion high speed railway long-term financial control over the investments, Center of Global Development, 23 countries billion, which is 50% of the country’s GDP. Of Sri in Thailand which was cancelled in 2016 as not either by obtaining a financial position in the port’s involved in the BRI are at risk of debt distress Lanka’s US $48.3 billion of external debt, US $8 enough Thai companies were employed to work management company or by leasing the port.