Ten years ago, President Xi Jinping announced "the project of the century", a global initiative to break the bottleneck that has always been the Strait of Malacca, a passage through which a third of global trade and 60% of the world trade circulate. merchandise traffic. It is a key route through which China receives oil from the Middle East, and the United States controls it through Singapore, a staunch ally.
Ten years later, China has invested more than one trillion dollars in the Belt and Road Initiative, which is how the project to create two trade routes is known, one by land through Central Asia and the other by sea through Southeast Asia to connect with Europe and Africa without going through Malacca.
The initiative has involved the construction of dozens of infrastructures, mostly in developing countries to which China has lent money for roads, railway lines, ports and airports, power plants and other projects. The problem is that several of these countries now have great difficulties in repaying the loans. The rise in interest rates and the global economic slowdown have placed them in a desperate situation to be able to meet their debt maturities.
The Rhodium analysis group shows the figure of 78,000 million dollars in bad credits only in the last three years. China has had to cancel or renegotiate them. This has meant, in many cases, granting new credits. Bad money to the rescue of bad money is not a good business. A study by Harvard University with the World Bank, AidData and the Kiel Institute calculates that these bailout credits exceed 100,000 million dollars.
These are approximate calculations because the investments are opaque. “There is no official list of projects,” says Yu Jie, a researcher at Chatham House. "There is no official information on the credits either." Furthermore, "there is no body that centralizes the management of the Belt and Road Initiative." There are fifteen ministries with powers to promote development projects around the world.
Xi envisioned the Belt and Road Initiative to increase China's political and economic power in the world, but also to provide an outlet for public construction companies that had been left without contracts in the wake of the 2008 economic collapse and market saturation. real estate. He also thought that it would be good if the companies in the central provinces, the most backward, were the ones that would benefit the most from the initiative.
“This decentralization – Yu explains – opened the door for some officials to present projects out of mere personal interest, to demonstrate their loyalty to the party, for example, but without thinking about financial viability”. The provinces also have their own agendas.
The Belt and Road Initiative is best understood as a collection of bilateral agreements, rather than a single strategy.
The burden of financing, however, has fallen on the four main public banks. They have been the ones who have lent the money to the Chinese construction companies and the ones who have negotiated the conditions with the creditor countries.
In the absence of a clear return on investment, the private sector has remained on the sidelines. The peak of the investments was reached in 2015 and since the outbreak of the pandemic at the end of 2019 there have been no new financial contributions to the Belt and Road Initiative.
China, however, remains the world's largest official lender ahead of traditional bodies such as the IMF and the World Bank, as well as all OECD states combined.
AidData and William and Mary University estimate that China has invested $1 billion in the Belt and Road Initiative over the past ten years. Harvard University raises the figure to 1,500 million, both in loans and direct credits. Although half are not declared, it is proven that they are at market price. China does not lend at favorable rates, as the IMF and World Bank do, making it even more difficult for the Belt and Road Initiative partners.
The Center for Global Development had predicted before 2019 that China would invest eight trillion dollars in total. The effort was worth it if it managed to increase its technology industry, in addition to its geostrategic weight.
Some 150 countries have signed contracts with the Belt and Road Initiative, and little by little, China has used them to develop a dependent market. Debt is the trap some of them have fallen into, such as the ex-Asian republics of Tajikistan and Kyrgyzstan.
Also Pakistan, which is having a hard time. It is one of the main recipients of Chinese credits. The port of Gwadar on the Arabian Sea and the economic corridor that reaches the border with China in Xinjiang province are the alternative to Malacca.
Beijing has invested 62,000 million dollars in these infrastructures, which have triggered the Pakistani public debt. The financial pressure on Islamabad is enormous.
In June, for example, it has to return 4.5 billion dollars, most of it to China, and it doesn't have it. In the next three years the situation will become even more complicated. It has to deal with 77,500 million dollars, an extraordinary amount for an economy of 350,000 million and with barely 4,000 million in foreign currency.
It is highly probable, therefore, that Pakistan will not be able to assume this debt. If so, China will have to bail it out. It is the linchpin of the Belt and Road Initiative, but the economic crisis, each year deeper than the previous one, destabilizes politics and triggers terrorism. The powder keg could explode at any time, especially now that the IMF has canceled a 6.5 billion program because it does not believe that Pakistan is going to carry out the necessary reforms to get out of the hole. India could pay the consequences of this announced turbulence in its neighbor and strategic rival.
China was going to transform the world with the Belt and Road Initiative. You may still get it, but it will take longer than expected. Its priority is no longer in Africa, Europe or Latin America, but in its immediate area of influence, Central Asia, Southeast Asia and Pakistan, as well as the internal market. Xi's dream will have to wait.
