Could The Belt and Road Initiative Turn Into a White Elephant for China?
China also needs to realize that a multitude of BRI fiascos could empty the mighty coffers of China. This is because China has the highest debt: GDP ratio in the world of over 300%, and the 2008 crisis showed that the richest nations can also be prostrated by debts..as a guarantee, India also agreed. On realizing its exorbitant guarantee cost, they reneged. A profusion of such defaults and fiascos led to the downfall of Enron. China needs to pay heed to such historical events to prevent future mishaps.ntries. BRI is intended to change the power rankings of China and Renminbi in the world. China is using this initiative to herald its transition from an international agenda follower to an agenda-setter.
BRI tends to bring economic benefits to the host countries while meeting China’s diplomatic, economic and strategic purposes. The BRI intends to counter US influence on the global platform. As Trump formed a void by withdrawing the US clutch in the international market, Chinese President on the other hand, is determined to fill it through the visionary initiative of BRI. The BRI is China’s way of exercising power to become a global leader. By building ties and controlling the global trade, China is on the right track. The ultimate goal is to generate demand for Chinese excess goods and grow beyond Asia.
BRI- A White Elephant for China?
The potential benefits of BRI to China, its neighbours and a large portion of the world are substantial. BRI will help reduce transportation costs to a huge extent and hence will help flourish world trade. BRI thus seems to be a win-win situation and has prospects of making China the world power, however, there might be clouds on the horizon. This overambitious multi-billion project has a high likelihood of becoming a huge white elephant possessed by China.
One of the motives that China hopes to achieve through BRI is to decrease its economy’s dependence on domestic infrastructure investment. It has hence decided that all the planning and construction in countries involved with BRI will be undertaken by Chinese companies. This poses uncertainty in the project because of the similar failures experienced by China in the past. For reference, the failure involved with the idea of importing equipment in the construction of Poland’s A2 highway by the Chinese Overseas Engineering (COVEC) Group, can’t be ignored. This was a mistake because China is too far away, and furthermore its machines are not certified for use in the European Union. Later in 2011, in a failure to renegotiate the contract, the COVEC left the project unfinished.
In addition, some countries have already started experiencing the improper implementation of BRI. In Indonesia, for example, the BRI project has been experiencing serious delays. Construction on a USD 6 billion railway line is running behind schedule, coupled with rising costs. There has been a similar scenario in Kazakhstan and Bangladesh.
The second problem arises in vetting projects; the Chinese state banks being less experienced are at a greater risk on investing in nonviable ventures, compared to their counterparts like the Asian Development Bank and the European Bank for Reconstruction and Development. Analysts warn that the railway and road projects through Central Asia may not yield the expected returns.
The case of Enron is also a fair warning to China. Enron was a Wall Street darling and was “America’s Most Innovative Company” for six years. It approached developing countries and offered to build huge infrastructure; demanding high returns from the countries as a guarantee, India also agreed. On realizing about its exorbitant guarantee cost, they reneged. A profusion of such defaults and fiascos led to the downfall of Enron. China needs to pay heed to such historical events to prevent future mishaps.
China also needs to realize that a multitude of BRI fiascos could empty the mighty coffers of China. This is because China has the highest debt:GDP ratio in the world of over 300%, and the 2008 crisis showed that richest nations can also be prostrated by debts.
BRI could lead to ejection of countries from traditional sources of loans. Pakistan has already started feeling that the cake is not worth the candle and is becoming a victim of a debt trap. China is financing large infrastructure projects called the China-Pakistan Economic Corridor (CPEC). However, Pakistan is already saddled with debt and seeks $12B from IMF. But, USA has said it won’t allow IMF to lend money to Pakistan as it will rescue Chinese banks that made dud loans Pakistan can’t repay. Trump’s stance on Pakistan indicates that BRI finance can plummet borrowers and borrowing from China can cut you off from the global financial system. This will make BRI unprepossessing to many nations.
Moreover, the strategy behind BRI might not work for China in establishing bases in other countries. For instance, Sri Lanka was unable to pay Chinese loans, so China wrote off a billion dollars in return for a 99-year old lease on the Hambantota port. This was a strategic Chinese triumph to acquire a naval base through a debt trap. But, constructing ports will not provide China with permanent naval bases as the countries yet to agree to host them. Also, countries are irascible about sovereignty. Even the US in its prime faced local hostility to its bases in Asia. Furthermore, the Chinese navy is not capable of extended long-term deployments in countries far away from the Chinese mainland.
Ever thought that Silk Route could come back in the 21st Century? Well, it certainly has. The Belt and Road Initiative (BRI) is indeed a modern Silk Route. Launched in 2013 by Chinese President Xi Jinping, the BRI is China’s multibillion-dollar plan to finance and build massive infrastructure projects in more than 60 countries spanning through Asia, Africa, and Europe. It is aimed to redraw the trade routes for Chinese products and strengthen trade and investment links between China and the affected countries. BRI is intended to change the power rankings of China and the Renminbi in the world. China is using this initiative to herald its transition from an international agenda follower to agenda-setter competing for territorial claims. The Bangladesh-China-India-Myanmar Economic Corridor (BCIM), a planned highway connecting Kolkata and Kunming, would pass through the territory in Myanmar dominated by Kachin or Shan ethnic autonomy movements. Infrastructure projects related to the BRI will put Chinese workers and Chinese interests in contested areas, increasing the likelihood that they will become targets of attacks.
It is clear that BRI is a move that could change the way the world sees China. If BRI succeeds, the initiative will re-establish Eurasia as the largest economic market in the world and may affect a shift away from the dollar-based global financial system. However, there are some risks associated with the project. If not implemented properly it might be one of the largest economical miscues committed. Though BRI seems to be “Made in China, Made for China” it can also turn against China, and China needs to be wary of it.
Authored by Surbhi Bassi and Simran Kaur