Ten Years On, China’s Belt and Road Initiative Rolls On – But Faces Hurdles

Obstacles in partner nations

Large-scale infrastructure projects may also encounter country-specific obstacles such as regulatory issues, political disagreements, public opposition and difficulties in securing funding. Indonesia’s high-speed rail project which will finally become operational this year, was delayed more than four years due to financing, land acquisition and disagreements between the Indonesian government and the Chinese consortium responsible for construction. These setbacks can disrupt project timelines, lead to cost overruns and even result in project cancellations.

The way forward

The road ahead may be uncertain, but new strategies and approaches could shore up its future. The BRI is often perceived as a manifestation of Chinese geopolitical dominance in the region, particularly by the West. This is understandable, given China's newfound assertiveness. While China has moderated its approach in recent years, the initial rapid pace of development created a psychological barrier for many potential collaborators. Friendshoring activities further complicate the situation.

One potential solution could be a soft-power strategy that leverages economic partnerships and embraces technological advancements. For instance, a cloud Silk Road strategy could provide a completely innovative approach. More regional trade cooperation through free trade agreements and other mechanisms such as the Regional Comprehensive Economic Partnership (RCEP) framework and the ASEAN Free Trade Agreement (AFTA) and the ASEAN Economic Community (AEC) may also hold the key.

For the BRI to gain momentum, China needs to promote collaboration and rebrand it as a regional initiative instead of persistently pushing the original concept. Beijing is cognizant of the criticisms of the initiative and must effectively tackle the obstacles that have emerged. In doing so, China can renew its efforts to achieve the BRI’s ambitious goals of enhancing connectivity, promoting economic cooperation, and facilitating regional development.

Connectivity: Chinese engineers marking the first seamless welding of the Vientiane-Kunming rail line project, June 18, 2020 (Credit: Kaikeo Saiyasane/Xinhua)

Case study: ASEAN and Indonesia

China is strengthening its economic ties with its neighbors in Southeast Asia through the Association of Southeast Asian Nations (ASEAN), the region's economic and political grouping. China has recently been working with ASEAN to upgrade their free trade agreement. The outlook for the BRI should be assessed in this context.

The BRI is important to ASEAN, a 700-million-strong regional economy. China's southern mainland forms a land border with many ASEAN countries, shaping lots of projects in the works. China is in a long-running dispute with five other claimants (Brunei, Indonesia, Malaysia, the Philippines and Vietnam) over the sovereignty and control of various zones of the South China Sea.

BRI projects abound across ASEAN. In Laos, China provided financing for a transborder railway to connect capital city Vientiane with Kunming in southwest China, while Cambodia has a highway, a communication satellite and an international airport on the way. In Timor-Leste, China has invested in a highway, a port and built a national power grid that it operates and maintains. Indonesia's mass transit and railway has benefited from BRI (notably the Bandung-Jakarta high-speed rail project – see below), while Vietnam landed a new tramline.

China has taken a special interest in Myanmar and is the only country to invest consistently in the country since 1988. Along with two highways, China and Myanmar are working on a deep-sea port in Kyaukpyu and launched a joint radar and satellite communication laboratory in 2018. Singapore, meanwhile, is not just a partner in the BRI but is also a founding member of the Beijing-based AIIB.

Most ASEAN countries perceive the BRI as an opportunity to build up their infrastructure and boost their domestic economy, especially ahead of an anticipated slump in global growth. The biggest beneficiaries from Belt and Road in ASEAN are moderate-sized economies which are taking advantage of China's offer to collaborate to help themselves, without falling into a debt trap where they owe more than they can pay.

Smaller economies in the region should be the most cautious when signing up for Belt and Road projects, as they are more vulnerable to political pressure from China (in particular, regarding disputes over the South China Sea). This is especially the case for Laos, Myanmar, Cambodia and Timor-Leste, which are reliant on generous lending terms from China. But so long as the ASEAN countries involved in the BRI can pay their debts and assess the potential benefits of the costly projects to which they are committing, the initiative can continue on as a shot in the arm for the region's economy.

By land and sea: China's trans-Eurasian Belt and Road Initiative (Credit: YIUCHEUNG and NASA/ Shutterstock.com)

But some Indonesians support the initiative, seeing an alignment with Indonesia's own maritime ambitions. Others were pessimistic, fearing that the BRI would further strengthen China's dominance over Indonesia in economic competition. A significant number have adopted a cautious "wait-and-see" approach towards the initiative.

The BRI holds potential for infrastructure development which aligns with Indonesia's national development plans aimed at promoting the welfare of its people. Some commentators believe Indonesia is the ASEAN country poised to benefit most from the initiative, with over US$87 billion allocated to infrastructure projects. To maximize the benefits and address potential challenges, Indonesia must balance its national development goals with the BRI. Environmental conservation considerations should be integrated into infrastructure projects, especially regarding sustainable energy and clean water supply.

The BRI has its problems, but Indonesian democratic system should provide guardrails against adverse consequences. As long as Indonesia maintains its governance checks and balances, it will continue to pursue the right approach to the initiative. Other nations such as Pakistan (see below) have learned the hard way about the consequences of poor governance and weak agency, and Indonesia should not underestimate its own capabilities.

Case study: Pakistan

The ambitious US$60 billion China-Pakistan Economic Corridor, which stretches almost 3000 kilometers from the port of Gwadar in Pakistan’s rugged southwestern province of Balochistan to Kashgar in the western Chinese region of Xinjiang, was launched 10 years ago – one of the earliest BRI projects. Labeled a “game changer” by its backers, the 30-year project includes the development of Gwadar, laying gas and oil pipelines from Gwadar to China, the building of small dams and hydroelectric power stations, the upgrading and construction of roads and railroads, and the development of numerous other projects, including a metro system in Lahore. Once completed, the Corridor had the potential to be the jewel in the BRI collection. It would also give Beijing access to the Indian Ocean, effectively making China a two-ocean country.

But instead, a decade since its launch, the project has become a cautionary tale – a severe burden on Pakistan, whose economy is staggering under the weight of massive foreign debt, a quarter which is owed to China.

Gwadar Port: The project has become a cautionary tale – a severe burden on Pakistan, whose economy is staggering under the weight of massive foreign debt, a quarter which is owed to China (Credit: Aleem Zahid Khan / Shutterstock.com)

While the economic activity this project generated contributed to a rise in economic growth in Pakistan from 2015-2018, the ongoing import of machinery and other construction material, without a commensurate increase in exports, and the repayment of the Chinese loans to finance the Corridor projects, have significantly worsened Pakistan’s balance of payments crisis. Since 2016, Pakistan’s total foreign debt has almost doubled to a massive US$131 billion. Its interest repayments to China alone are crippling the country. Today, Pakistan’s central bank only has enough foreign exchange to cover at most a month’s worth of imports. The country is in the process of negotiating with the International Monetary Fund (IMF) for the release of over US$1 billion of a US$6.5 billion bail-out package. On June 29, Islamabad and the IMF agreed on a bigger-than-expected US$3 billion stand-by arrangement (SBA), which is to be voted on by the IMF Executive Board on July 12.

But the situation is so grave that Pakistan has had to borrow another US$1 billion from China to help tide over the country financially. It also received US$2 billion from Saudi Arabia.

A culmination of factors can explain why the Corridor did not deliver the economic shot in the arm Pakistanis were hoping for. For starters, China brought its own labor and housed them in isolated colonies, away from locals. Nobody knows how many thousands of Chinese workers are in Pakistan today. All the construction sub-contracts that Pakistani businesses had been hoping for and the employment they would generate have not materialized. This has created tension with local communities.

The port of Gwadar – leased to the Chinese government for 40 years in 2017 – has not delivered the maritime traffic everyone had been banking on. The plan had been to deliver a mega-port which would be a gateway to Central Asia. Instead, Gwadar’s port is under-used, isolated from its direct environment, in a neighborhood actively threatened by violent separatist Baloch terrorists.