As funding dries up, China amends its ambitious Belt and Road project

Funding for China’s Belt and Road Initiative, an ambitious infrastructure project meant to connect trade logistics chains of more than 60 countries in Central Asia, Europe and Africa, has been threatened with disruption due to multibillion-dollar debts of borrowers from Beijing, according to a US media report.

“China has spent a trillion dollars to expand its influence in Asia, Africa and Latin America through its Belt and Road Initiative .... But now tens of billions of dollars in loans have dried up and numerous development projects have stalled,” the report says.

The slowdown in global economic growth, coupled with increased interest rates by central banks of leading countries, has pushed Beijing to revise the initiative. Another important reason was also the peculiarities of the credit policy determined by the Chinese authorities.

One of the main stumbling blocks for China is working with some developing countries that are unable to pay back their debt.  

Chinese President Xi Jinping acknowledged in a November meeting with senior officials last year that Belt and Road project had entered a stage where it has to navigate an “increasingly complex” web of issues.

As Xi signalled a revision, Chinese banks quickly reduced lending money to low-income countries, even if that meant stalling some of the key projects. This gives Chinese banks a breathing space to focus on collecting debt and cleaning their loan records.
The Belt and Road Initiative is one of China’s main foreign economic projects launched by Chinese President Xi Jinping in September 2013. It aims to create new trade routes, transport and economic corridors linking China to Central Asia, Europe and Africa. 

While the West has long accused China of conducting  ‘debt-trap diplomacy,’ which means luring economically fragile countries into borrowing money –mostly for over-ambitious projects– that they can never repay, Beijing rejects such allegations calling them a "lie" and instead describe its policy as a ‘cooperation" with 149 countries and 32 international organisations. 

There are about 3,000 projects that China is overseeing under its Belt and Road Initiative. 

Gloomy forecast 

In July, TRT Russian wrote that China's funding and investments in Russia for the project in the first half of 2022 had dropped to zero. The Financial Times reported, citing a report by the Green Finance & Development Center at Fudan University in Shanghai, that this was the first time since the Chinese programme was launched in 2013 that investment was cut. In 2021, Moscow and Beijing signed agreements worth about $2 billion.

The Center’s director Christophe Nedopil Wang considered that China refraining from investing in Russia could be related to the threat of sanctions from Western countries, so Beijing deepened cooperation with the Middle East. This is demonstrated by the centre’s data which shows that Saudi Arabia has become the main beneficiary of the Belt and Road Initiative. China is strengthening ties in energy and construction with Saudi Arabia and has signed agreements worth $5.5 billion.

However, Wang said that the drop in investment may be temporary, and there is “definitely a strong interaction” between Russia and China. Despite the events in Ukraine, Beijing’s purchases of Russia’s energy resources have increased, he added.

According to China’s plans, the initiative will lead to the creation of the world’s longest economic corridor that will reach 4.4 billion people. Some experts estimated the scale of the project at $21 trillion.

On September 15, the Bloomberg agency said that China’s economic growth rate will decrease to values close to an absolute minimum for more than 40 years by the end of 2022. The level of production in the Asian country by the end of December will increase only by 3.5 percent instead of the planned 5.5 percent.  

However, according to Jian Chang, Barclays’ chief economist for China, economic growth in the country this year may be only 2.6 percent. The Asian Development Bank (ADB) issued a new forecast in September on the dynamics of GDP in China and other developing Asian countries in 2022-2023. 

The ADB believes that instead of the expected 5 percent GDP growth in China in 2022 and 4.8 percent in 2023, growth will be 3.3 percent and 4.5 percent, respectively. For the rest of developing Asia, the bank also lowered its GDP growth forecast for 2022-2023 from 5.2 percent to 4.3 percent and from 5.3 percent to 4.9 percent.

THUMBNAIL IMAGE: In this file image, an electric multiple unit (EMU) train of the China-Laos Railway arrives at Yuxi Railway Station in Yuxi in southwestern China's Yunnan Province, Dec. 3, 2021. (Hu Chao/Xinhua via AP)

HEADLINE IMAGE: A worker stands near a tunnel during a ceremony to relaunch of East Coast Rail Link project in Dungun, Terengganu, Malaysia, Thursday, July 25, 2019. The project connects Malaysia's west coast to poorer eastern states and is a key part of China's Belt and Road infrastructure initiative. (AP Photo/Vincent Thian)