Recognizing how its Belt and Road Initiative (BRI) has weakened, Beijing took the occasion of this year’s summit to press something of a makeover. However, while Chinese leader Xi Jinping spoke glowingly of the future, he effectively described the same arrangements that have long prevailed: China would provide less developed nations with financing and skills to build needed infrastructure and manage the projects once completed.
He said little to address the frustrations that many have with this reality—that the projects have failed to pay adequate returns, leaving participants with debts they can’t repay and burdening Chinese lenders with questionable loans. It looks then as though the BRI will continue to weaken and fail Beijing’s once-vaunted ambitions for the project.
The failure to deal with substance wasn’t the only failure at this year’s summit. Fewer nations participated than in the past. Last year’s summit gathered some 40 heads of state. This year, only slightly more than half that number attended. Many nations sent lower-ranked representatives. People from Europe and North America were almost absent. Most noticeable were the low profiles taken by Italy and Greece, two BRI participants. Both have expressed disappointment with the arrangements. Italy seems to be on the verge of pulling out of the BRI altogether.
Aside from Mr. Xi, the most prominent figure at the summit was Russian President Vladimir Putin, who spoke of the “Power of Siberia 2” pipeline to bring natural gas to China from northern Russia via Mongolia. Mr. Putin also touted Russia’s northern sea route to carry shipping between Asia and Europe via the Arctic and avoid the Suez Canal. All understood his presence and dependence on China. They also noted that neither project is part of the BRI.
Among those participating in the initiative, each specific problem had its own details, but all had the same roots. Just about every project—whether done in Central Asia, Africa, or Europe—reflected political and diplomatic rather than economic calculations. Many consequently have failed to throw off enough income to repay the loans originally advanced by state-owned Chinese banks.
Already, Sri Lanka, Chad, Ethiopia, and Zambia are in restructuring negotiations, while Pakistan, an early BRI member and the recipient of a good deal of Chinese money, has had to turn to the International Monetary Fund for help with its debts. It’s estimated that some 60 percent of all BRI loans lie with nations in financial distress, largely because of BRI arrangements.
Long before this recent summit, the lack of enthusiasm had already slowed the growth of BRI arrangements. In Africa, for example, the BRI closed the equivalent of only about $1 billion in deals, a far cry from 2019’s figure of $8.5 billion. Overall, in the first six months of this year, the most recent period for which data are available, BRI-related deals totaled the equivalent of some $40 billion. That’s a slightly faster pace than 2022, which totaled $68 billion for the whole year, but it’s far short of the $100 billion per year averaged at the initiative’s height.
China’s state-affiliated banks also are resisting. As BRI clients have had difficulty paying, Beijing has pressured the banks to accommodate delayed payments and do so quietly so as to not embarrass the initiative. The banks accordingly have extended loan maturities in the vain hope that failing projects will, in time, pay enough to discharge the associated financial obligations. Among bankers the world over, this practice is derisively called “extend and pretend.” Some Chinese banks have gone so far as to ask Beijing for letters with the moniker “policy designated” to indicate that the decision to make the loan came out of the Chinese Communist Party (CCP) and not the bank’s management.
This banking resistance has grown especially intense of late as banks have had to deal with internal financial failures. The Evergrande collapse has gathered the most headlines. Still, banks have seen their loan portfolios also threatened by the failures of several other residential property developers, most recently another giant property developer, Country Garden. Exacerbating such strains is the growing tendency for individual Chinese to refuse payment on mortgages for apartments that the failed developers will likely never complete. Nor is there any sign that Beijing will relieve these strains.
Enthusiasm of a sort might have returned at the summit had Mr. Xi offered practical remedies, but little was forthcoming. Far from offering ways to relieve the debt, Mr. Xi’s speech never even mentioned the problem. The best he could do was offer an injection of the equivalent of $47.9 billion through the China Development Bank and the Import-Export Bank of China, hardly enough to make much difference.
Otherwise, he had only two measures to offer. One was that the BRI would shift toward smaller projects in the future. Small mistakes are certainly better than the big mistakes of the past. But the continuation of mistaken projects was assured in the second measure announced at the gathering. The BRI would, the guests were told, orient its efforts to “more targeted projects,” such as green energy and health care—in other words, more politically and diplomatically determined efforts, the same kinds that produced poor payouts in the past.
No doubt, the BRI will stumble on for some time to come. Beijing has too much prestige wrapped up in the project to let it go. But it’s hardly the vehicle to extend the CCP’s power than it once seemed to be. Nothing is clearer from this year’s summit than that.
