Global News Insider

Written by Marián Šeliga

According to the latest report made by China’s National Development and Reform Commission, Belt and Road Initiative (BRI) is facing an increasingly complex geopolitical environment. The initiative, which was first proposed by Chinese President Xi Jinping in 2013, has been recently largely criticized by Western countries. The latter convict Beijing of exporting its geopolitical influence on developing countries by signing unviable infrastructure projects with the respective governments and providing them with large credit lines, which may push these countries to a so called “debt trap”. This term was coined by Western countries to describe the situation when developing countries put signature on unfeaseable infrastructure projects which usually cannot generate sufficient cash flow for the governments to pay off debts. Very soon these generous large sums of money provided by Chinese banks may return into a “heavy burden” which is no more manageable for these coutries.

Beijing has repeatedly denied the debt trap accusation and says it only wants to enhance trade and connectivity through global infrastructure projects. Since its launch in 2013, BRI has been endorsed by more than 150 countries or international organizations (including more than half of EU’s 27 member states). Nevertheless, the initiative has faced multiple challenges and the pandemic has adversely affected about 40 per cent and seriously affected about a fifth of belt and road projects, according to a survey last year by China’s foreign ministry.

The projects affected include for example the US$6 billion Jakarta-Bandung high-speed railway extension on the island of Java as well as the highway construction in a small European country in the Balkans, Montenegro. The latter even asked the European Union for assistance with paying off USD 1bn loan to China’s Export-Import Bank (EXIM), which was borrowed in order to finance the construction of highway project in the country. Although EU decided not to help Montenegro in its loan problem with China’s EXIM bank, it attaches great attention to the recent activities of China in the Balkans. Another problematic situation with BRI has been witnessed in Northern Macedonia, where corruption scandals led to the cabinet resshufle.

However, apart from scandals connected with BRI projects, there are also examples of succesful Chinese investments into European infrastructure like the one which occurred in Greece, where the port of Piraeus has been expanded by Chinese state-companies or in Portugal with large Chinese investments in both the energy sector and in its port of Sines. There is also another BRI flagship infrastructure project pending in Hungary, where Budapest-Belgrade railway is being constructed. But as in case with Montenegro, Northern Macedonia or Serbia, this project is for some observers in Europe an example of non-transparent investment.

At the same time, the deteriorating external environment for Chinese BRI is only the tip of the iceberg. With pandemic adversely influencing the global economy including China, domestic Chinese companies according to China NDRC (National Development and Reform Commission) may face problems in funding overseas infrastructure projects. At the same time, some global players like the European Union are becoming more active in defending its sensitive national infrastructure as well as the economy competetiveness. This has been evidenced by the implementation of tough regulation concerning foreign direct investment(FDI) (e.g. Chinese or Russian investment) into sensitive European industries like health, transport, media, infrastructure, telco or energy.

What is more, in order to counter Beijing’s Belt and Road Initiative project, European Union together with its allies is proposing its own infrastructure initiative which could bring some new infrastructure projects to the developing countries. But the question remains whether Western initiatives could convince the developing countries to reject projects under Chinese BRI which are easilly financed by Chinese state owned banks. The European and US initiative in its new international infrastructure programme seem to rely mainly on private funding and that could be hardly feasible for many infrastructure projects in developing world where high country risks exist. Despite the multiple efforts by the US or Europe to counter the Belt and Road Initiative it seems that these alternatives lack coordination and resources.

It goes without saying that BRI shall be more succesful in countries outside EU like the Balkans, Asia or African countries, where loose regulation on FDI exist and where the Chinese capital is in many times the only option for the respective countries to implement their infrastructure projects. On the other hand, it seems that Chinese investors with great appetite on stressed European assets will have to use more endeavor in order to enter the European market and be ready for tough scrutiny by regulators. At the same time, as has been reported lately, with the EU sanctions taken against China and the immediate response by Beijing, the environment in the EU-China relations is not conducive for ratification of the EU-China investment treaty, which shall bring new challenges to the BRI projects in Europe.