How China sees the role of the Belt and Road Initiative in the (post) Covid era

As we have noted elsewhere, Chinese foreign minister Wang Yi had a busy start to the year. His annual visit to African countries saw him visit Nigeria, DR Congo, Botswana, Tanzania and the Seychelles. After the whirlwind trip of Africa, he promptly began a tour of the ASEAN region, visiting Myanmar, Indonesia, the Philippines and Brunei. Wang’s carefully scripted speeches while on the road last month, as well as his address to CCTV journalists on new years eve last year, convey some important indications of how China understands and is portraying the Belt and Road Initiative in the (post) Covid era it faces as it enters its 6th year.

Bucking the trend

“COVID-19 has dealt a heavy blow to the world economy and brought challenges to Belt and Road cooperation,” Wang told journalists in his December 31 interview. “That said, instead of stalling altogether, cooperation under the Belt and Road Initiative has bucked the trend to make new progress. It has demonstrated a strong resilience.”

The claim is backed up by Ministry of Commerce figures, including that Chinese companies’ non-financial direct investments in 58 “countries along the BRI” grew 18.3% year on year. As well as by more anecdotal evidence, such as the growth of China-Europe rail freight, which Wang Yi said saw more freight transported in the first 10 months of 2020 than the whole of 2019.

The picture painted is very different from that portrayed in a number of Western media outlets that the economic crisis that looms behind the immediate term crisis of the pandemic is striking a death knell for China’s Belt and Road. In December, an article published in the Financial Times claimed that “it did not take long for the wheels to come off the Belt and Road Initiative” and that it is “unravelling”.  

Wang Yi’s portrayal of the BRI as fit and strong in spite of everything that happened in 2020 builds on Chinese state owned enterprises’ steady messaging through the year that project development was continuing apace in the face of Covid. A slew of Power China press releases and official articles over the second half of 2020 described their Covid prevention mechanisms that enabled work to continue and workers to return from China. In a phrase very similar to Wang Yi’s, they proudly called this “going against the traffic” of people across the world returning home to bunker down through the crisis.

“Going against the traffic”, 85 Power China workers return to Pakistan in August 2020

While the SOEs tended to portray an “everything is more than ok” picture, Wang Yi was more honest in his comment to journalists. The pandemic has brought obstacles and challenges, he said. A look at investment figures for 2020 from the American Enterprise Institute shows a clear overall decline on previous years. Though recent data from Chinese consultancy GoalFore also shows that a small handful of central SOEs continued to scoop up large EPC contract deals through the year. Power China, for example, saw a nearly 36% increase in total new contract value compared to 2019.

As the economic impacts of the pandemic continue to show themselves, a slow down in infrastructure investment may still be pending, but you wouldn’t have guessed so from the first few weeks of 2021. Wang Yi’s five country tour of Africa and four country tour of Southeast Asia saw the announcement of MOUs and contracts for at least six major infrastructure projects.

“A warm current flowing through the economic winter”

Wang Yi’s comments do not only defend the “strong vitality” of the BRI, however. They also frame the Belt and Road as central to the global economic recovery required over the coming years. 

“China will work with all parties to deepen the synergy between the BRI and the development strategies of other countries, keeping in mind their needs for COVID-19 response and economic recovery,” he told journalists. “We believe that by bolstering connectivity and economic reopening and by tapping into the potential of new growth drivers… we will be able to achieve higher-quality Belt and Road cooperation.”

In other words, rather than seeing the pandemic as a hit to the BRI’s fortunes, Wang Yi and the top Chinese leadership may see an opportunity to better place the BRI as central to the global economy as we enter the post-Covid era.

The logic was on display again during Wang Yi’s visit to the Philippines 16-17 January. “China will stand firmly with the Philippines to jointly fight against the COVID-19 pandemic and push for economic recovery,” Wang Yi is reported to have said. Putting RMBs to those words, the visit concluded with a RMB 500 million grant for Philippine infrastructure projects, according to Reuters.

The understanding of BRI as central to the global economic recovery has been echoed among government friendly researchers and academics in recent weeks too. An article looking specifically at “progress for the Belt and Road during the pandemic challenge” published in early January on the official Belt and Road Portal dug into some of these viewpoints further. The acting dean of the Belt and Road School at Beijing Normal University, Hu Biliang, highlighted three aspects that make BRI critical to economic recovery. Firstly, continued investment from China into BRI countries, which he notes as USD 13 billion for the first three quarters of 2020, is critical to stimulating BRI economies in the wake of the pandemic. Secondly, Hu notes that, in spite of Covid, trade between China and BRI countries has continued to increase, again offering economic growth opportunities. And lastly, the economic integration epitomised in the signing of the RCEP last year will “add new economic impetuses,” helping to accelerate the above two trends.

The format in which this boost to Belt and Road economies is already beginning to shift, however, and the economic pressures that will shape political and economic environments in developing economies in the wake of the pandemic will likely accelerate the process. Most prominently, the debt based financing for infrastructure projects that has been central to BRI over the last five years has been on the decline since 2017. For example, according to the Boston University Global Development Policy Center, 2020 saw eight loans, totaling just USD4.6 billion, made to overseas energy projects, a 43% decline from 2019. Developing economies are becoming less and less keen on taking on massive debt burdens, and emerging debt repayment issues will justify this standpoint. At the same time, downgraded GDP forecasts will lessen appetite for large scale projects such as energy projects. The decline in loans from China’s policy banks for overseas projects since a height in 2017 was the backbone for the FT’s argument that “the wheels are coming off” the BRI.

China’s Annual Energy Finance from Policy Banks 2000-2019,Source: China’s Global Energy Finance, 2020. Global Development Policy Center, Boston University.

But debt based financing from the policy banks is not the only means through which Chinese investors are engaging across the BRI. For one, it is likely that the role of commercial banks’ financing is expanding, as indicated by the resilience of EPC contracts in 2019 and 2020 even as the quantity of policy bank financing declined. With the next few years expected to see more tripartite financing arrangements and more host country interest in smaller scale projects – such as solar farms – this trend could become more prominent. Modes of investment may also be shifting. In some areas equity investments are increasing, while construction companies may start to show greater interest in Build-Operate-Transfer (BOT) models rather than turnkey EPC contracts.

“A global community of health for all”

It is important also to remember that BRI has never been only about infrastructure development. A final theme running through Wang Yi’s speeches during his 9-country tour in January is that of the BRI as a provider of health services, with a focus on COVID-19 prevention. In his New Year’s Eve interview Wang Yi emphasized public health and vaccines as a priority of both China-ASEAN relations and for this year’s Forum on China-Africa Cooperation (FOCAC). He called the emphasis part of the goal of creating “a global community of health for all,” a phrase which appears to be entering the official diplomatic lexicon. 

Putting actions to words, his visits to the Philippines, Indonesia and Myanmar all concluded with promises of medical supplies and vaccines. Nearly USD 500,000 worth of medical equipment will be donated to Myanmar. 25 million doses of the Sinovac Biotech vaccine will be donated to the Philippines and 50,000 to the Seychelles.

As financing for large scale infrastructure projects continues to shrink in scale from its 2017 heights, China will likely reorient the emphasis of the Belt and Road towards other public goods. In some ways a logical extension of 2020’s “mask diplomacy”, the gearing of bilateral engagement toward public goods also dovetails with China’s revamped foreign aid activities, now termed “international development cooperation” (IDC). As Stella Hong Zhang has recently argued on this blog, the new White Paper on international development cooperation is likely to encourage more “soft” aid projects, rather than an overwhelming focus on “hard” infrastructure. The White Paper also spells out that China’s IDC should increase focus on the “greater good”, and seek to “make the greater good and self-interest compatible.” What that means in practice is still unclear.

Wang Yi’s recent “vaccine diplomacy” could be seen as an example of this principle in action – greater good with, no doubt, a decent dose of politically motivated self interest. But it also begs the question, if health services and exchanges and other public goods are to become a prominent component of the BRI in the post pandemic era, how will the roles of different ministries and government bodies in the BRI adjust in response? Will the policy banks and Sinosure, for example, see their significance in the BRI (huge to date) reduce as debt for infrastructure decreases in significance? And will new bodies such as the China International Development Cooperation Agency, established in 2018 and charged with overseeing IDC, become a newly influential force in the initiative?

The Belt and Road Initiative faces a very different world in the (post-) pandemic era. China’s foreign ministry and other institutional thinkers are already hard at work re-emphasising and re-orientating the Initiative to better suit the new conditions. Of course, events and actions from outside the Chinese state will also play a role in the reshaping of the Initiative. The coup in Myanmar, which happened just a few weeks after Wang Yi visited the generals and Aung San Suu Kyi, demonstrates just how volatile some of the key countries in the BRI are. Meanwhile, the implications of the Biden presidency’s reengagement in regions such as ASEAN and sub-Saharan Africa for China’s Belt and Road Initiative are looming “known unknowns”.

Despite all the changes in the world, the BRI does not find itself redundant or out of steam, however. Wang Yi’s January travels give some indication as to the evolution in the Initiative in store.

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