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The Pandemic Induced BRI: Then, Now and What Next?

  • Category
    International Relations
  • Published
    13th Sep, 2021

Context

The unsought impact of the pandemic has dampened the BRI ambitions to a large extent, but Beijing is still resolved to go ahead with it while trying to get the economy back on track.

Background

  • The pandemic and the resulting intermittent lockdowns is not only hurting the global economy but also has surfaced myriad challenges to China’s mammoth BRI (Belt Road Initiative).
  • It is often referred to as the New Silk Road, launched in 2013 by President Xi Jinping.

Analysis

China’s Plan for its Silk Road:

  • The plan was two-pronged:
    1. Silk Road Economic Belt over the land
    2. Maritime Silk Road
  • They are collectively known as Belt and Road Initiative or One Belt One Road project (OBOR). It is aimed to enhance the physical infrastructure for development cooperation across several countries in Asia, Europe, Africa, and even Latin America.
  • It has the potential to expand China’s export markets, promote the Renminbi (RMB) as an international currency, and the reduction of trade frictions like tariffs and transport costs.




Role of India:

  • India is trying to convince countries that BRI is a plan to dominate Asia.
  • It’s a geo-economics strategy to create unsustainable loans for its Indian Ocean Region neighbours.
  • The USA views India as a counterweight to China’s intention to dominate Asia. 

Changes due to the pandemic:

  • The dependency on the Chinese manufacturing sector had started to hurt global economic growth.
  • A direct comparison can be made between the 2003 SARS outbreak when China used to contribute around 4 percent of global out, which has now blow up to 16 percent in 2020.
  • As a result of allegations made over China for originating the SARS-CoV-2 virus and mishandling the crisis, foreign investors have started showing a shift in their manufacturing activities to countries like India, Thailand, the Philippines and Bangladesh.
  • The project has started problems even before the pandemic due to unsustainable projects, contracts and loans; human rights issues related to

Decline in Chinese investments:

  • In 2020, a slump of 54.5 percent has been observed in the Chinese investments in the BRI countries if compared to the investments made in 2019.
  • It has dropped to the US $47 billion. Non- BRI countries are the ones that have witnessed a stark decline of about 70 percent in Chinese investments.

Approaching Debt Crisis for the participating nations:

  • Long term debt for the participating countries, especially in the developing and underdeveloped region of Southeast Asia and Sub-Saharan Africa.
  • The situation gets worsened by the additional financial burden brought by the pandemic. The outstanding debt owed to China includes—Pakistan (US $20 billion), Angola (US $15 billion), Kenya (US $7.5 billion), Ethiopia (US $6.5 billion), and Lao PDR (US $5 billion).
  • Another reason to worry about is the internal financial insecurity surrounding the participating countries which are grappling with the high public external debt and debt owed to China.
  • The Republic of Congo, Djibouti, and Lao PDR have the highest Chinese debt-to-GNI (Gross national product) ratio.
  • The 70 percent control of Hambantota port in Sri Lanka is leased to China for 99 years, strengthens its ‘debt-trap diplomacy’.
  • It is expected that many countries are going to approach China for debt relief to bring the pandemic under control.

What is the future holding in its hands?

  • 27 European Union members are strategizing new global connectivity, characterised as “a geostrategic and global approach to connectivity” for the EU to tackle BRI.
  • The European Union (EU) has approved the “EU Strategy for Cooperation in the Indo-Pacific”, highlighting its strategic focus and actions with an aim towards “regional stability, security, prosperity and sustainable development”.
  • These are sending strong signals of BRI alternatives.
  • The Build Back Better World (B3W) Initiative for global infrastructure development by G7 nations, to counter China’s BRI. It will focus on four key areas: climate, health, digital technology and gender.
  • It is aimed at catalysing infrastructure development in low and middle-income countries.

Hurdles on its face:

  • High competition and saturation in Chinese domestic markets, and the emergence of India as one of the largest potential markets.
  • Indian markets are extremely similar to that of the Chinese markets, and this has led the Chinese investors to believe that there is ample scope to succeed if the scale economies are harnessed adequately in India.
  • The labour costs in China have also plummeted in the last three decades which has made ‘off-shoring’ necessary for various sectors to keep product prices competitive in the global markets.
  • In the mid of pandemic and given the slump in its economic growth, further adding the criticism that it is facing from the global community aggravates the situation.
  • Corruption, lack of financial transparency, unfair loan conditions, fears of debttraps, and negative social and environmental impacts are the other problem that this mega-infra project is embroiled with.

Possibilities for China:

  • BRI partners have already started asking for debt relief, and chances look slim that they are going borrow heavily for mega infrastructure projects anytime soon. Shrinking capital will require Beijing to cut on BRI projects, and healthcare investment (China’s Health Silk Road) may be more cost-effective in reaching partner countries.
  • Its competitors, including India, are trying to contest its public health outreach. It is not hidden that countries in South Asia do not have an alternative to China when it comes to building their healthcare sector. The success of China’s Health Silk Road will depend on how quickly it can roll it out in the subcontinent.
  • It can also share advances in gene-based research in biomedical technology and collaborate on telemedicine. Real-time communication will be required, which opens opportunities for Chinese companies offering 5G services.

Conclusion:

It is clear that China is having a tough time while battling against the changing geo-economic and geopolitical equations. The fate of BRI will now be an outcome of multitudes of factors. If China still goes with the BRI, it needs a steadier approach with a focus on the healthcare infrastructure, which could help China to regain credibility to the BRI.

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