The latest Euromoney Belt and Road Index (EBRI) shows there are still countries with longer-term improving GDP and/or investor environments to guarantee the Belt and Road Initiative’s (BRI) success, but a tailored approach is required.
China has choices to make as it evaluates how to proceed with the BRI in a world coping with the after-effects of a pandemic that has clearly affected China itself, both politically and economically.
Covid-19 has disrupted the strong growth trends evinced in many of the world’s rapidly developing economies – albeit temporarily, it is hoped – as the lockdowns are eased.
With countries struggling financially, China’s BRI may be just the answer many countries are looking for to reinvigorate their own national development plans.
For China, too, it has the potential for a new public relations exercise, as concerns about the virus originating in China, the Uighur crisis and meddling in Hong Kong’s affairs increase negative perceptions.
“Some in Washington, Canberra and London, especially in neo-conservative policy circles, thought, wrongly, that China would have to abandon its New Silk Road ambitions on account of soaring project risks, mounting defaults among developing countries and credit concerns at home and abroad, etcetera”, says M Nicolas Firzli, board member of the World Bank Global Infrastructure Facility.
“Nothing could be further from the truth. Unlike some of their short-termist peers in the west, who seem fixated on Wall Street’s latest rally, China’s Standing Committee members take a disciplined, multi-disciplinary view of the future: they look at the world map and see giant ports, natural gas mains, forests of 5G transmitter masts and intercontinental high-speed rails waiting to be built.”
China has invested heavily in Africa, Central and Eastern Europe, and the Middle East, dishing out an estimated $128 billion on infrastructure projects, but only Asia is showing notable improvements to its GDP and/or investor climate since the BRI was inaugurated to considerable fanfare by president Xi Jinping in 2013.
The latest EBRI results make for interesting reading, too, by revealing that in spite of the coronavirus crisis there are no fewer than 40 of the 68 countries with improving index values since Q1 2020, including 12 showing double-digit rises.
Eight countries have moved up a tier, with Bangladesh returning to tier one and Cambodia joining a seven-strong top tier, alongside the Maldives, Nepal, Ethiopia, Bhutan and Laos.
They are the fastest-growing economies worldwide that are expected to return to high-growth trajectories, with generally improving investor environments.
The top three tiers contain 49 countries, all exhibiting degrees of increase in GDP and/or their investment climate since 2013. Tiers four and five contain countries (currently 19) all showing decreases in GDP and/or investment climates.
Cambodia has been receiving vast amounts of Chinese financing, turning it into a middle-income country with transport infrastructure upgraded and jobs created, while furthering China’s strategic military interests and creating unwanted huge debt burdens in the process.
Jordan, Morocco, Israel and Estonia have all moved up from tier three to tier two, and Saudi Arabia from tier four to tier three, with its score moving back above 100.
Bosnia-Herzegovina, Panama, Montenegro and Pakistan have all shown considerable improvement during the quarter, despite remaining in tier two.
“BRI-friendly jurisdictions such as Bangladesh, Pakistan and Cambodia, among others, all saw a substantial rise in institutional investor sentiment and foreign direct investment in the recent past,” says Firzli.
“The industrial blue chips of Germany, France and Japan [nominally US allies] have quietly stepped up their foreign direct investments in these strategic Asian and East African countries, notably in the consumer products and energy sectors; for example, building giant liquefied natural gas terminals for future export to China: a clear vote of confidence in favour of the BRI.”
Contrastingly, Indonesia has fallen in successive quarters, into tier four, with Brunei and Yemen dropping into tier five. They are showing the biggest falls in the EBRI in Q2 2020, alongside Kyrgyz Republic, which has retained its tier-three rating.
India is another.
“Perhaps, one shouldn’t over-interpret quarterly variations when it comes to long-term investments,” Firzli says, “but looking at country risk and GDP data with cold geo-economic eyes, it looks like nations, such as India, which have stepped-up their criticism of the BRI very harshly since the start of the Covid-19 crisis, have seen their own index scores go down in the past three months.”
This mixed pattern of results offers China options, but it also makes it doubly important to adopt a strategy in the wake of the coronavirus fallout, as Daniel Wagner, CEO of Country Risk Solutions, and author of a new book on the BRI, The Chinese Vortex, explains.
“China’s economic downturn in 2020 has meant that fewer yuan are available to devote to new and existing BRI projects,” he says. “That implies that Beijing will be more judicious, not only in where it invests and lends in the future, but how.
Beijing has a “golden opportunity”, he says, to demonstrate to the world that it can modify its approach to lending and implementing BRI projects, but continuing on a path that restricts the participation of non-Chinese investors will mean that any future success or failure of the initiative will continue to be left solely at Beijing’s doorstep.
“Many critics and sceptics will say that Beijing is not up to the task of transforming the BRI from being perceived as a source of debt traps, neo-colonialism, and the brazen exercise of power and influence projection to becoming a fountain of inclusion and altruistic behaviour,” says Wagner.
“The world has become too accustomed to think of the Chinese government in other terms. However, Beijing knows that it is in its own interest to use the BRI as a platform to start to modify its image.”
On that prospect, Wagner believes the jury is out, stating: “Only time will tell if that eventually becomes a reality, or will remain merely a pipe dream.”