Forty-seven countries are rising in the Euromoney Belt and Road Index, as China’s new five-year plan reprioritizes its strategy and projects.
On April 19, during a keynote speech delivered via video at the opening ceremony of the Boao Forum for Asia Annual Conference 2021, President Xi Jinping stated that China would continue to work with other willing parties on high-quality Belt and Road Initiative (BRI) cooperation, while stressing that poverty alleviation and growth will be the twin goals.
Citing the World Bank’s projections, Xi noted that, by 2030, BRI projects could help lift 7.6 million people out of extreme poverty and 32 million out of moderate poverty worldwide.
He also reiterated the desire for partnerships involving “hard connectivity” of infrastructure and “soft connectivity” of rules and standards, as well as strengthening cooperation on green infrastructure, green energy and green finance “to make green a defining feature of Belt and Road cooperation”.
Asia remains central to its plans, which is understandable.
There are many willing partners in the region, and Asia is comfortably ahead in terms of its economic growth and investor environment, with a regional score of 161.5 in the Euromoney Belt and Road Index (EBRI).
It has fallen slightly in successive quarters, but it is still the only region with an index value above the crucial 100 mark, and by some margin, highlighting a strong performance – and potential – since the BRI strategy was launched by Xi in 2013.
Vietnam in particular is a notable improver this quarter, soaring into tier 1, the highest category, with the economy still growing during the pandemic.
Taking stock of a challenging outlook
Yet there are challenges this column has explored previously, noting for one the burden of debts accumulated by participating countries.
Constantin Gurdgiev, professor and country risk expert at the Middlebury Institute of International Studies, says: “The BRI ran into significant constraints prior to the onset of the Covid-19 pandemic, and it requires substantial re-assessment of its investment initiatives and financing mechanisms to move forward.
“The geopolitical instability and the US strategy ambiguity give China some breathing space to undertake such revisions, especially as Washington continues to focus its fiscal and monetary resources on domestic economic reforms and internal markets supports.”
He adds: “On the other hand, the aftermath of the Covid-19 pandemic is creating even greater demand for China-led investment and trade initiatives in the core BRI-covered regions of Asia-Pacific and Central Asia – especially the latter.”
China’s new/14th five-year plan (FYP) for 2021 to 2025 provides a moment to take stock and reprioritize, especially with some of the key projects becoming delayed, or scrapped for geopolitical or economic reasons.
A two-year delay to the $6 billion Jakarta-Bandung high-speed railway has been announced and Australia’s Victoria state government has abandoned plans for key infrastructure projects that would have provided opportunities for Chinese construction firms as Canberra’s relations with Beijing sour.
China’s National Development and Reform Commission (NDRC) is aware of the key problems and tasks lying in store for the New Silk Road in today’s complex geopolitical environment, which has seen trade systems alter and shifting global governance against the backdrop of ongoing China-US rivalry and emerging markets (EMs) development.
China’s foreign policy is hardly helping, with some countries having to overlook its human-rights failings.
The pandemic has also created a particularly challenging global economic environment, harming trade and investment.
That said, it is also increasing the desire for more BRI projects, with the need to invest in key infrastructure, provide employment and foster economic development.
And some of the numbers remain staggering.
China’s trade in goods with countries along the BRI increased by 21.4% year-on-year in Q1 2021 to $383.24 billion, accounting for 29.5% of its total foreign trade, according to the NDRC.
Non-financial direct investment in countries along the BRI by China totalled $4.42 billion during the period, a rise of 5.2% y/y, with China signing new contracts worth $31.34 billion in Q1 2021. Reciprocal investment from countries along the BRI into China soared by 64.6% y/y to $3.25 billion.
M Nicolas Firzli is a director of the Singapore Economic Forum (SEF) and advisory board member of the World Bank Global Infrastructure Facility (GIF), with a keen interest on all things BRI-related, and has much to say on its realities.
He notes that in February 2020 there was a running commentary on how the pandemic would deal a devastating blow to the BRI. Asean nations such as Vietnam, Cambodia and Singapore – whose fortunes are implicitly tied to China’s – would suffer for a series of reasons, ranging from “reshoring and supply chain nationalism to the rise of India”.
“None of these forecasts proved to be accurate, and recently America itself has seemed to be veering towards East Asia’s brand of infrastructure-driven development, which some have interpreted as a major ideological win for Beijing,” says Firzli.
He adds: “[The FYP] doubles-down on high tech, both civilian and military, fintech, keeping an eye on monopolistic practices – as Jack Ma’s Ant Group learned the hard way – and green tech, both domestic- and export-oriented, with a substantial rise in R&D budgets across the most dynamic sectors of the national economy.”
He goes on to state that neoconservative policy thinkers in Washington, Brussels and Canberra, who always like to deride Beijing, must do so at their own peril.
“They’re wrong to believe this is some kind of cartoonish blueprint for ‘global economic supremacy’ or a ‘Communist Party scheme’,” says Firzli.
“The five-year plan enjoys strong backing from key constituencies including US-educated business leaders and academics – pragmatic centrists – and it’s actually very similar to the kind of state-guided capitalism France and Japan had in the 1970s, when they were the fastest-growing economies in the world, pioneering concepts such as high-speed rail (HSR) and supersonic transport (SST)”.
For Firzli, the bitter televised exchanges on display at the US-China Anchorage summit in March have only accelerated the advent of the Age of Geoeconomics.
“In the coming quarters, world trade (mercantilism), financial economics (ESG and employee capitalism) and military strategy (bipolarization) could be more centrally coordinated in the US, Britain and the EU, or, perhaps more ominously, merged completely in ultra-polarized jurisdictions like India and Australia,” he says.
“The federal government’s abrupt cancellations of key BRI infrastructure deals between China and the government of Victoria, Australia’s richest state, is just a symptom of deeper tensions.”
Firzli adds: “As Australian fishermen, winemakers and steel mill owners may soon learn, in the long term, this is an all-out economic confrontation Canberra has scant chances of winning. US and European buyers are very unlikely to replace cash-rich Chinese consumers and supply chain managers.
Firzli also seeks to discover who could profit from the “hardened Sino-American race” and in that regard he advises looking at the EBRI map.
Modernizing mid-size nations such as Vietnam, Cambodia, Israel, Serbia, Croatia and Lithuania, positioned at key nodes along the greater Eurasian corridor, are all seeing their values improve steadily.
This trend can only continue going forward, Firzli believes, with countries perceived as neutral being courted by both Chinese and US investors, citing Israel as an example.
The Shanghai International Port Group (SIPG) has just finished expanding the port of Haifa, which it will be running for the next 25 years, while the China Harbour Engineering Company (CHEC) is building a new terminal in Ashdod, he points out.
“Practically at the same time, US tech leaders such as Microsoft and Nvidia have announced billions in new investments in Herzliya and Yokneam Illit, respectively,” says Firzli.
The BRI is certainly not dead, neither is it resting. Its changing priorities will ensure that.