Part of theQuick Takes
President Xi Jinping presided over China’s Second Belt and Road Forum last week in Beijing amidst growing international criticism. Here’s our quick take on what you need to know.
With the release of a joint communique signed by leaders of the nations in attendance, the second Belt and Road Forum for International Cooperation concluded on Saturday, April 27. Originally called “One Belt One Road”, the since re-branded and controversial Belt and Road Initiative (BRI) is President Xi Jinping’s signature foreign policy effort, and serves as an umbrella term for a host of economic and diplomatic co-operations aimed at expanding trade along the old Silk Road maritime and land routes. Since its launch in 2013, the BRI has mostly been comprised of physical transport infrastructure investment connecting Asia, the Middle East and North Africa (MENA), and Europe.
To date, China has financed over $440 billion in BRI projects, with more on the way for pending investments. At last week’s forum alone, companies in attendance are reported to have reached around $64 billion in agreements. With 170 agreements across roughly 125 countries, the BRI has attracted significant attention from supporters and critics alike. Supporters point to the funding gap for critical infrastructure in developing countries that China is filling, and critics cite onerous loan terms and unsustainable debt levels as evidence that China is engaging in “debt diplomacy.”
Addressing the Critics
In his keynote speech, President Xi made a point to address areas where the BRI has garnered international criticism, as well as areas currently central to the U.S.-China bilateral trade deal.
Critics of the BRI have focused on issues of environmental and financial sustainability in the projects and investments. To that end, Xi cited the need to pursue “open, clean and green cooperation” going forward, and pointed to the launch of the Beijing Initiative for a Clean Silk Road.
On the debt impact for participating countries, Xi reiterated the need to “ensure the commercial and fiscal sustainability of all projects” and pointed to the recent publishing of the Debt Sustainability Framework for BRI projects by the Ministry of Finance, a debt risk framework that follows similar assessment standards to frameworks employed by the IMF and World Bank. Swiss President Ueli Maurer also signed an MOU with President Xi for cooperation on trade, investment and financing for BRI projects, aiming to leverage the image of the venerable Swiss banking system.
The Rhodium Group issued their preliminary findings on the debt issue after examining dozens of cases of debt renegotiations between China and borrowing countries. They studied 44 instances of debt renegotiations and found that China does not actually have a lot of leverage in loan renegotiations and has written off at least a portion of debt in a majority of the cases. In fact, their overall lending presents a lot of financial risk for China and may be unsustainable. Notably, they found only one case of asset seizure to date; a port in Sri Lanka. They note that more data is on the way given a spurt of projects from 2013-2016.
Xi also took the opportunity to touch on issues central to the U.S.-China trade war. An entire passage was devoted to how seriously China takes the issue of intellectual property protection, including stopping the practice of forced technology transfer. General pronouncements of further market opening were also made, though with few specifics.
Despite the positive rhetoric, implementation remains the key question on each of these issues—the sustainability of the BRI and the trade practices. The current trade tensions are in part motivated by similar commitments in the past that failed to materialize.
Strong Attendance with Notable Absences
Compared to the previous event in 2017, attendance by world leaders was stronger in 2019, with 36 heads of state (along with Christine Lagarde of the International Monetary Fund). Southeast Asia and Central Asia were particularly strongly represented, with nine of ten and four of five heads of state attending, respectively. Likewise with Africa, where a 2017 showing of just two nations’ top leaders this year grew to five: Djibouti, Egypt, Ethiopia, Kenya, and Mozambique. Italy, the first G-7 nation to officially endorse and sign-on to the BRI as of March 2019, sent Prime Minister Giuseppe Conte.
Yet the U.S. did not send senior-level delegates, in contrast to the first forum in which they sent Matthew Pottinger, the senior director for Asia at the National Security Council. U.S. officials have been highly critical of the loan terms and debt burden used in BRI-funded projects in developing countries, with Secretary of State Mike Pompeo expressly labelling it “debt diplomacy” in remarks to Congress.
Beyond Infrastructure to Technology
Beyond the sheer numbers of dollars, projects, and participants, President Xi signaled at the close of the event that the BRI will be expanding its scope, as well. At a press conference with Vice Premier Liu He and Vice President Wang Qishan in attendance, Xi said that the BRI would begin to look beyond traditional infrastructure and into the development of digital infrastructure, including the announcement of a wide-ranging ICT research exchange program between China and participating BRI members. This is notable given how the U.S. and China have clashed around the global roll out of 5G networks and the controversaries around Chinese participation, namely Huawei, in those projects.
Going forward, the BRI will also begin to encompass cooperation in areas like customs, taxation, audit oversight, and free trade agreements between China and BRI member nations. In the joint communique that closed the event, “enhancing connectivity among financial markets” was also cited as a goal for the near-term.
While the BRI has undergone a makeover, it is Xi's signature foreign policy initiative and will continue to iterate not only due to international criticism, but also for the inherent risk in lending to the developing world. There is much justified criticism, but developing countries are also desperate for financing and interested in Chinese investment—particularly as the U.S. has slashed foreign aid by 30%—and following in the footsteps of China's economic miracle. The BRI is emblematic of the systemic clash between the U.S. and China and of China's increasingly high-profile foreign policy.