Concerns Mount as China BRI Strategy Leads to Global Asset Value Erosion

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China launched an ambitious series of investment initiatives in 2013, under the leadership of President Xi Jinping. Pixabay

China launched an ambitious series of investment initiatives in 2013, under the leadership of President Xi Jinping. Dubbed the 21st-Century Maritime Silk Road and the Silk Road Economic Belt, this expansive economic investment project became known as the Belt and Road Initiative a.k.a. BRI. Similar to the erstwhile Silk Road which connected Asia and Europe centuries ago, this new project serves to expand China's sphere of influence around the world.

The rising costs of these global projects has generated tremendous concern in economic circles, particularly in several participating countries. The fear that China is using infrastructure development and investment as an opportunity to expand its economic, military, and political leadership is not without validity. Beijing's imperialist actions are not going unnoticed. Prominent world leaders like President Donald J. Trump are already taking China to task over its expansionist agenda, with hundreds of billions of dollars’ worth of tariffs recently slapped on China.

China's new Silk Road plan was announced in 2013 when President Xi toured Indonesia. The two-pronged plan focuses on the Maritime Silk Road and the Silk Road Economic Belt. Eventually, these projects became known as the Belt and Road Initiative. The Chinese are focused on expanding the country’s economic empire throughout the former Soviet Socialist republics to the West, and through India, Pakistan and Southeast Asia to the south. These massive and unprecedented economic development initiatives include the construction of border crossings, energy pipelines, highways, railways and other strategic assets.

According to the Asian Development Bank, the region’s annual infrastructure shortfall amounts to $800 billion. The Chinese president set out his ambitious agenda in 2013 at the Association of Southeast Asian Nations (ASEAN). His plan to boost maritime trading activity would encompass wide areas of Eurasia and East Africa, including the Maldives, Sri Lanka, Malaysia, and Djibouti. To date, 60 countries are now privy to this BRI initiative. The largest investment project appears to be the China/Pakistan economic corridor valued at $68 billion. According to investment bank Morgan Stanley, the entire BRI initiative could set China back up to $1.3 trillion within the next 8 years.

Reasons why China is so focused on BRI

China is more economically active and more politically assertive than ever before. The country no longer features a red-hot economy, and is now characterised by slowing growth at home. To reverse these trends, the leadership is actively opening new consumer markets all over the world. This will help to unleash China's massive industrial capacity. A development strategy known as ‘Made in China 2025’ is currently underway, and is seen as a bulwark against the US policy of shifting towards other Asian countries like Japan, Korea, India, Pakistan, Thailand, Taiwan, Singapore and so forth. China is no longer sitting on the sidelines; it is an active player on the field and is shaping its own economic future.

Chinese leadership is growing concerned that a middle-income trap could result if the economy is not restructured accordingly. As the quality-of-life in China improves, the country may suffer from an inability to produce high-value consumer goods and services. With BRI, the Chinese believe that their import/export options will be boosted and that the Chinese economy will be reignited. The problem with BRI is that many of the countries participating in these strategic initiatives are debt-ridden. The money comes from China at low rates of interest. When these countries are unable to service their debt, China renegotiates the debts to take long-term options on major strategic assets in those countries. This gives China virtual exclusivity to tap into the resources, production facilities, and strategic frameworks of the countries.

Today, 60% of the global population, and 30% of global GDP is produced in the 60 countries now investing in the BRI initiatives. The affordability component of this plan is particularly devastating in African countries where BRI is now being seen as a form of neocolonialism. Despite opinions to the contrary, Western countries are also participating in these projects, notably Italy – the first industrialized country in the G7 to join the BRI. According to a recent report by the CGD (Center for Global Development), a study of 23 participating countries found that 10 – 15 of them were strong candidates for debt distress. This means that China has a strong negotiating hand to acquire strategic assets in those countries. Chinese creditors are collecting on all their bad debts, and it appears to be a strategic plan.

Africa Is Failing & China Is Winning

By far the biggest loser with BRI is Africa. Currently, China now holds 14% of the total debt stock in sub-Saharan Africa. In 2015, China announced $60 billion worth of commercial loans and grants for economic development projects across the continent. As a result, Chinese financing has left African countries deeply indebted to China and this does not bode well for their own strategic growth and development. It appears that China’s willingness to extend credit to developing nations has resulted in indebtedness that simply cannot be repaid. This has now become a national security objective for the United States which is working to curtail Chinese economic expansion.

A Workable US Solution?

Developing nations will soon be able to tap into the US sponsored BUILDAct which has created the International Development Financial Corporation. But China has not stopped at Africa, Europe and Asia; it is also expanding its economic and political influence close to US shores, notably the Caribbean. A series of major investments has already been made in the island nation, bringing China up close and personal with the world's #1 economy. Countries like Pakistan are certainly feeling the pinch from China, and in 2018 Saudi Arabia and the IMF had to assist in the repayment of Pakistan’s debt. These types of debt crises are rampant and much of it is being fuelled by an inability to repay China for these infrastructure projects.

From the US perspective, the development of South and Central Asia is seen as a strategic objective. Many are calling on the US to strengthen its partnerships with Asian countries, particularly through the bipartisan BUILDAct. With a $60 billion investment portfolio, it still pales in comparison to China's massive infrastructure expenditure budget for BRI. The US may leverage China's construction of infrastructure in these countries to serve its own interests without spending any money on their development. Regardless, unsustainable debt burdens are choking off developing countries and making them beholden to China. The jury is out on this contentious topic, and geopolitical tensions between the US, China, and Russia are sure to tip the scales in one direction, or another.

Benedict Peters is a pan-African businessman, entrepreneur and the founder and CEO of Aiteo Group, the largest indigenous energy company in Nigeria.