Home News Reports A professor of international economics highlights challenges facing Belt and Road Initiative

A professor of international economics highlights challenges facing Belt and Road Initiative

The BRI (The Belt and Road Initiative) project taken up by China is expected to touch approximately two-thirds of the world’s population, and 40 percent of global trade. The BRI summit held by China was attended by 130 countries out of which an estimated 68 had claimed that they had signed the BRI agreement. This initiative of China is seen as a major foreign policy challenge to India and a step towards China’s goal of ‘world leadership’.

Image Source : Brookings Institute

Linda Lim, an NTUC (National Trade Union Congress) Professor of International Economic Relations (2018) at RSIS (S. Rajaratnam School of International Relations), Singapore in her recent publication has highlighted grave concerns regarding the financial viability of the BRI. This study was highlighted on Twitter by columnist Chinu (@NamasteNiHao).

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In her synopsis Prof Lim says that unless the challenges to the BRI are not addressed, China will find the project as a nightmare rather than a Bonanza. The challenges listed by Prof Lim are:

  • Challenge of Infrastructure funding
  • Political and Other Risks
  • Chinese Business Model
  • China’s Creeping Arrogance

The academic feels that the mechanism of implementation of these projects and capital required for them will decide the outcome of BRI. Since many developing countries don’t have the capital, technology and human resources to implement long term projects may be difficult. She says :

  • In developing countries capital is scarce, so at a premium, while borrowing from cheaper foreign sources requires repayment in foreign exchange, adding currency risk. Governance risk arises from governments often lacking the expertise to evaluate, implement and monitor projects, and leakage through corruption is common, increasing cost, delay and quality problems.

Professor Lim further cites the risk of high debt to GDP ration and high Chinese debt to GDP ratios in countries like Djibouti, Kyrgyzstan, Laos, Maldives, Mongolia, Pakistan, Montenegro, Tajikistan. In addition to this, she feels that the political risks and backlash from people who are not benefited from the project could adversely impact BRI. The professor says :

  • There is also political risk, since the distribution of costs and benefits may not be equitable, and social unrest may result from disputes over land appropriation and compensation, labour, and environmental consequences such as harm to local farming, forests and fisheries. Authoritarian governments are not transparent, and may use coercion to resolve disputes, while democratic governments may change and demand changed terms. 

In addition to risks of implementation and debt trap for participating nations, the most serious problem appears to be the Chinese business model. According to the professor, Chinese projects are not helpful in creating local jobs and depend on export model. Due to this model, the perception in local communities is adverse to such projects. She further adds that Chinese prefer to work with corrupt and incompetent leaders and ignore communities. She further adds :

  • Chinese companies have been accused of poor business practices, such as undercutting local suppliers, failing to honour contracts and to comply with local regulations, while delivering inferior quality and reliability, such as plagued Chinese-built power plants in Indonesia.

Chinese arrogance, is another challenge that could be a roadblock to success of BRI, says Professor Lim. She says that Chinese don’t respect the diversity in countries they operate in and favour local ethnic Chinese in their deals. As a result of their collaboration with Chinese, local politicians have lost elections as per the academic. She cites the example of Mahinda Rajapaksa in Sri Lanka.

The publication also offers some suggestions to combat these challenges. The professor suggests the Chinese to ensure that BRI is ‘Less Chinese’. She recommends that local population be taken into confidence and only viable projects be taken up. Otherwise she expects the project to be a foreign policy nightmare. To underscore this point she cites an example from CPEC.

  • Today, with a massive US$57 billion investment in energy and infrastructure projects in the China-Pakistan Economic Corridor, the Pakistan government has to employ a 15,000-strong military force to protect Chinese workers. Despite this, in February 2018, a Chinese shipping executive was shot dead in his car in Karachi in “a targeted attack”. If China does not learn to adapt to life outside the Great Wall, the Belt-and-Road Initiative risks turning into a foreign policy nightmare, not a bonanza.

Thus it appears that the BRI is not going to be a cakewalk. The Chinese ambition and economic power may formidable and admirable. If the concerns raised by Professor Linda Lim are ignored by Chinese, BRI may not succeed as expected by the world.

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