A Decade Down the Belt and Road
Ana Horigoshi September 1, 2023
One decade of the BRI: Where it started, how it has changed, and
where it may be going.
When President Xi Jinping launched the Belt and Road Initiative
(BRI) in September 2013, he signaled the dawn of a new era in how
China engaged with the world. In the decade since, Chinese leaders
have used the BRI as a springboard to assume a global leadership
role in bankrolling connectivity infrastructure in the Global
South. The ambitious initiative solidified China’s position as a
financier of first resort for emerging economies; Beijing
surpassed the United States as the largest bilateral funder to the
developing world in 2011, and now outstrips U.S. funding by a more
than two-to-one basis.
As we approach the initiative’s 10th anniversary, the BRI is
facing headwinds from a number of different directions that
threaten its staying power and prominence. At home, the BRI must
jockey for position in view of other leadership priorities –
namely the launch of the more development-centered Global
Development Initiative (GDI) and China’s slowing domestic economy.
At the same time, the world in 2023 looks far different than it
did in 2013, as countries navigate multiple complex crises,
alongside growing concerns about the risks of debt-financed
development and the resurgence of great power competition.
Chinese leaders will necessarily have to adapt their efforts to
these new conditions, and there is emerging evidence that they are
already starting to do so.
Where It Started
Xi delivered two key speeches in September and October 2013 that
mark what observers consider the BRI’s official launch. The first
speech, delivered at Kazakhstan’s Nazarbayev University, proposed
the formation of a “Silk Road Economic Belt” from Beijing across
Central Asia. In it, Xi emphasized the two millennia of exchanges
between China and Central Asia and highlighted key steps to
achieve regional cooperation: strengthening policy communication,
improving road connectivity, promoting trade facilitation,
enhancing monetary circulation, and strengthening people-to-people
communication.
In a similar vein, the second speech was delivered in the
Indonesian parliament and established a “21st Century Maritime
Silk Road” across Southeast Asia, in line with the original
intention to link East Asia and Europe through physical
infrastructure.
That is not to say that Chinese overseas development financing
only started in 2013. China’s foreign aid activity began in the
1950s and went through different stages before entering a new
phase of “scaling up” in the early 2000s, when its development
financing charted a more than ten-fold increase from less than $4
billion dollars a year in 2000 to over $50 billion in 2010.
Largely due to these pre-2013 trends, there is no clear consensus
on whether the official launch was actually impactful in terms of
changing China’s financing patterns or if the Belt and Road
Initiative – as it came to be called – was simply a branding
campaign intended to clearly label efforts that had already been
in effect for the previous decade.
Regardless, China’s development financing has reached a new scale
since 2013. In the first five years of the BRI (2013-2017), China
bankrolled an average of $83.5 billion a year in overseas
development projects, a net increase of $31.3 billion per year on
average over the five years prior (2008-2012). The net increase
alone is equivalent to the total U.S. average yearly financing in
the 2013-2017 period.
Investing in everything from gas pipelines in Central Asia and ports in Sri Lanka to railways in Kenya, China rapidly caught the attention of Global South leaders. Countries lined up to join the BRI club, and by 2021, over 50 percent of the low- and middle-income world in terms of population had joined BRI and nearly 30 percent in terms of GDP.
Moreover, it seems like China’s efforts have been paying off, at least in certain scenarios. There is evidence that in Southeast Asia, countries that received more financing from China have a more favorable opinion of China in a number of different metrics. Recent survey research reveals a strong preference for China as a development partner in the infrastructure, telecommunications, and energy sectors relative to other donors such as the United States, France, and the United Kingdom.
Ultimately, the BRI is only one element of China’s public diplomacy toolkit, which also includes the establishment of sister cities and Confucius Institutes as well as elite-elite diplomacy, among other efforts. With these tools, Beijing appears intent on increasing its global influence. The BRI is thus an important intermediate step to achieve China’s ambition.
How Has the BRI Changed?
Investment Profile
Media narratives and popular discourse often portray China as a funder of mainly multi-billion dollar mega projects; however, this is more myth than fact. The average Chinese development project between 2000 and 2017 attracted $122 million in funding and the median value was far lower: less than $8 million.
This misconception likely stems from the outsized international media coverage of a relatively small group of mega-projects in the industry, mining, and construction sectors. Upper-middle income countries such as Russia, Kazakhstan, and Brazil are often the beneficiaries of these mega-projects, which have values superior to $1 billion and are commonly financed with loans approaching market rates or export-buyer’s credit. Examples include a $33 billion loan from the China National Petroleum Corporation to Russia’s Rosneft in 2013 via an oil prepayment facility; a $7.5 billion loan from the China Development Bank and the Bank of China to Kazakhstan in 2009 as a syndicated loan for the Kazakhstani section of the Turkmenistan-China gas pipeline; and a $1.6 billion loan from China’s Export-Import Bank to Pakistan for a coal-fired power project.
Nevertheless, nearly three-quarters of Chinese investment projects reach the Organization for Economic Cooperation and Development's (OECD) concessionality threshold to be classified as Official Development Assistance (ODA), or foreign aid. Those projects tend to be smaller, less than $10 million on average, and are more likely to go to sub-Saharan Africa. Typical examples of such projects include a $1 million grant to Tanzania for the construction of a primary school in Zanzibar in 2016; approximately $250,000 in donations of drugs for a hospital in the Central African Republic in 2017; and multiple occasions on which the Chinese government donated rice to North Korea.
Although the average project size and number of mega-projects in particular have increased over the years, this trend pre-dated 2013 and has actually decelerated since then. In the early 2000s (2000-2007), the average Chinese financed development project was valued at just under $60 million. This number more than doubled in the five years preceding the BRI announcement, reaching $132 million by 2012. Comparatively, in the first five years of BRI, there was a relatively modest increase in the average project value, which rose to $162 million.
Relatedly, 78 of the 143 mega-projects (55 percent) valued over $1 billion were committed in the BRI era, with the rest (45 percent) pre-dating 2013.
Geographic Distribution
The BRI started its expansion with China’s near neighbors. Countries like Pakistan, Kazakhstan, and Indonesia were some of the first to sign a Memorandum of Understanding or Cooperation Agreement and officially join the club. However, the BRI became a truly global phenomenon beginning in 2018, as African countries began signing on to the initiative in the lead-up to the Forum on China-Africa Cooperation summit in Beijing in September 2018. By 2021, nearly 95 percent of countries in sub-Saharan Africa had joined the BRI, more than any other region.
By contrast, countries in the Americas participate the least, possibly due to closer ties with the United States or simply due to the greater cultural and geographical distance from China. Nevertheless, that too seems to be changing. Argentina and Nicaragua recently joined the BRI, and Colombia has reportedly been in negotiations to join. Brazil is not yet willing to formally join but has shown interest in strengthening its partnership with China.
Membership in the BRI may be a big tent opportunity, but a relatively small number of countries have consistently attracted an outsized share of Chinese development finance dollars over time. The countries most likely to receive mega loans are those who can use natural resources like oil as collateral, such as Russia, Brazil, and Venezuela. This pattern is consistent over time and reveals a heavy commercial orientation to these relationships. Russia received $123 billion from China over the 2000-2017 period, $117 billion of which (95 percent of the total) came in the form of commercial loans.
However, this is not the whole story. If we shift the emphasis from dollars to number of projects, low- and lower-middle income countries in Asia (Cambodia, Laos) or Africa (Democratic Republic of Congo) often attract more projects than their wealthier peers. Rarely among the top recipients in value, poorer countries still garner Beijing’s attention in the form of a large number of smaller dollar projects. Such projects are often financed using more generous terms (grants or concessional loans) and signal a greater emphasis on winning over foreign publics rather than an overt commercial interest.
With respect to changes over time, one country stands out due to the variation in the level of Chinese engagement. Sudan was the third largest recipient of Chinese financing in the 2000-2007 period, but dropped drastically in ranking since. This sharp decline may have been due to the country’s instability, which included the secession of South Sudan in 2011. Sudan’s oil production and its geostrategic location made it interesting to China, but the excessive instability and the threat to its investments may have led China to pull back from further investing there.
Sector Distribution
Given Beijing’s much touted status as the “world’s factory” and its high consumption of energy and natural resources, it is perhaps no surprise to find that the dominant sectors attracting Chinese development finance dollars are resources sectors, which include industry, energy, and mining. Between 2000 and 2007, 46 percent of overall financing went toward such projects, a proportion that rose to just over 60 percent in the 2013-2017 period. Project size drives this effect, not the quantity; only about 10-15 percent of projects in any given time period are in these three sectors.
Moving from dollars to the number of projects, the distribution across sectors is more even, with no single sector responsible for more than 16 percent of projects across the entire period from 2000 to 2017. Education stands out as a consistent theme. Even in the early 2000s, the education sector already attracted 12 percent of projects. That grew to 18 percent in the first five years of the BRI – more than any other single sector from 2013-2017. This may reflect the holistic approach China is taking with its public diplomacy efforts, making simultaneous use of development financing as well as efforts in training, language dissemination, and building cultural ties. The areas for which the BRI is better known, such as resources and transportation, also saw an increased share of projects between the pre-BRI (2008-2012) and post-BRI (2013-2017) periods.
Although comparable data is not yet available for more recent years, the sectoral distribution of China’s development finance likely changed in the aftermath of the COVID-19 pandemic, in light of disruptions to BRI infrastructure projects and the emergence of Beijing’s high-profile vaccine and mask diplomacy. However, recent research shows that, among African leaders, the pandemic did not have the strongly negative impact in perceptions of China as a development partner as some may have anticipated, which could reflect an appreciation for Beijing’s willingness to assist their countries with supplies of masks and COVID-19 vaccines.
China’s Role as a Financier
The BRI brought China to a more prominent position in the global stage, making it essentially a financier of first resort in the eyes of the Global South. Recipient countries that initially engaged with China as a financier because of its willingness to take risks started opting for China because they saw benefits in engaging with Beijing over engaging with traditional Western donors. Recent survey research reveals that fewer conditionalities – such as requiring political, social, or economic reforms – and faster project delivery are some of the perceived benefits. The latter point is particularly salient to the emergence of China as a preferred donor in certain areas, given evidence that the average implementation time of a multilateral project is nearly two and a half times longer than that of a Chinese project.
However, debt-financed projects, be they from China or other creditors, are more expensive in that they come with less favorable financial terms and are therefore risky for countries that must be prepared to repay these debts, often at steep interest rates. These risks have compounded to unsustainable levels in countries such as Sri Lanka, which serves as a cautionary tale of irresponsible borrowing in the absence of sufficient domestic revenues to offset the costs.
Despite China’s proclivity to offer loans to these nations, accusations of explicit debt trap diplomacy are overstated and have been largely refuted. China is not the only creditor for indebted countries; Sri Lanka, for example, borrowed extensively from private sector markets prior to its 2022 default. Asset seizures are rare and debt restructuring more common, and it is not in Beijing’s interest to see its partners default. Moreover, after some initial stalling, China ultimately pledged to support Sri Lanka’s debt reorganization in a crucial step for the country to secure an International Monetary Fund (IMF) bailout.
Perhaps recognizing the vulnerability of its partner countries to defaulting on their debts – or else sensing an opportunity for greater influence – China has stepped into a new role in recent years as an emergency lender of last resort for countries struggling to service their debts. China has provided 128 rescue loans worth a total of $240 billion across 22 countries between 2000 and 2021. Typically in the form of swap line lending and balance of payments bridge loans, this emergency financing seeks to help countries bolster liquidity in order to ease the burden of debt servicing, at least in the short term. These rescue loans seem to target low- and middle-income BRI countries that pose risks to Chinese banks due to significant debt outstanding with these banks.
Beijing’s prominence as an emergency lender is still relatively modest in comparison to the United States or IMF. Nevertheless, this could be the beginning of a trajectory whereby China parlays its role as an emergency funder into taking on a greater role in the international financial and monetary system. China’s emergency lending increases the amount of capital for countries navigating fiscal crises, but its persistent opacity in these transactions, as with its other project financing, is reason for concern.
Where the BRI May Be Going
It is difficult to assess where the BRI may be going in the future, but there is early evidence that challenges at home and abroad have started impacting how China operationalizes the ambitions that led to its launch. Speculation abounds among observers as to whether there will be a deceleration in the volume and nature of China’s development finance in the coming years as Beijing grapples with a sluggish recovery from the pandemic-induced economic slowdown, a shrinking population, and increasing vulnerability to climate change. On the one hand, some early evidence suggests a sharp decline in both the quantity and value of Chinese financing across the board since 2017.
However, other research argues that we are likely to see more of a shift in financing from bankrolling new infrastructure projects to bailing out the old, given a rise in Beijing supplying emergency lending in recent years to countries struggling to repay their debts to China and other creditors.
First, a slower economic growth rate may lead to China pulling back on the overall volume of its BRI financing or at least the types of projects it bankrolls. This may or may not impact some of the largest recipients like Russia and Brazil, which are likely able to find alternative financing sources elsewhere. However, it is safe to say that a decline in Chinese lending will leave a gap in financing that will profoundly affect African countries that depend heavily on foreign credit. While this presents a risk to global stability, it also presents an opportunity for Western donors – not necessarily to replace China (as they might not have the resources to do so), but to support countries in managing the withdrawal of Chinese investments.
Second, China may become more engaged in the multilateral system in an effort to actively participate in the shaping of the global development agenda in a way that we have not seen before. These intentions have been established through the championing of the Global Development Initiative – which was announced at the United Nations General Assembly in September 2021 – as well as in China’s most recent white paper defining its development cooperation approach.
Here again, there is a threat and an opportunity. If China takes over the world of “software development” as it did with the world of “hardware development” – quickly leaving Western donors behind – it may end up individually defining the global development agenda in the near future. However, given the emergence of these new efforts in a time of so many internal and external challenges, that does not seem likely. In that case, there is an opportunity for traditional donors to engage with China through the multilateral system to ensure that Beijing participates in the international financing system respecting the same rules and values already ingrained in it, including debt renegotiations.
Regardless of how strongly these new trends take hold, the BRI will continue to be a major influence on global development. Stakeholders in the West, Global South, and even China itself will be watching closely to seize opportunities as the initiative enters its teenage years.