Biden, Modi and G20 allies unveil rail and shipping project linking India to Middle East and Europe

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13. The Rise and Fall of the BRI

China’s ascent as an international financier (especially in low-income countries) has been accompanied by claims that it engages in so-called debt-trap diplomacy. The term originated in 2017 to describe a deal that saw Beijing receive a 99-year lease for the Hambantota Port in Sri Lanka after the country fell behind on debt payments and has since been more widely applied to any Chinese project that conflicts with Western interests, especially those under the Belt and Road Initiative (BRI). Western media and senior policy officials seem to feel that China is using the BRI to exert undue influence over the world, especially because the initiative mostly funds infrastructure rather than the social sector projects, such as health or education initiatives, that are often favored by large multilateral donors and Western nations. Critics worry that China will be able to seize control of these assets for military use or use them as leverage in future negotiations.

In reality, this lending is nothing new; China has been providing economic aid and technical assistance to other countries since the 1950s, shortly after the official founding of the People’s Republic of China and a time when China itself was still a developing nation. The real reason why the BRI has struggled to sustain itself is not due to debt traps or predatory lending, but something far more mundane: poor risk management and a lack of attention to detail and cohesion from the Chinese state-owned enterprises and banks, private companies, and local governments involved.

China is now realizing the true cost of the BRI, as it is forced to choose between repayment on the hundreds of billions in loans its companies and state banks have issued and whatever goodwill it may have accumulated through this initiative. Top Chinese officials such as Wang Wen, chief economist of China Export and Credit Insurance Corporation (aka Sinosure), and even Xi Jinping himself, have warned Chinese developers and financiers of BRI projects to step up their risk management and stressed the need for improved quality control. For all of its faults, the original vision of the BRI has its merits – infrastructure and connectivity projects are key to fostering development in low-income countries, and sometimes China is the only willing financier. If the BRI can be saved, it will require both the Chinese government officials and host countries to implement rigorous risk management procedures and to improve coordination at all project stages. China should be wary lest the BRI follow the path of its ancient predecessor, with fragmentation contributing to decline and eventual collapse.

https://www.cfr.org/blog/rise-and-fall-bri