Dr Priyanka Pandit
Research Fellow at Indian Council of Affairs

New Delhi

Connectivity projects have acquired a new meaning and significance with the unveiling of China’s mega Belt and Road Initiative in 2013. The initiative comprising of two key components-Maritime Silk Road Initiatives (MSRI) and the Silk Road Economic Belt (SREB), have attracted tomes of analyses linked to the connectivity aspect of the project. While the Western discourse tends to view them as a tool of statecraft employed by the new Chinese leadership to enhance Beijing’s geo-economic and geopolitical influence across the globe, the Chinese scholars interpret the connectivity projects as a major move towards economic globalisation, through its continuing expansion of physical linkages and economic networks. However, the dominant understanding of the connectivity initiatives of BRI is that of a mega geo-economic project which entails the idea of both cooperation and competition. 

Talking about cooperation in a shared growth context, BRI intends to fill in the connectivity needs in most of the developing countries in Asia and Africa. As per the report by Asian Development Bank (ADB), the total investment infrastructure needs for Asia, against four indicators of transport, power, telecommunications, and water supply and sanitation is around $26 trillion over the 15-years from 2016 to 2030 or $1.7 trillion per year. Currently the region suffers from an under trade by 30 per cent and falls short of their potential FDI by 70 per cent (World Bank Group 2019). Although countries of the region have made national investments to promote physical infrastructure, cross-border and regional transport networks remain underdeveloped and unsuitable for international trade. BRI transport corridors, both land and sea, are therefore going to play a key role in reducing the travel time and trade costs, thereby attracting business and investment both for BRI as well as non-BRI participant countries.

Physical infrastructure, as developmental economists define, is essential for a country to industrialise. It reduces the cost of private production by increasing productivity, enhances access to markets, and facilitates dissemination of knowledge. It also creates enablers for a country to capture the benefits of globalization. China, for that matter, proves to be an important case where infrastructure has fuelled economic growth by reducing the cost of production and transport of goods and services, increasing the productivity of input factors, creating indirect positive externalities, and smoothing the business cycle. Evidence from China also reveals that the declining trade costs account for a large and increasing portion of trade growth, explaining its trade expansion since the early 1990s.

Beneath the idea of cooperation lies competition given the active involvement of the Chinese state in implementing the BRI projects. The success of these projects essentially depends on China’s diplomatic ties with the countries involved. This often puts China in competition with other countries in the region, those powers that already enjoy influence or vying for influence. To counter these competing influences require the Chinese government to provide various unconditional incentives to the partner countries. In the past, China used economic diplomacy to strengthen trade ties or to improve relations with its neighbours, but in the recent years, these initiatives have become tools of statecraft which Beijing uses to expand its stature and influence in the region.

Describing the physical connectivity of the initiative, BRI has two main elements: the Silk Road Economic Belt, a land route which is designed to connect China with Central Asia, Eastern and Western Europe. It will link China with the Mediterranean Sea, the Persian Gulf, the Middle East, South Asia and South-East Asia. And the 21st century Maritime Silk Road, which focuses on using Chinese coastal ports to link China with Europe through the South China Sea and the Indian Ocean; and connect China with the South Pacific Ocean through the South China Sea. The aim of the land route is two-fold: to build a “Eurasian land bridge” – a logistics chain from China’s east coast all the way to Western Europe; and to develop the economic corridors connecting China with Mongolia and Russia, central Asia and South-East Asia.

Through the sea route, China seeks to build efficient transport routes between major ports in various countries, including the development of an economic corridor through the Indian Ocean connecting China with South Asia, the Middle East, Africa and the Mediterranean. Six economic corridors are proposed 1) New Eurasian Land Bridge; 2) China – Mongolia – Russia Corridor; 3) China – Central Asia – West Asia Corridor; 4) China – Indochina Peninsula Corridor; 5) China – Pakistan Corridor; 6) Bangladesh – China – India – Myanmar Corridor (BCIM). Although BCIM was not mentioned in the Joint Communiqué of the Leaders’ of the second edition of the Belt and Road summit in 2019, the Chinese authorities, however, have denied this, suggesting continuity of the project.

The potential gains from connectivity projects, however, come with certain considerable risks. The risks are of two kinds: One relates to financial viability of the projects. A large number of BRI countries are facing financial distress and are not considered creditworthy by financial markets. According to the popular credit rating agencies like the Standard and Moody’s, more than a quarter of the BRI countries are in the high to medium zone of risks signifying non-investment like situation. The Chinese state-owned banks like the China Development Bank and the Export-Import Bank of China, have granted loans to some of these countries without conducting a proper feasibility study of the projects or of the financial health of these countries’ governments. For example, the deep-sea port construction near Hambantota in Sri Lanka ran into large losses since completion. Unable to repay the mounting debt to the Chinese bank, the maritime port has since been leased for 99 years to China. Similarly, Pakistan is currently on the verge of a balance of payments crisis owing to the surge in capital goods as part of the BRI infrastructure projects. Related worries arise over the financial sustainability of the China-Laos railway line, Montenegro’s motorway construction, as the overall project costs become too large for the recipient’s GDP.

The other challenge facing infrastructure projects is the lack of transparency. Most of the infrastructure investments have less or no details available about the terms and conditions of the contracts, repayment related details or environmental standards. The insistence of single bid contracts in large infrastructure projects which involve combining both techno-financial bids in a single envelope, by the Chinese companies, doubles the risk of corruption in BRI projects. Countries like Kenya, Bangladesh, Malaysia, Zambia etc have complained about the corruption in BRI infrastructure projects owing to opaque financial deals, sometimes inflating the project costs.

The Chinese held the belief that BRI is designed to benefit all parties is thrown in doubt. Chinese thinking that the cash approach to connectivity would help to break political resistance and yield successful project outcomes may not always work in reality. This is evident in recent discords erupted between China and Southeast Asian countries like Malaysia and Sri Lanka over the implementation of projects under BRI. For instance, in 2018, after Malaysia’s Prime Minister Mahathir Mohamad’s new government came to power after ousting Najib Razak, two large BRI projects, the China-linked East Coast Rail Link project led by China Communications Construction Co. and Malaysia Rail Link Sdn., were called off. Although the projects are resumed this year but they have been scaled down to a large extent. The protests erupting in Balochistan province is also attributed to the skewed financials underpinning the Gwadar project. Therefore, mitigating these risks, require publishing data, details about the contract and bidding procedures. It also demands prudent policies on the part of Chinese government in their investment-related decisions in financially fragile economies.