CHINA WATCHThe Rise and Fall of the Belt and Road Initiative
Amidst accusations of “debt-trap diplomacy,” Chinese companies seek more overseas direct investment opportunities and fewer foreign contracted projects as Xi’s flagship initiative is stymied by poor risk management.
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.
After the initial announcement of the project in 2013 and the subsequent formalization of the “One Belt, One Road Initiative (OBOR)” in 2015 (renamed the “Belt and Road Initiative” in 2016), Chinese companies, especially those involved in industrial production, jumped at the chance to sign onto various OBOR projects. These projects were seen as a solution to the issue of excess capacity that many Chinese companies faced after the 2008 global financial crisis and the Chinese government’s ensuing stimulus packages, leading to an explosion in the number and location of new overseas foreign contracted projects signed by Chinese companies.
