2019 will be another challenging year for China’s Belt and Road Initiative (BRI), Trend reports citing Fitch Solutions Macro Research (a unit of Fitch Group).
“We expect China’s efforts to be met with increased political and economic headwinds in participant countries, in the form of growing populist sentiment and the expected global synchronised economic slowdown that would have an impact on the finances of BRI countries,” said the report.
Fitch Solutions believes China’s long-term desire to diversify its trade markets will remain a primary motivating factor for Beijing to press on with BRI.
“Given the slowdown in Chinese economic growth, in part contributed by the ongoing trade dispute with US, we expect China to hasten progress of BRI projects in spite of the current challenges,” said the company.
To make projects more palatable, Fitch Solutions expects the BRI framework to evolve to address financing and viability concerns – issues that have led to the recent increase in scepticism towards BRI.
In 2018, the company notes the emergence of negative sentiment surrounding BRI, which fuelled popular opposition against the execution of these projects in countries such as Maldives and Malaysia. “In particular, the long term nature of the overall BRI strategy means that noteworthy, immediate benefits are less apparent. Instead, there would be increased scrutiny on the significant costs that are associated with these projects, and the ability of governments to service their debt given the challenging global economic environment.”
As such, the company believes negative sentiment surrounding BRI projects would persist in the short term and BRI will continue to face political headwinds that could hamper execution of projects.
Furthermore, the company believes that the anticipated global slowdown in economic growth will pose a downside risk on BRI project implementation and execution.
“Key BRI economies are expected to experience a growth slowdown our Country Risk team forecast Pakistan’s GDP growth rate to be 4.4 percent in 2019, down from 5.4 percent in 2018. Globally, growth is expected to slow to 3 percent in 2019, down from 3.4 percent in 2018, reflecting slowing business and trade activity that would present a downside risk on the finances of many governments, especially those with a high government debt to GDP ratio, impacting their ability to service debt.”
Slowdown in global growth is likely to be an obstacle for the implementation of new BRI projects, as governments reassess and eventually cancel projects to redeploy capital to other parts of the economy, despite the long-term benefits that BRI infrastructure projects could bring.
The Belt and Road Initiative is a development strategy adopted by the Chinese government involving infrastructure development and investments in countries in Europe, Asia and Africa. “Belt” refers to the overland routes for road and rail transportation, called “the Silk Road Economic Belt”; whereas “road” refers to the sea routes, or the 21st Century Maritime Silk Road.