China’s Belt & Road Initiative (BRI) projects have been adversely affected due to the world-wide disruption caused by the COVID-19 crisis.
Since the start of 2020, there has been a dip in BRI related activity due to the lockdown and economic uncertainty in China and then more recently, due to COVID-19 spread across the world.
In the short-term, it is likely to result in a slowdown in BRI investments, postponements in the project timelines and in some cases, suspension or even cancellation of projects, says GlobalData, a leading data and analytics company.
According to the official ‘Belt & Road Portal’, the BRI is now spread across 138 Countries, with the Chinese government has signed 200 cooperation agreements for joint construction with 138 Countries and 30 International Organizations.
Dhananjay Sharma, the Construction Analyst at GlobalData, comments: “Despite much progress being made under the BRI investment since 2013, there has been criticism and push back against these projects in several countries following changes of governments or due to public outcry.
This is partly due to lack of transparency surrounding these projects and the general terms favouring the use of Chinese contractors, materials and equipment, as well as labour. Consequently, there have been renegotiations on certain projects in terms of the overall cost or the cancellations of part or entire projects.”
- Cancellation of US$3bn pipeline projects in Malaysia and renegotiation of East Coast Rail Link project to reduce its cost by one-third following the change of government in 2018
- Myanmar’s scaling back of port project to US$1.3bn from US$7.3bn signed under the previous military government
Halting work on the construction of a power plant on Lamu Island in Kenya in 2019
- Scrapping of airport project in Sierra Leone
Cancellation of the expansion of a highway in Bangladesh and cancellation of US$10bn Bagamoyo Port project in Tanzania.
In addition to the local governments’ reluctance to proceed with certain BRI projects, the Chinese government has also been curtailing investments in BRI projects owing to domestic financial conditions amidst the growing debt problems.
Due to the slowdown in economy, in the first quarter of 2020 owing to lockdowns, the total debt in China had increased to 317% of GDP in Q1 2020. With the GDP growth slowing domestically, China could come under increasing pressure to allocate more resources domestically rather than increase its investments in foreign projects.
Reflecting the global disruption in projects, there has been a fall in the business turnovers of Chinese contractors. According to China’s Ministry of Commerce (MOFCOM), the foreign engineering businesses contracted to US$79.55bn by 12.6% year on year in the first eight months of 2020. Of the total, 58% was accounted for by projects in 61 countries ‘along the Belt & Road’.
The number of new contracts signed by Chinese contractors in January-August 2020 in those 61 ‘along with the Belt & Road’ Countries had contracted by 24.4% on a year-on-year basis.