The Covid-19 pandemic and its ensuing global economic crisis will push China to change its Belt & Road Initiative (BRI) strategy, both in the short and long term, according to analysts.
Since the beginning of the outbreak, many of China’s BRI projects have been put on hold, as international pressure has mounted for the world’s second largest economy to delay and write off debt repayments to developing countries.
The changing international paradigms and domestic pressure to focus on internal affairs mean that China will no longer be able to finance unsustainable projects, many of which are mere showcases of its political clout, analysts said.
With unemployment reaching new highs and growth tumbling to record lows, China’s overseas strategy will temporarily take a back seat and will refocus to more transparent and sustainable projects, a strategy which many in Beijing have been advocating prior to the virus outbreak.
Analysts say that part of that strategy could be to shift to a cheaper and more useful “health belt and road”, which China has already been promoting as a move to rebuild its tarnished image.
The pandemic has caused work to cease for much of the China-Pakistan Economic Corridor, while Cambodia’s Sihanoukville Special Economic Zone has also come to a standstill.
“Progress of various China’s BRI infrastructure projects will hit a roadblock due to the ongoing Covid-19 pandemic,” wrote Fitch Solutions in a research report published earlier this month. China’s ability to finance infrastructure projects overseas will be reduced as funds are redirected to focus on reviving the domestic economy.“Elsewhere, as the global economy sinks into a recession, BRI countries, especially frontier markets, are unlikely to take on fresh debt to finance new projects in the near term,” they added.
Even before Covid-19 wreaked havoc on supply chains and imposed travel bans on Chinese workers, many of China’s BRI projects especially in Africa were coming under scrutiny.
Observers have criticised shady financing, corruption and financing of projects which have trapped developing countries in debt.
African Countries have already called for US$100 billion in bailouts and debt relief to help them cope with the devastating effects of the pandemic.
Pressure is mounting on China, as Africa’s biggest creditor, to participate in a global restructuring plan.
Figures from the China Africa Research Initiative at the Johns Hopkins School show that China lent over US$143 billion to African countries between 2000 and 2017.
Although China has previously agreed to write off debts it has done so in a unilateral non-transparent manner with no international oversight.
The International Monetary Fund (IMF) has made it clear that China must participate in a global restructuring for debt relief to be efficient.
“There will be a lot of pressure for China to make sure it collaborates with the IMF,” said David Gordon, Senior Adviser for Geo-economics & Strategy at the London based International Institute for Strategic Studies.
The extent of the debt crisis, which stems much further than Africa and concerns nearly all BRI countries, has exposed how vulnerable the financing behind most of these projects has been.
“China’s belief was that countries won’t go bankrupt, but financing infrastructure in developing countries has always been risky,” pointed out Mr Gordon.
He added: “The debt profiles of these countries has always been challenging. Even before the virus outbreak it was becoming increasingly clear that they would not be able to force repayment.”
Down the line, some experts say it will become increasingly difficult for China to continue to finance projects which are politically motivated rather than those that add real economic value.
This could push Beijing to choose projects closer to home with more multilateral backing from other economic partners such as Japan or sovereign funds, they say.
“The financial pressures will lead to more multilateralism. The initial political ambitions are not financially viable anymore,” noted Mr Gordon.
The current crisis will also accelerate the “Health Belt & Road”, a phrase first proposed in 2017 with the aim of improving healthcare infrastructure and services between BRI countries.
Beijing has been offering assistance to many affected countries, including sending medical specialists and protective garments and equipment to aid their fight against the outbreak.
“The promotion of a “Health Belt & Road” could be a cheaper option while still giving China visibility,” said Valerie Niquet, Asia analyst with the Foundation for Strategic Research. “With the United States absent from Africa during the epidemic, there is a real void to fill.”