Upgrade for Belt&Road to BRI 3.0?

China, Geopolitics, and the Global South

Uwe Hoering, Oktober 24, 2022

In the report of General Secretary Xi Jinping for the 20th National Congress of the Communist Party of China, Belt&Road was only mentioned in passing. Even in the speeches of other top politicians, the former flagship project, with which the government in Beijing has stirred up the global development discourse since 2013, hardly figures anymore. Some observers therefore already want to declare BRI dead.

Indeed, funding for conventional infrastructure such as trunk roads, railways and pipelines and for fossil fuels has been declining significantly for four years, even before the Corona pandemic. In 2021, they totalled only around 70 billion US dollars, compared to 110 billion three, four years earlier. The drop continued drastically in the first six months of this year.

The causes are manifold: growing criticism and numerous implementation problems scratched the image. In addition, China’s internal economic and financial problems and the growing confrontation with the USA and Western allies made it necessary to focus on fortifying the country’s own economic situation.

But it would be too early to consider BRI dead. Instead, it might be that it is just being relaunched. The motto for this is ‘quality not quantity’. Speaking to the Belt and Road International Development Forum in 2019, Xi inping already self-critically declared, “BRI must be open, green and clean”. Afterwards, media were already discussing a first renewal, BRI 2.0.

Less generosity, more economic efficiency

To counter criticism and reduce the own losses, projects that are particularly risky economically, financially or politically are to be better planned and controlled. If necessary, they should also be stopped, as in Pakistan because of economic problems or a coal-fired power plant in Kenya after successful environmental protests. Coal was largely removed from the portfolio, directives such as the Green Development Guidelines for Overseas Investment and Cooperation announced in July 2021 underline the green claim. At the same time, loans from the state-owned development banks China Development Bank and Export-Import Bank of China declined, while the financial commitments of commercial Chinese banks and companies increased.

Belt&Road is becoming more pragmatic, commercial. And it focuses more on emerging markets.

Instead of grandiose announcements, Belt&Road is becoming more pragmatic, commercial. And it focuses more on emerging markets – for energy supply on the Middle East as a second foothold alongside Central Asia and Russia, and for strategic raw materials for the energy transition on Latin America and a few selected countries in Africa like Mozambique and DR Congo. Beijing’s policies are thus becoming gradually similar to those of Western donors.

As a compensation for those countries of the Global South that do not fit into this new approach, President Xi Jinping announced a Global Development Initiative in September 2021. It is meant to contribute to the UN’s 2030 Agenda, but so far receives far less funding compared to what is still being spent on BRI.

Technological upgrading

In addition, the project portfolio is shifting towards new technologies: First, to digitalisation, which is already being branded as the ‘Digital Silk Road’, including a major new project to roll out a 5G Internet of Things. In addition, a ‘green Silk Road’ is now flourishing due to a shift towards photovoltaics and wind energy: Numerous solar plants, megawatt wind farms, a factory for electric vehicles that the car manufacturer BYD wants to build in Thailand. The statistics for the first six months of 2022 show an increase in BRI projects in the technology sector of around 300 percent. Thus, BRI projects flank the massive Chinese foreign investment in these sectors. In addition, the health sector recorded an increase of more than 200 percent, while the share of logistics industries fell.

Not surprisingly, with such offers Beijing remains attractive as an alternative to Western industrialised countries with their complex financing structures, risk-averse private companies and ‘reform’ requirements. BRI 3.0 is in line with the plans of many countries to develop renewable energies, as in Latin America, and to become a ‘pioneer in digital content and cybersecurity in the regional market’, as in Malaysia.

These countries “explore new growth points and development paths in the long run”, China’s ambassador to Malaysia rejoices. Associated with this is a desire to move up the value chain. While China has been showcasing how to reduce the ‘infrastructure gap’ in the BRI countries in the past decade, it is now promising a technological ‘leap frogging’, a great step up the technology ladder that should bring a new impetus for modernisation and development on the basis of the expansion of conventional infrastructure.

As a result, economically more successful countries could also be in a better position to repay their debts. After all, global over-indebtedness becomes a financial risk for Beijing as one of the largest bilateral lenders. Economists at the World Bank estimate that around 60 percent of all BRI loans were granted to countries now in financial distress. So Beijing finds itself, nolens volens, also in the (sinking?) boat of other international creditors.

Public-private partnership

Furthermore, in order to reduce the problems with BRI projects, increased cooperation with the private sector is being sought: BRI is to become more ‘open’, as it is called in Xi Jinping-speak. Up to now, it mainly involved state-owned enterprises, which were more likely to adapt to political ends. Efforts are now being made to promote the involvement of private companies, for example by so-called Public-Private Partnerships. This includes, first and foremost, Chinese communication companies and the photovoltaic and wind energy industries, which were seldom participating in BRI in the first phase, despite their capabilities. There is also a drive for joint ventures with foreign companies. The Japanese trading group Sumitomo Corp., for example, has just agreed to cooperate with an Indonesian partner company of PowerChina to jointly implement the Kayan Cascade hydropower plant in Borneo, a prestigious BRI project worth billions. And the French oil company Total is teaming up with the China National Offshore Oil Company to push ahead with the controversial development of oil fields in East Africa.

BRI is still needed

The streamlining, commercialisation and modernisation of Belt & Road thus supports, on a global level, the plan for China’s economic future recently outlined by President Xi Jinping at the 20th Party Congress with the promotion of artificial intelligence, information technologies and new energies as new engines of growth. In a period in which “uncertainty and unpredictable factors are increasing”, BRI remains a source of “development security” intended to align domestic and foreign economies and to mitigate the decoupling with Western industrialised countries, as envisaged in the Dual Circulation Strategy announced in 2021. Already at the 16th Party Congress in 2002 the CCP formulated a diplomatic approach that stated: “big powers are the key; neighbors are paramount; developing countries are the foundation; and multilateralism is an important stage.”

Whether new vitality can actually be breathed into BRI or whether it will become a Zombie is an open question.

At this stage, it is too early to judge whether this upgrading will be successful. But those who are declared as dead are not necessarily really dead. Whether new vitality can actually be breathed into BRI or whether it will become a Zombie kept alive because it is not allowed to die is an open question. For the time being, however, Belt&Road continues to hold an attractive promise for advancing economic development in the Global South. Thus, it is still superior to a Western approach, which relies in the ‘systemic competition’ substantially on a political discourse of values in relation to the Global South (including naming and shaming authoritarian partner countries of China), while not getting off the ground with announced economic alternatives such as PGII, Global Gateway or IPEF.

Translated with www.DeepL.com/Translator (free version)

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