The Belt and Road Initiative: Is a $1 trillion bet within China's reach?

China is hosting a huge party to celebrate one of its largest experiments in engaging with the world: the Belt and Road Initiative (BRI). Officials and leaders from around the globe have gathered in Beijing for a high-level event dedicated to the 10th anniversary of the BRI. The event will feature Russian President Vladimir Putin and Hungarian Prime Minister Viktor Orban, as well as the Taliban government. Chinese media is filled with coverage of the BRI's achievements, including a six-part documentary on state television.

The BRI initiative, which has become a signature policy of President Xi Jinping, aims to strengthen China's ties with the world through investments and infrastructure projects. With a continuous flow of capital invested in nearly 150 countries, China claims to have changed the world - and that's not entirely incorrect.

However, Beijing's ambitious plan has not always met its expectations. Was it worth it? From the moment the BRI was introduced in 2013, with its analogies to the ancient Silk Road, it became clear that China had grand ambitions. The "Belt" refers to the land routes connecting China to Europe through Central Asia, as well as to South Asia and Southeast Asia; while the "Road" denotes the maritime network linking China to major ports across Asia, Africa, and Europe.

It all started with large state investments in foreign infrastructure. The majority of the estimated $1 trillion (£820 billion) was spent on energy and transportation projects, such as power plants and railways.

Beijing promoted this as an economic benefit for all parties - it told other countries that these investments stimulate development, while in China it promoted the BRI as a way to help Chinese companies, boost the economy, and strengthen the country's reputation.

He had limited success in achieving certain goals, such as the internationalization of the yuan and addressing the issue of the recapitalization of Chinese companies.

However, China has gained enormous economic benefits from trade. Thanks to numerous agreements, access to a greater number of resources, such as oil, gas, and minerals, has been achieved, especially after the expansion of the BRI focus to Africa, South America, and the Middle East. Over the past decade, trade operations between China and BRI countries have amounted to $19.1 trillion.

"This is about the expansion of Chinese state-owned enterprises abroad... to facilitate the flow of resources needed by China," said Jacob Gunter, a senior analyst at the Mercator Institute for China Studies. "It's also about expanding and developing export markets as an alternative to the liberally developed world."

This diversification has become extremely important in the context of increasing tensions between China and the West and their allies.

Let's take soybeans, for example. China, the largest importer in the world, used to rely heavily on supplies from the U.S.

Pipelines from Central Asia and Russia, as well as oil imports from Russia, Iraq, Brazil, and Oman, have reduced China's dependence on Japan, South Korea, and the United States, according to the International Institute for Strategic Studies (IISS).

As the primary reserve creditor for many low- and middle-income countries through the BRI, China has become the largest international creditor in the world.

The actual amount of debt - estimated to be at least in the hundreds of billions of dollars - is unknown. Many loans issued by both public and private creditors are shrouded in secrecy.

Now countries from Sri Lanka and the Maldives to Laos and Kenya are struggling due to BRI debts. This puts the Chinese government in a difficult position.

The real estate crisis and the free borrowing by local governments have already created a "debt bomb" within the country, estimated at trillions of dollars. The slow economy following the pandemic and record youth unemployment have not helped.

China has restructured BRI loans, extended repayment terms, and allocated about $240 billion to assist borrowers in timely debt repayment. However, it has refused to cancel the debt.

“To simultaneously engage in debt write-offs abroad while internal economic problems are not yet fully resolved will create political difficulties within the country,” said Christoph Nedopil, founder of the Green Finance and Development Center (GFDC), which monitors BRI expenditures.

This has tarnished Beijing's reputation. Some critics accuse China of "debt trap diplomacy," luring poor countries into signing expensive projects so that ultimately Beijing can seize assets that serve as collateral. This accusation was made by the United States regarding the controversial Hambantota port project in Sri Lanka.

Many analysts claim that there is little evidence for this, but it raises concerns that Beijing is using the BRI to undermine the sovereignty of other countries.

China has also been criticized for its so-called "hidden debts" - governments are unaware of how exposed their borrowing institutions are, making it difficult to assess the costs and benefits of the BRI.

For many years, BRI projects have also been accused of creating wasteful "white elephants," reinforcing local corruption, exacerbating environmental issues, exploiting workers, and failing to deliver on promises of job creation and prosperity for local communities.

One of the recent studies by the Aid Data research laboratory showed that more than a third of projects face such issues. A growing wave of protests has led some countries, such as Malaysia and Tanzania, to cancel BRI agreements.

"Poor risk management and a lack of attention to detail and consistency" on the part of Chinese creditors and companies are partly to blame, according to the Council on Foreign Relations.

But this responsibility also lies with the borrowers, either hastily entering into deals without proper planning or mismanaging finances, as was the case with Hambantota.

Analysts also say that China offers resources with fewer restrictions, which is less burdensome than the offers from global creditors or the West.

“China offers an 'all-in-one' approach: 'Here are our banks and companies, and we do everything from start to finish, and if you sign today, we will complete this railway, and it will be ready in time for your next election campaign,' Mr. Gunter points out.

“It’s a huge plus to say that you can do this in one to three years with minimal paperwork. It might get a bit messy, and workers' rights may be violated, but your railway will be ready.”

Nevertheless, China has achieved one of its main goals - expanding its influence.

China is building connections not only through railways and highways. Beijing is promoting its soft power and positioning itself as a leader in the Global South by funding thousands of scholarships at Chinese universities, cultural exchange programs, and Confucius Institutes. China has also been credited with the expansion of the BRICS trade bloc.

A Pew Research study has shown that over the past decade, many middle-income countries have developed increasingly favorable relations with China, including Mexico, Argentina, South Africa, Kenya, and Nigeria.

Mr. Gunter noted that more and more countries in the Global South do not want to take sides in the confrontation between the US and China. "China hasn't turned many Western-oriented countries, but the fact that it has shifted them to a middle path is already a huge diplomatic victory for Beijing," he said.

However, observers also express concerns about potential economic coercion, where foreign governments feel compelled to follow Beijing's agenda or risk losing investments.

A study by Aid Data on loans from Chinese state-owned enterprises to foreign governments revealed contractual provisions that "potentially allow creditors to influence the domestic and foreign policy of debtors."