China’s Belt and Road Initiative Moves into a New Phase, but What are the Consequences?

In a previous post, we examined the recent change in environment for credit rating provision in China. It was concluded that this changing of the environment – essentially opening the doors to Western credit rating agencies, fully, for the first time – was based upon forthcoming requirements connected to the ‘Belt and Road Initiative’ being developed by China. We have looked at the Initiative before in a number of posts, but in today’s post we will be assessing some of the latest developments as the Initiative, seemingly, moves into a new phase. It seems that these developments are borne out of necessity, so assessing what these factors mean to the future of the largest development program the world will have seen will be important.

Going back to April this year, the tone used by President Xi Jinping was very different to the tone he had used in 2017 to champion the development and growth opportunities that the Initiative would bring. This time the focus was on ensuring that the sentiments of transparency and progressive thinking were made absolutely clear to the world. There are a number of reasons for this, and a Bloomberg article from last month neatly sums up the growing list of issues that are being associated with the project. There are 126 countries that have signed up to, or are in some way associated with the project, although the majority of these countries are classified as developing countries. This has led to suggestions that China is exploiting these developing countries for its own economic, militaristic, and environmental ends. A number of American pieces have focused on the growing political and militaristic influence being developed in Asia, Africa, and the Pacific on account of the Initiative, with the suggestion being that economic difficulties are being traded for influence. It is being reported that Tonga, Vanuatu, Papua New Guinea, and Fiji have signed up to the Initiative via the renegotiation of existing debt. There is also the suggestion that the Initiative will be the vehicle for a massive exploitation of natural resources from partner countries. Additionally, Sri Lanka recently handed over a 99-year lease to a State-owned Chinese company for a strategically-placed port (and supposed oil refinery) because it could not afford to service the debt. On top of this, a number of countries have been forced to renegotiate their deals with the Chinese, including Pakistani, Malaysian, and Myanmar-based projects to the tune of billions of dollars.

This has led Xi to declare that the Chinese government will be taking a much more conservative approach to the development of the Initiative, whilst also increasing the supervision of Initiative projects and associated expenditure. Also, Xi has called for the development of ‘greener’ projects, which has become a key issue as research focuses on the Initiative more and more. Today, research was released by Tsinghua University – President Xi’s former University – entitled Decarbonizing the Belt and Road: A Green Finance Roadmap. The authors, Dr Ma Jun and Dr Simon Zadek, seek to examine the current emission rates of the countries that are aligned to the Initiative, and then forecast how the economic development of the entire group will affect global carbon emissions. The report’s suggestion is that the Initiative must be decarbonised because, if the Initiative is not aligned to greener principles, then ‘it may be enough to result in a 2.7 degree path’. This has led to suggestions that the Initiative could ‘make or break the Paris Agreement’. This is based on a number of factors. The report identifies that the nations aligned to the Initiative account for 28% of global man-made emissions (excluding China), with China contributing 30% itself. However, the report suggests that by embracing industrial ‘best practice’ with regards to employing greener technologies, the entire Initiative could see its emission rates cut by a massive 39%. Whilst China is attempting to make positive moves within its domestic marketplace, its investment in fossil fuels outside of China has been cause for criticism. The solution, according to the Report, may be to develop a Green platform that supports green initiatives and the incorporation of green principles across the Initiative, which will surely be of interest to the Chinese as it further cements their control of the Initiative.

The Initiative is an important global development, but perhaps needs to be contextualised consistently. For example, yes it is positive that President Xi has declared that the Government will focus more on making the Initiative greener, but what effect will the trade wars with the United States have? Will it force China to focus on the economics of the Initiative more? If so, and we combine this with the Trump Administration’s moving away from the Paris Climate Accord, then the question becomes whether the Earth can afford its two superpowers to move away from prioritising the effects of climate change. With such an extensive project it is obvious that there will be plenty more phases in the Initiatives development, but the recent developments hint at the focus turning from posturing to actualisation and implementation – in that sense, it is positive that research is calling for a greener Initiative and that the Chinese Government, according to its declarations, are hearing those calls.

Keywords – China, Belt and Road, Business, Politics, @finregmatters