China has pledged 780 billion yuan (US$106.6 billion) in new financing for its Belt and Road Initiative – a modest figure compared to previous years, according to observers, but with the potential to deliver more bang for the buck as Beijing pivots its signature global infrastructure strategy towards “small yet smart” projects.
At the Belt and Road Forum for International Cooperation in Beijing last week, President Xi Jinping said China would allocate 350 billion yuan to the China Development Bank and a similar amount to the Export-Import Bank of China. The country will allocate an additional 80 billion yuan to the Silk Road Fund.
He said the funds would support belt and road projects “on the basis of market and business operation”.
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Linda Calabrese, research fellow and development economist at the Overseas Development Institute in London, said the new financial commitments were modest compared with what was spent in the past and tallied with the narrative about “small but beautiful” or “small yet impactful” projects that had driven recent belt and road discussions.
“Small yet smart” and “small but beautiful” have emerged as belt-and-road buzzwords to describe smaller and more targeted projects financed with smaller loans.
Examples include solar power plants to serve areas not covered by the existing power grid or roads to open remote areas to trade. They stand in contrast to the large road and rail projects seen in the early days of the belt and road, which have become increasingly difficult to finance because of sovereign debt issues and growing risk.
David Shinn, a China expert and professor at George Washington University’s Elliott School of International Affairs, said while the belt and road strategy would remain an important component of Chinese foreign policy, “gone are the days when it provides significant numbers of large loans for infrastructure projects”.
“Rather there will be ‘small yet smart’ programmes and projects that emphasise ‘green and low carbon development’, lower cost people-to-people activities, and commitments of financial support for less risky projects,” Shinn said.
According to Boston University’s Global Development Policy Centre, as Chinese financing for overseas development has fallen in total value, so too has the average loan commitment size, both in monetary value and in the geographic footprint of projects.
This trend has seen the average deal for construction projects fall from US$558 million in 2021 to US$325 million in 2022. China is also increasingly financing projects with shorter repayment periods.
Xi said China would promote both signature projects and “small yet smart” programmes, with plans to carry out 1,000 small-scale livelihood assistance projects. He added that China would continue to deepen cooperation on green projects in infrastructure, energy and transport.
According to China’s National Administration of Financial Regulation, the country’s financial institutions have lent around US$687 billion for belt and road projects. In total, Beijing has spent more than US$1 trillion on belt and road investment since the initiative was launched a decade ago, according to figures cited by Chinese officials.
Calabrese noted that the new direction for the belt and road also emphasised “integrity”, meaning anti-corruption, compliance with laws and social responsibility, particularly for Chinese state-owned enterprises operating abroad.
She said this was Beijing’s response to long-standing critiques of the belt and road and an attempt to address some of the challenges its projects had faced over the past decade.
Zhou Yuyuan, a senior fellow and deputy director at the Centre for West Asian and African Studies at the Shanghai Institutes for International Studies, said China’s new financial commitments reflected two broad directions. The first, he said, was that China still attached great importance to financing high-quality belt and road construction, while the second was that China had put more weight on balancing the effectiveness of financing and risk prevention.
Zhou said by increasing the use of the Chinese currency, Beijing could not only strengthen its economic and financial ties with countries that have signed on to the belt and road, but could also avoid increasing their debt burdens, as the appreciation of the US dollar has been costly for borrowers.
“It is expected that through the principle of marketisation and commercialisation, the private sector and enterprises can participate in and benefit from the Belt and Road Initiative,” Zhou said. He said this could lead to greater variety and diversity in projects.
Aly-Khan Satchu, a sub-Saharan Africa geoeconomic analyst, said in an increasingly adversarial world, Xi’s vision was “constructive and powerful” – but easily drowned out in the West.
“The numbers inform us that the initial freewheeling financial days of the [belt and road] are behind us,” Satchu said. “China is looking to achieve more bang for its buck and more bang for the recipient country, whereas previously we saw a number of ‘vanity’ projects.”
Benjamin Barton, an associate professor at the University of Nottingham’s Malaysia campus, said the amount pledged was in line with recent conservative trends and far removed from the early years when the belt and road was depicted as a “land of riches”, with speculation that financing would run into the trillions of US dollars.
“I would say that the amount pledged remains impressive but does send out the signal that the Chinese state is – in its current form – unwilling to bankroll unlimited spending on foreign infrastructure projects, especially at a time when the Chinese economy is reportedly contracting,” Barton said.
He said that explained why there was an emphasis throughout Xi’s speech on “small is beautiful”, because the less ambitious the projects are, the less costly they are likely to be for China – not just in terms of spending, but also in terms of financial and reputational risk.
Barton said Xi’s speech appeared to be a response to the various concerns in China and beyond about the drawbacks of belt and road projects, as well as a counter-attack on Western rival initiatives such as the EU’s Global Gateway and the G7’s Partnership for Global Infrastructure and Investment.
Barton said these Western rivals sought to expose the belt and road’s flaws and fill a void by offering a business model designed around environmental, social and financial sustainability.
However, it remained to be seen whether these initiatives would encounter anything like the level of success seen during the early years of the belt and road, Barton said.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.
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