Webinar Summary: Evaluating the Promise of the BRI at 10

By Ishana Ratan 

On Thursday, October 12, the Boston University Global Development Policy Center (GDP Center) hosted a webinar discussion on the impacts and implications of the Belt and Road Initiative (BRI) in its 10 years of shaping global development. Oyintarelado Moses, Data Analyst and Database Manager, and Rebecca Ray, Senior Academic Researcher, presented key findings from a new flagship report assessing the first decade of the BRI. The presentation was followed by remarks from Yunnan Chen, Research Fellow, Development and Public Finance at ODI, and Jorge Heine, Research Professor at the Frederick S. Pardee School of Global Studies, Boston University, with a discussion moderated by Kevin P. Gallagher, Director of the GDP Center.

Oyintarelado Moses began the presentation by explaining the benefits of the BRI, namely the opportunities for the increased scale of development and liquidity finance for emerging markets, as well as funding for large-scale infrastructure that is difficult to secure from other lenders. From 2008-2021, China’s development finance institutions supplied over $498 billion, or approximately 83 percent of World Bank sovereign lending in the same time period. Unique push factors incentivized Chinese development finance institutions to go abroad, namely overcapacity in infrastructure related sectors, an abundance of international currency reserves bolstered by China’s current account surplus and demand for commodity inputs. However, Moses reminded attendees that Chinese finance is also driven by pull factors from host countries, which benefit from the fewer policy conditionalities attached to Chinese finance relative to commercial financiers and the ability to coordinate lenders, investors and suppliers to bring ambitious projects to fruition.

 Chinese finance for large-scale infrastructure has also been complementary to existing lending from traditional development finance institutions like the World Bank. Chinese development finance is uniquely positioned to overcome infrastructure bottlenecks in transportation and energy, in comparison to World Bank finance that targets “soft infrastructure” projects bolstering governmental institutional capacity. And increasingly, Moses noted that Chinese finance is targeting renewable energy, drawing upon robust domestic expertise in the wind and solar industries.

Rebecca Ray then provided an overview of emerging risks from the BRI, and strategies to mitigate these challenges going forward. First, while China holds a relatively small share of total debt among emerging markets and developing economies (EMDEs) as a whole, they do hold a substantial amount of debt from those borrowers most at risk of debt distress. In an increasingly fragmented and complex financial landscape, it is important for China to play a role in debt management to avoid larger problems with borrowers. Second, China has financed a significant quantity of coal capacity relative to other lenders. While the “no-coal” pledge has ended new financing for these fossil fuel plants, coal-based projects that were already in the pipeline at the time of the announcement will continue to come online in the coming years. Third, Chinese development finance is associated with greater risks to biodiversity and Indigenous land relative to World Bank funded projects based on project location. This means that project implementation must consider these risks, which appears to be a priority for China as evidenced by recent environmental standards reforms from institutions including the Ministry of Commerce (MOFCOM), National Development and Reform Commission (NDRC) and the China Chamber of Commerce for Metals, Minerals and Chemicals Importers and Exporters (CCCMC).

Kevin P. Gallagher concluded the presentation with an overview of key policy takeaways. Pipeline facilities will allow China to help countries create bankable projects that are aligned with new directives and support with low-carbon transitions. Second, China’s business model excels at coordinating different institutions across project implementation, and this can be leveraged to promote green development by engaging various stakeholders. Third, compulsory criteria for environmental social and risk management (ESRM) will streamline regulatory processes and benefit local communities. Finally, China is well positioned to work both at the multilateral level to minimize fragmentation in debt crisis management, as well as through unilateral efforts, such as a new debt sustainability analysis framework that China released at the Belt and Road Forum last week. Host countries, in turn, can also tailor proposals to play to China’s strengths, as well as sync ESRM practices with Chinese partners. Finally, emerging markets can leverage their endowment of location-specific natural resources, like transition minerals, to negotiate advantageous investment deals to achieve sustainable development of local supply chains.

In her comments, Yunnan Chen highlighted that the BRI has been critical to funding large scale infrastructure that increases connectivity, including roads, railways and industrial zones. These projects meet the needs of developing countries seeking to industrialize and move up the value chain, since connectivity incentivizes trade and investment by decreasing the cost of logistics and energy supply. Beyond its direct effects, the BRI may also be shifting the norms of Bretton Woods lending institutions. While these lenders did not historically fund large scale infrastructure projects, they are increasingly pivoting to these projects, as evidenced by the rollout of the EU’s Global Gateway and the Group of 7 (G7) Partnership for Global Infrastructure and Investment (PGII).  

Jorge Heine followed, emphasizing that the BRI is often discussed from two main perspectives: the biggest development finance opportunity the world has seen, or the biggest “debt trap.” Despite initial skepticism, he made the case that the BRI has changed the material reality of EMDEs, financing hard-to-build projects like railroads and ports that require vast coordination efforts. While over the last years, there has been much criticism of the BRI as a so-called “debt trap” that funds white elephant projects, the narrative has changed. Infrastructure is needed for development, and Western lenders are signaling support for these projects, for example a new India-Middle East-Europe Economic Corridor.

The webinar concluded with a discussion of future developments for the Belt and Road. After ten years, the BRI is not the only platform by which China is trying to engage with developing countries. Initiatives like the Global Development Initiative (GDI) indicate that China is diversifying its engagement strategy. Recent GDP Center research suggests China is moving towards smaller projects that carefully consider different financial, environmental and social risks, and that regions with historically less borrowing from China are beginning to borrow more. This diversification among instruments like the GDI and overseas development equity is laying the groundwork for commercial firms, opening up opportunities for more investment and political relationship building. In ten years, the BRI has evolved from supporting massive infrastructure projects emphasizing connectivity to smaller scale and sustainable projects, coupled with an ever-diversifying array of complementary policy tools.

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