China’s trillion-dollar Belt and Road Initiative, hailed as the “project of the century”, faced major setbacks last year after a number of partnering countries scrapped their deals on worries that the high construction costs could weigh on their national debt.
A number of Asian developing countries including Malaysia, Pakistan, Bangladesh and Myanmar have either suspended or scaled back their infrastructure projects with China since the beginning of 2018.
This massive backlash came in the wake of China’s takeover of Sri Lanka’s Hambantota Port in July 2017, sparking widespread concern that Beijing may end up seizing these assets if the countries are unable to settle the heavy debt behind these projects.
In a prime example of what could go wrong for BRI projects, Sri Lanka was forced to hand over the deep water shipping port to China on a 99-year lease after it could not repay the Chinese loans for the construction of the project.
Drawing lessons from Sri Lanka, Bangladesh was the first to pull back from a China-funded infrastructure project after cancelling a highway deal in January.
In August, Myanmar has scaled back the construction cost of a Chinese-backed deep water port from $7.3 billion to $1.3 billion over concerns that the facility would not be commercially viable under the initial cost, which was over 10% of the country’s gross domestic product in 2017.
That was four months before Pakistan, one of the main beneficiaries of the BRI, began to turn its back against China-funded infrastructure projects and asked Beijing to shelve a joint $2 billion coal power project in December.
But the biggest blow was Malaysia’s decision to cancel the $13 billion East Coat Rail Link, which is by far the largest BRI deal ever signed. Prime minister Mahathir Mohamad was quick to overturn the decision of his predecessor just three months after taking the country’s top role, claiming that the government would run into serious financial problems if the deal went ahead.
In the latest twist, however, Malaysia signed a fresh deal with China late last week to continue with the construction of the rail link for a reduced cost of $10.7 billion – reviving hopes for Chinese contractors looking to play a big role in the mega infrastructure project.
BEIJING’S RESPONSE
In response to the declining appeal of Chinese-backed infrastructure deals in the region, Beijing is quick to fine-tune its strategy and extend its BRI reach in the Middle East, Africa and the Americas.
China has never provided an exact count of participating nations or even any guideline on what it takes to become one. Beijing is now taking such ambiguity to its full advantage, claiming it is open to engagement with all countries as well as international and regional organisations on BRI collaboration.
In 2018, the bulk of major BRI infrastructure projects were signed with countries outside the Asian continent. This is a major shift from 2017 when a large portion of the major BRI deals have taken place within the region.
There will be more clues of how Beijing plans to revise its BRI drive when the second official Belt and Road forum is set to be held later this month. Some of the world leaders including Russian president Vladimir Putin and Malaysian prime minister Mahathir Mohamad have already confirmed their attendance.
In the next few days, FinanceAsia will publish a series about the 10 biggest BRI deals that have been signed in the 2018 calendar year, and examines which companies are spearheading and likely benefitting from these projects.
The series follows a similar feature in 2017 where we examined BRI projects that started that year. Click here to revisit the feature.
