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A public policy blog from AEI
China claims that the Belt and Road Initiative (BRI) is the roadmap for new global economic development, but mounting evidence suggests it may be falling short of that ambitious goal. Previously, I’ve shown that China is mostly taking on construction projects in BRI countries, but not actually building much more than it did before. Now, new data demonstrates that the BRI has been more of a marketing strategy than a new development since its inception in 2013.
AidData just released the Global Chinese Official Finance Dataset, which tracks Chinese official development aid and other financial flows from 2000–2014. Using this tool to measure the volume of development and other financial flows into BRI countries confirms that not much changed since the BRI was announced in 2013. The total value of outflows to BRI countries was $21.9 billion and $21.4 billion for 2012 and 2014, respectively.
In addition, looking deeper at the types of financial flows that reached BRI countries casts doubt into how the BRI is going to promote long-term development. The financial flows captured in the AidData dataset include debt rescheduling, export credits, grants, loans, scholarships and free-standing technical assistance. In the 2012 to 2014 comparison export credits rose from $2.8 billion to $8.5 billion in BRI countries. (Export credits help foreign countries purchase Chinese exports.) At the same time, the value of loans dropped from about $19 billion to $13 billion. Loans arguably may better support long-term development in BRI countries more than export credits, because they can be used to finance construction projects like the Chinese financed Karot Hydropower project in Pakistan that add to capabilities of the country. It is unclear how reducing loans and expanding exports credits in the wake of BRI will benefit those countries in the long-term.
The Chinese Global Investment Tracker (CGIT) offers an alternative measure that looks at construction and investment activity in BRI countries through the first half of 2017 and finds that BRI constitutes an expansion of already considerable Chinese activity, but not particularly impressive ones. The CGIT shows that in the period from 2014 to 2016, China won a total of $135 billion in construction projects and invested $86 billion in BRI countries. In a comparable period from the second half of 2010 to 2013, the CGIT shows that China already had a strong presence in BRI countries with $93 billion in total construction and $62 billion in investment.
Both the CGIT and the AidData dataset show that while China is engaged in BRI countries, there has not been a strong increase in the volume of money reaching BRI countries since the program was announced.
Moreover, despite Xi Jinping championing the program, a dramatic expansion in the future is unlikely. China is no longer in a strong financial position in terms of foreign exchange or domestic debt. While the stock of Chinese forex has stabilized for the moment at $3 trillion, 2015 and 2016 saw reported negative outflows of $350 billion and $550 billion, respectively. As foreign exchange reserves drop, Chinese domestic loans continue to outpace, reaching $14 trillion. And BRI unavoidably imposes a further burden because the majority of activity in BRI is taken on by state-owned enterprises with state financial support.
A look past the rhetoric and at the actual outflows of money reaching BRI countries reveals that there has not been a considerable expansion of Chinese economic activity in BRI countries. In that, both the fears of China dramatically expanding its influence and the promises of the BRI securing China’s role as a global economic leader turn out to be less grounded in facts. The BRI serves more as a re-branding effort, for previously existing economic activity than a realized economic shift for China. While BRI will remain important, especially through its impressive construction activity, it is better understood as business as usual than a transformation of Chinese economic engagement.
*Please note the dollar values for AidData’s figures are in constant 2014 US dollars. The values in the CGIT are at the historic exchange rate.
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