By: Toh Han Shih

The Sino-US trade war is pushing Chinese investments towards countries covered by China’s multi-trillion-dollar “Belt and Road” plan to connect Asia, Middle East, Russia, Europe, Africa and Latin America through infrastructure projects. 

But the Middle Kingdom must avoid looking like an empire or risk pushback against Chinese investments in other nations. The difference between international welcome and rejection runs in the hundreds of billions of dollars. 

With any disturbance like the Sino-US trade war launched by US President Donald Trump in 2018, “it’s a wake-up call for a lot of SMEs (small and medium enterprises) in Hong Kong….to diversify, to push abroad,” said Nicholas Ho, deputy managing director of Ho and Partners Architects, a Hong Kong architecture firm, at the Belt and Road Summit in Hong Kong on September 12. 

After Trump became US President in January 2017, “the Belt and Road Initiative took off, because it provided a wonderful alternative,” said Cheah Cheng Hye, co-chairman of Value Partners Group, at the same summit on September 11. 

Partly because of the Belt and Road Initiative, Value Partners, a Hong Kong-listed asset management firm, opened a branch in Kuala Lumpur last year to launch Sharia funds to be marketed across Belt and Road countries, many of which are Muslim-majority nations, Cheah said. 

The “Belt” refers to overland routes for road and rail transportation connecting China to the world, while the “road” refers to sea routes. 

Chinese construction contracts in participating countries surged 33.2 percent year-on-year in the first half of 2019, accounting for 60.2 percent of Chinese construction projects overseas, according to China’s Ministry of Commerce. 

Chinese non-financial overseas direct investments in other countries fell by 6.8 percent to US$8 billion in the first seven months of this year, more than the 3.5 percent decline in total Chinese ODI to US$68.6 billion, according to China’s Commerce Ministry. However, Chinese non-financial ODI in Belt and Road nations rose 8.9 percent to US$15.6 billion in 2018, much faster than the 0.3 percent growth of total Chinese ODI to US$120.5 billion that year, according to the ministry. 

This mixed picture of growth and decline in Chinese investments and contracts in Belt and Road countries highlights both the challenges and opportunities facing the huge project, launched by Chinese President Xi Jinping in 2013. 

If investment continues on its current trajectory, China will have invested US$910 billion in nations participating in the scheme over the next decade, according to a recent report by international law firm Baker and McKenzie and Hong Kong consultancy Silk Road Associates. 

In a best-case scenario, there is much international collaboration, and the initiative could see US$1.32 trillion of investments in the coming decade, the report forecast. But in the worst-case scenario, if there is fierce, politicized and protectionist competition among countries, the projected investment over the next 10 years will fall to US$560 billion, said the report. Thus, the gulf between the best-case and worst-case scenarios is US$760 billion. 

Presently, the ongoing Sino-US trade war and suspicion of the initiative in some countries are contributing towards the worst-case scenario.

“Like it or not, BRI (Belt and Road Initiative) is also seen in some quarters as a means to establishing Chinese hegemony. Brutally put, BRI is now being cited by critics as an example of debt-trap diplomacy in which China gains influence overseas by bankrupting its partners and bending them to its will,” said Richard Shirreff, co-founder and managing partner of Strategia Worldwide, a UK risk consultancy, at the Hong Kong summit on September 12. 

Some countries like Sri Lanka, Malaysia, Montenegro and Pakistan have expressed concerns about debt arising from Belt and Road projects, said Shirreff, a former deputy supreme allied commander Europe of NATO. 

“When Beijing summons African leaders to the capital (of China), it’s a bit Roman Empirish, and it doesn’t send the right sort of signals,” he added. “BRI needs to be less global grand gesture with a Chinese flag on top of it, and more an indirect, nuanced approach, which takes account of the specific risks, together with the developmental needs and aspirations of the companies, countries, and communities.” 

Chris Torrens, a Beijing-based senior partner for international risk consultancy Control Risks, said if local communities do not see benefits from Belt and Road projects, it will fuel “anti-China resentment, which unfortunately we do encounter in a number of Belt and Road countries.”

The tone of the initiative changed markedly from the first Belt and Road summit in Beijing in 2017 to the second one in 2019, said Peter Burnett, managing director of corporate and institutional banking and corporate finance for greater China and North Asia at Standard Chartered Bank. In the first summit, the Chinese government came across as authoritative, but the second summit was more collaborative involving other countries, industries and private capital. 

At the second summit in Beijing in April, the Chinese government announced a debt sustainability framework to mitigate credit risks. 

“China’s BRI has evolved significantly since its early inception; today’s projects look very different to those signed five years ago and they will look different again five years from now,” said Ben Simpfendorfer, founder and chief executive officer of Silk Road Associates. 

“After an early focus on core infrastructure, I expect the private sector, global capital, and manufacturing will play a growing role in the future of BRI,” said Simpfendorfer.

Toh Han Shih is a Singaporean writer in Hong Kong.