After COVID, China braces for global BRI backlash

By AT editor - 27 May 2020 at 10:04 pm
After COVID, China braces for global BRI backlash

By Arman Sidhu

After suffering its first economic contraction in nearly 45 years, China finds itself facing a deluge of economic threats, many of which stem from criticism of Beijing’s handling and response to the COVID-19 pandemic. From alternative supply chains, to new policy measures designed to screen Chinese foreign investment, the notion of China as a global economic leader has taken a reputational hit that will have repercussions for Beijing in the post-pandemic era.

In particular, the fate of President Xi Jinping’s signature Belt and Road Initiative (BRI), a sprawling project designed to entrench China’s influence as an economic superpower, may find a cooler reception among its external participants, especially on finance. Though celebrated for its emphasis on funding critical infrastructure in regions that need it the most, the practices associated with Chinese lending quickly earned the moniker of “debt trap diplomacy.”

The fate of the Hambantota port, an unprofitable maritime port located in Sri Lanka and constructed primarily by Chinese contractors, sparked alarm over BRI’s progress. After seven years of operations, earnings from the port were unable to service the debt, forcing Sri Lanka to enter an agreement that would lease the port to a partially state-owned Chinese firm for 99 years.

Sri Lankan President Gotabaya Rajapaksa, considered friendly to China, has already publicized his desire to negotiate terms of the port deal, as other world leaders have. Though Sri Lanka’s questionable fiscal management and sluggish economic growth are partly to blame, the port deal was seen as a harbinger for other participants weary of deals that appear to cede sovereignty, especially of critical infrastructure.

Pakistan, Malaysia, and several nations across Southeast Asia and Sub-Saharan Africa that have incurred significant debt for infrastructure projects funded and constructed by China, have seen the issue become politicized in light of China’s weak track record on local job creation and its exclusive contract and bidding process.

In addition to sowing doubt in the ambition and scale of BRI, Hambantota has spurred fears that debt-for-equity swaps or 99-year leases may strengthen as a norm in the wake of the COVID-19 pandemic. Though the full economic impact cannot not yet be known, the pandemic has already stressed capital markets, leaving emerging economies particularly vulnerable as their currencies slide and their options for investment and financing diminish.

The investment climate for both private and parastatal Chinese firms has soured. Recent legislative measures seeking to encourage divestment from China or shield vulnerable assets and firms from foreign acquisition have been proposed or strengthened by the US , India, Japan and member states of the EU. China’s soft power since the pandemic remains on the back foot as it pushes against accusations that it withheld vital information regarding COVID-19.

The pandemic has deepened the divide between the US and China, lending some credence to the idea of a decoupling of the global economy where both powers battle for economic influence at the exclusion of the other, mirroring a zero-sum game last played between the US and former Soviet Union during the Cold War. Droves of US companies had already begun to leave China before the pandemic and several others may never return because of the geopolitical risks involved.

As a result, supply chains likely will diversify through alternative manufacturing hubs like India and Vietnam. For China, the decoupling scenario would only increase the risks associated with BRI projects and diminish the potential rewards. Throughout the pandemic, the US has already exercised its influence on allies like Israel to revisit or cancel deals involving infrastructure development or investment by China. A potential second term for U.S. President Donald Trump’s administration, to be determined in November, would likely lead to more hawkish actions designed to curtail China and thwart success of the current model used to advance the BRI.

Backlash against China’s role in global commerce is hardly new and is perhaps best understood as one component of the anti-globalization debate accelerated by the virus outbreak. Even as the lockdowns and quarantines recede across the world, the debate over unfettered globalization has only intensified. Detractors have seized the opportunity to implicate globalization’s political, economic, social and environmental factors in the spread of the virus and crippling of the global economy.

Even prior to the pandemic, such sentiments had already fomented protectionism, propelling populist politicians to higher office all over the world, from developed nations such as the US, UK and Italy, to vital emerging markets such as Brazil and India. COVID-19’s emergence has only strengthened the argument for protectionist measures, even if it results in spurning investment from China.

The staying power of this backlash is not yet known, but Beijing’s determination to amend the COVID-19 narrative, through claims that the virus originated in Italy, or is a US-produced bioweapon, have been met with incredulity and frustration among the global community. Such conditions would suggest that even after the pandemic passes, China may still find itself isolated beyond its borders.

Arman Sidhu is an American educator and geopolitical analyst based in Phoenix, Arizona. He is currently a Research Fellow at Rise to Peace, and a Non-Resident Fellow at the Guru Arjan Dev Institute of Development Studies. His work has previously appeared in The Diplomat, Mic, Economic & Political Weekly, Global Security Review, and the Foreign Policy Journal, among others. His views are his own and are not to be interpreted as the position(s) of any institutions that he is affiliated with.

Image: Djibouti, Ministry of National Defense/PRC file

 

 

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