China’s grand plan to recreate the ancient Silk Road trading routes is in danger.
China’s grand Silk Road initiative might be about to go bankrupt
Its ambitious “Belt and Road Initiative” has hit a major roadblock: it might be about to run out of money, say some of China’s most senior financial figures.
Chinese President Xi Jinping has vowed to achieve the “Chinese Dream” of restoring the nation to glory after what the government sees as a “century of humiliation” at the hands of Western powers. The “Belt and Road Initiative,” introduced in 2013, is a vital part of his plan to promote China’s role in global leadership.
The failure of the plan would be unthinkable.
China says the initiative is intended to promote regional economic integration. It works by funding the building of railways, highways and other infrastructure across Eurasia and Africa.
Foreign policy analysts see the initiative as an attempt to extend China’s political influence in the neighboring regions.
But despite China’s pledge of some $1 trillion in the coming decade, most of the 60-plus countries taking part do not have the money to pay for the projects in which they are involved, said Li Ruogu, the former president of the Export-Import Bank of China.
“It would be a tremendous task to raise funds for the countries’ development,” Li said during a forum in the southern Chinese city of Guangzhou on Thursday.
Many of these countries were already heavily in debt and needed “sustainable finance” and private investment, Li said, adding that these countries’ average liability and debt ratios had reached 35 and 126 percent - far above the global warning lines of 20 and 100 percent.
Time for fundraising
China has done the heavy lifting in financing the “Belt and Road Initiative.”
But while many infrastructure projects were funded by China-backed financial institutions, there was still a funding gap of up to $500 billion a year, said Wang Yiming, deputy head of the Development Research Centre of China’s State Council.
And with other countries involved struggling to raise the cash, “It is important to encourage financial innovation to raise funds to support the development of the belt and road,” Wang said.
Wang called for the creation of an international fundraising mechanism to attract private investors, and a separate system to measure the credit risks associated with each project.
Yi Gang, the new governor of China’s central bank, said that Beijing was keen to work with international organizations, commercial lenders and financial centers like Hong Kong and London to diversify funding sources.
The “Belt and Road Initiative” is China’s most ambitious economic and geopolitical plan to date.
But if the scheme fails to attract private investors, it will be difficult for China alone to guarantee its success.