Belt and Road: Ten years and counting

Analysis
Insights

As China aims to strengthen development and trade ties with its Belt and Road Initiative (BRI) partners, we take closer look at the BRI and illustrate how the country hopes to gain influence on the world stage.

Share

October 26, 2023

By Jasmine Duan

Beijing recently hosted the Third Belt and Road Forum for International Cooperation, which coincided with the 10th anniversary of China’s Belt and Road Initiative (BRI).

The BRI, proposed by China’s President Xi Jinping in 2013, is a development strategy aimed at boosting economic and cultural exchange through the creation of two trade corridors:

  • The “Silk Road Economic Belt” connecting countries situated on the historic Silk Road through Central Asia, West Asia, the Middle East, and Europe, and
  • The “21st Century Maritime Silk Road” which fosters cooperation with countries in Southeast Asia, Africa, Europe, and South America through sea routes.

A modest beginning

When the BRI was unveiled 10 years ago, it was a modest idea to promote economic development and wellbeing in the Eurasian region. Inspired by the ancient Silk Road, the original initiative focused on four areas: policy consultation (including sorting out legal issues to make cooperation possible), road connections, trade facilitation, and monetary circulation (trade and settlement in local currencies).

By the time the first Belt and Road Forum was held in 2017, the BRI’s vision had evolved significantly. The original idea of infrastructure connectivity expanded from road connections to land, maritime, air, and cyberspace connectivity. Financial cooperation expanded from trading in local currencies to the emphasis of funding support, marked by the establishment of the Asian Infrastructure Investment Bank and Silk Road Fund. During this time, the goals of pursuing “innovation-driven development” and intensifying cooperation in digital technologies and artificial intelligence were first mentioned.

From regional to global

Up to 2017, BRI projects were primarily confined to Eurasia. But 2018 marked a significant turning point as the BRI took on a global dimension. Sixty-seven countries in Asia, Africa, Pacific Islands, Central and South America, and Europe signed BRI agreements that year. At this juncture, the BRI had transformed into a comprehensive representation of China’s foreign policy.

Over the past 10 years, the BRI has become the world’s largest platform for international cooperation. As of September 2023, the BRI has 154 members, representing 80 percent of the United Nations’ 193 member states.

While some think the BRI primarily focuses on developing countries in Asia and Africa, one noteworthy achievement in Eurasia shouldn’t be overlooked – the completion of the China-Europe Railway Express (CRE).

This freight rail network links Europe to Asia, passing through the Great Eurasian Steppe of Central Asia. The CRE now incorporates 86 routes that cover over 200 cities across 25 European countries. It also links to more than 100 cities across 11 Asian countries. As of June 2023, the CRE has surpassed 74,000 trips with goods exceeding US$300 billion in value.

Development in new directions

Given that the BRI has expanded well beyond its initial objectives and encompasses many more participants and projects in different geographies, China is revamping the management and organisation of the whole scheme. Integrity and compliance evaluation frameworks were formalised at the forum to upgrade the oversight and governance of BRI projects.

The BRI’s scope continues to evolve. Expanded development in renewables and green projects with an emphasis on building green infrastructure, energy, and transportation will be prioritised. In addition, more information and technology infrastructure projects are expected to be implemented. Guidelines for advancing scientific and technological innovation, such as the Global Initiative for Artificial Intelligence Governance, have become one of the key focus areas.

Two Chinese development banks plan to open new financing lines for nearly US$48 billion each, and another roughly US$11 billion will be added to the Silk Road Fund.

Beyond traditional infrastructure projects

The common perception is that the BRI is primarily concerned with traditional infrastructure development. This is often backed by the more than US$1 trillion estimated to have been invested in various BRI projects relating to roads, railways, ports, and energy infrastructure over the past 10 years.

However, given that most of the participants are developing nations, a key BRI objective is to offer capital, technological know-how, and expertise to countries to improve their infrastructure so they can better participate in global trade and future internal development.

One recent example is the China-Laos Railway, a 1,035 km direct railway linking Kunming City in Southwestern China and Laos in Southeast Asia. This railway has transformed Laos from a land-locked nation to one that is “land-linked,” unlocking the potential for economic growth and alleviating its relative isolation.

The list of BRI development projects continues with the construction of Kenya’s first modernised railway, Nigeria’s first modern deep-water port, Uganda’s first expressway, and Indonesia’s first high-speed railway – all completed or at varying stages of completion in the BRI’s first 10 years.

While these large projects make the headlines, a closer examination reveals that the BRI’s average deal sizes have shrunk. According to the Green Finance and Development Center, a Chinese think tank, the average investment deal size decreased from approximately US$617 million in 2022 to US$392 million in H1 2023. This equates to a 48 percent reduction compared to peak investment activity in 2018.

As the BRI enters its next decade, China is hoping to create more “small yet smart” modernisation projects in developing countries to enhance local living conditions and education and healthcare levels, and to build out technology training centers and promote green development.

“Debt trap” diplomacy debunked

The narrative often presented is that China uses the BRI as a diplomatic tool to control the assets and infrastructures of developing nations.

An often-cited controversy relates to the debt that financially strapped Sri Lanka owed China due to the construction of the Hambantota Port. However, Deborah Brautigam of Johns Hopkins University and Meg Rithmire of Harvard Business School point out that Sri Lanka owes more debt to Japan, the World Bank, and the Asian Development Bank than to China. Of the US$4.5 billion in debt service Sri Lanka owed in 2017, only five percent was attributable to the Hambantota project. Ahead of the BRI Forum, China announced a preliminary agreement to restructure Sri Lanka’s BRI-related debts.

Furthermore, rather than seizing assets in African countries that were associated with problematic debts, China instead forgave at least US$3.4 billion in debt, according to a recent Johns Hopkins study. The Rhodium Group, a U.S.-based research firm, suggests China has limited influence in debt negotiations, and the terms often favour borrowers. UK-based charity Debt Justice states that African countries, including those involved in the BRI, owe 12 percent of their debt to China and 35 percent to Western entities, with Chinese loans generally having lower interest rates (2.7 percent) than Western ones (five percent).

Flexibility is key

As the BRI enters its next decade, it encounters a fresh set of challenges brought about by the repercussions of the pandemic, heightened inflation, increased global interest rates, and rising geopolitical tensions. The BRI has shown adaptability in the past, and much like its main sponsor China, this ambitious initiative will need to demonstrate flexibility and adapt to the evolving times if it is to continue its upward trajectory.


This publication has been issued by Royal Bank of Canada on behalf of certain RBC ® companies that form part of the international network of RBC Wealth Management. You should carefully read any risk warnings or regulatory disclosures in this publication or in any other literature accompanying this publication or transmitted to you by Royal Bank of Canada, its affiliates or subsidiaries.

The information contained in this report has been compiled by Royal Bank of Canada and/or its affiliates from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgments as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Every province in Canada, state in the U.S. and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, any securities discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice.

This material is prepared for general circulation to clients, including clients who are affiliates of Royal Bank of Canada, and does not have regard to the particular circumstances or needs of any specific person who may read it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. To the full extent permitted by law neither Royal Bank of Canada nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of Royal Bank of Canada.

Clients of United Kingdom companies may be entitled to compensation from the UK Financial Services Compensation Scheme if any of these entities cannot meet its obligations. This depends on the type of business and the circumstances of the claim. Most types of investment business are covered for up to a total of £85,000. The Channel Island subsidiaries are not covered by the UK Financial Services Compensation Scheme; the offices of Royal Bank of Canada (Channel Islands) Limited in Guernsey and Jersey are covered by the respective compensation schemes in these jurisdictions for deposit taking business only.


Related articles

Life after sports requires a new game plan

Analysis 5 minute read
- Life after sports requires a new game plan

The U.S. fiscal stimulus uncertainty and the outlook for economic growth

Analysis 6 minute read
- The U.S. fiscal stimulus uncertainty and the outlook for economic growth

Are inflation fears inflated?

Analysis 6 minute read
- Are inflation fears inflated?