Belt and Road Initiative: the World's Largest Infrastructure Investment

The One Belt One Road, also known as Belt and Road Initiative (BRI), has raised great interest since it was announced by the Chinese president Xi Jinping in September 2013. With an aggregate amount of over US$1 trillion, BRI ranked one of the biggest investments among international infrastructure projects. Unquestionably, it embellishes the political image of Beijing and of its nation overall. However, the inherent risk related to the kind of infrastructure project, the lack of transparency and international funds, as well as the environmental impacts are also brought up by many of the critics. One very critical question is raised: is the Belt and Road Initiative a promising deal for the signing developing countries and their poverty groups, or is it just a costly vanity trap? According to the official website, the BRI consists of three “Roads” and six correlated “Economic Belts”. Since the year 2013, more than 130 countries have signed the One Belt One Road documents which make the project range across Asia, Africa, the Caribbean, Europe and South America. Starting from Xi’an (China), BRI passes through several major countries such as Iran, India, Greece, the Netherlands, etc. It eventually ends in Venice (Italy), as Italian president Giuseppe Conte publicly announced to join the BRI during Xi Jinping’s visit to Rome. It is no doubt that Italy plays a rather crucial role in this “One Belt One Road” project. It conveys an important message as it is the first and only G7 country that has signed until now, recalling the history of the Roman and Chinese empires that were united by the Silk Road. These 137 countries together make up over one-third of the world GDP, enabling this project to be in the international limelight.

“China will never close its open door to the outside world” noted Xi Jinping in his speech for the opening ceremony of an investment bank in 2016. “It is for the mutual benefit, win-win and inclusive development” he had said in his previous speech in 2014. With the benefits of enhancing local transportation facilities, improving international trades and funds, the project appears to be rather appealing to many of the developing countries who signed. By reducing the trade costs, many could enjoy the benefits of faster delivery. Time-sensitive products, in particular, would benefit the most. Groceries such as fresh vegetables and fruit could be received soon after they are packed. Utilities such as Electronics could be provided with a sustainable reduction in price.

Apart from facilitating business, it could also assist the poorer groups. A study from the World Bank shows that BRI transport projects could help lift 7.6 million people from extreme poverty (those earning less than $1.90 a day) and 32 million people from moderate poverty (those earning less than $3.20 a day). It should also be noted that one less day of transport can lead to a 5 per cent increase in bilateral trade (the World Bank estimates). In total, the trade will grow from between 2.8 and 9.7 percent for corridor economies and between 1.7 and 6.2 percent for the world.

Italy, as a well-developed nation, seeks different opportunities in the Belt and Road Initiative projects. Unlike other under-developed countries like Kazakhstan and Zimbabwe, Italy’s transport system is already mature, so are its ports and dry-docks. It is the potential growth in trade and the marginal benefits of its international image, the cultural factor and way of thinking in particular, that matters. After the post-war economic boom and consecutive years of stagnation, Italy is now at a crossroads. The BRI is seen as a great opportunity to strengthen the economic tie between China and Italy. It is an interesting fact that in 2001 China represented 1.2% of Italian exports while at present it is at 3%, showing that the economic tie has been improving over the course of this new millennia. Nonetheless, problems that were brought up before are still present and will be present in the future: there is a trade deficit towards China. In short, the participation of Italy in the One belt on Road will certainly lead to a further increase of Italian exports in the global market, and in particular the Chinese one. This is likely to offset some of the negative trade balance with China.

Despite of all the potential gain and opportunities mentioned above, it is important to note that BRI has received incessant criticism. From 2013 to 2018, China invested more than $600 billion in the BRI, more than the sum of investments of all other countries. However, the means of doing so is not through direct investment, but through liabilities. This significantly increases the risk of future debts towards the developing countries. Another problem is the lack of transparency in the procedures of allocation of funds and administrators, followed by a questionable investment structure in which the Chinese bank dominates the overall liabilities and funds. The risk that these projects will not generate enough revenue to repay the debt or run into local political resistance is tremendous: the €66bn loan in Britain is an example.

China has become an active player in the infrastructure investment in recent decades. According to the Oxford Said Review, China spends more on economic infrastructure annually than North America and Western Europe combined. From 2003 to 2018, there was a flow of investment in Africa. A considerable number of Chinese companies and institutions were encouraged to invest in Africa, and the flow peaked in 2008 at US$5.5 billion. In the recent National People’s Congress, many new infrastructure projects were introduced, including building 5G networks, artificial intelligence (AI), Internet of Things (IoT), intercity high-speed rail, and setting up research and development institutions.

China's investment boom seems to have no end in sight and, from some perspectives, it determines the prosperity of the nation: for example, during the COVID-19 pandemic, the Chinese government was able to build a hospital in Wuhan in just a few days.

However, in most cases, many issues remain. As the case of Africa, many countries have found themselves in awkward situations. Many of them are not able to pay off the substantial debt after the projects finish. In 2012, the IMF found that China owned 15% of Africa’s external debt, and hardly three years later roughly two-thirds of all new loans were coming from China. The tide ebbs and flows. Many failed investors vanished when their dreams of a better economic future shattered.

Today the world still struggles in the shadow of the COVID-19. During this particular period of economic recession, most nations and individuals pay more attention to themselves and their own welfare. It is worth noting that China’s overseas investment dropped sharply after 2019 and the World Bank baseline forecast envisions a 5.2 percent contraction in global GDP in 2020. The Belt and Road Initiative, currently the most ambitious infrastructure project in the world, will likely become more and more important in the future. The potential profitability and overall welfare impact, however, is still dependent on how the governments regulate the risks and how the policies are implemented.