EU scheme offers ethical alternative to China’s problematic Belt and Road initiative

The EU has unveiled its own answer to China’s Belt and Road (BRI) – an ambitious scheme dubbed the ‘Global Gateway’.

First mooted by European Commission President Ursula von der Leyen in September, the plan is designed to promote Europe’s technology and infrastructure interests to a global audience, at the same time promising adherence to strict environmental standards.

It’s seen by many as a way to re-take the initiative from China by strengthening overseas diplomatic and economic ties.

Launched in 2013, BRI was created as a conduit for connecting China with countries around the world to expand opportunities for trade and regional integration via large-scale infrastructure investments, especially among developing countries.

However, Xi Jinping’s flagship trillion-dollar project has come under increasing pressure from critics as it emerged that 90 percent of BRI energy-sector loans were invested in pollution-emitting fossil fuel projects, including coal plants. In a bid to press the reset button on BRI, Beijing has announced a new, revamped version of the initiative with green energy at its heart – echoing the eco-conscious credentials championed by the EU’s scheme.

The EU’s answer to Belt and Road would prioritise working with partner countries transitioning toward more renewable energy sources. But is it a case of too little, too late?

The threat of reputational harm

As the EU sketches out the details and begins to implement its own global infrastructure plan, it will need to pay close attention to the strategic errors which have tarnished the BRI and put China’s own reputation at risk.

In fact, China has made many missteps in its bold plan to forge new cross-continental bonds. In its haste to make significant inroads into Africa, Beijing channelled more than $150bn of infrastructure funds to public sector borrowers across the continent between 2000 and 2019. And, while infrastructure spending is a key priority for nations looking to facilitate economic growth, the secrecy of China’s deals has led to widespread accusations of so-called ‘debt trap diplomacy’.

Piling on the debt burden

Put simply, China lent unsustainable sums to countries that didn’t have the resources to service the debt.

Take Djibouti, for example, which owes staggering sums to China. Strategically located in the Horn of Africa, the country was a prime target for Chinese investment. Funding from Beijing enabled the construction of a railway and gas pipeline between Djibouti and neighbouring Ethiopia, as well as the redevelopment of its existing Doraleh port – but at a severe cost. Djibouti’s government ousted incumbent international investor DP World, unilaterally appropriating the Doraleh Container Terminal in favour of China Merchants Port Holdings.

The benefits to Djibouti are dubious at best. One expert on Sino-African relations noted that the Doraleh port seems “mainly outward-looking”—benefiting Chinese companies while having little impact on local employment. DP World, meanwhile, has racked up a series of courtroom victories in international tribunals, with UK-based courts finding that Djibouti wrongfully terminated the agreement with DP World and ordering Djibouti to pay substantial damages.

To make matters worse, the flood of Chinese investment has left Djibouti in a precarious financial position. China holds almost three-quarters of Djibouti’s GDP in debt and it’s feared that this imbalance could threaten the country’s sovereignty. Some are already drawing parallels with the situation in Sri Lanka in 2015 when the government was forced to cede control of a port to Chinese companies after struggling to make payments its loans.

Questions are asked over failed projects

China’s BRI has also drawn fire for costly and ill-considered infrastructure projects. In Indonesia, for example, the government has had to dip into its own national budget to fill the gap between predicted and actual costs after a China-led railway project badly overran.

The Jakarta-Bandung High-Speed Rail project is expected to significantly shorten the travel time between the Indonesian capital and Bandung. However, since construction began in 2017, the scheme has come under criticism for its environmental impact along 89-mile route, amid concerns about rising costs – the project is apparently running USD 2bn over budget and it’s thought that the Indonesian government may have to borrow to complete the project in 2022, three years after its original 2019 deadline. Even worse, it’s not clear whether the rail line is commercially viable, given that the stations are not situated in the city centre.

The need for greater transparency

China’s extensive, yet alarmingly opaque, investment deals are causing disquiet among the international community. According to US-based international development research lab AidData, the massive scale of China’s overseas lending is creating a ‘hidden debt’ problem that doesn’t appear on government balance sheets.

China’s tactics may be backfiring, evidenced in a recent change in the appetite for BRI infrastructure investment among developing countries. Rising debt burdens and faltering economic growth are leading to greater caution – and the cancellation of agreed projects – amid growing criticism of China’s lending practices and concerns that regulatory, environmental and quality standards are being jettisoned in the bid to secure deals.

In 2020, the Kenyan government cancelled a rail project with the China Road Bridge Corporation, citing procurement irregularities, while just this year, Ghana called time on a Chinese project to implement an intelligent traffic management system in Accra, ostensibly over quality concerns. The President of the Democratic Republic of Congo has also called for a review of mining contracts signed in 2008.

As the EU prepares its alternative to the BRI, Brussels should make it clear that it’s offering a substantively different solution by avoiding turning projects into political leverage, lending sustainably within the margins of what countries can afford, and carefully selecting projects that are genuinely necessary and economically viable.

 

Image: CC-BY-4.0: © European Union 2019 – Source: EP