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21 May 2019, Stella Zlatareva, EMIS M&A Team

Despite mounting skepticism, China’s reimagined silk road initiative is still going strong

It has been nearly six years since China’s president Xi Jinping proposed the Belt and Road Initiative (BRI).

The bold public-private project was devised to open new markets for China’s excess goods and industrial capacity, and improve relations with the 60+ participating countries by means of infrastructure development. Two years after the first international summit celebrating BRI, world leaders gathered in Beijing in late April to attend the second Belt and Road Forum. During the forum, president Xi Jinping tried to bolster confidence in the initiative by pledging to ensure its sustainability, transparency, and adherence to market principles. In Xi’s words, China wants the initiative to be beneficial to all parties involved. To that end, the country will seek to be “anchored by widely accepted international standards and norms.” Xi’s reassurances come in light of critics’ mounting suspicion of the scheme that promised to build infrastructure to enhance connectivity and economic ties across Asia, Europe, Africa, and Oceania.

In the time passed since BRI’s start, both participants and observers have raised numerous concerns about the China-led projects. The most frequently cited issues include corruption, saddling developing countries with debt, the projects’ negative environmental impact, and their overall costliness for poorer nations. Some estimates show that the initiative could cost more than USD 1tn over the coming ten years. Another major cause for concern highlighted by nonprofit think tank CFR is that BRI projects are funded by low-interest loans instead of aid grants, thus leaving host nations with unserviceable debt piles.

Despite these roadblocks and the questionable reputation of BRI, China’s overall zeal and intent for the initiative is staggering. During the second Belt and Road Forum, China signed commitments for more than USD 64bn worth of deals, including memoranda with countries that are beyond the original scope of BRI, such as Italy, Peru, Barbados, and Luxembourg. State-controlled companies act as guarantor for the government’s plans and this is demonstrated by the fact that at least 17 such firms struck deals at the summit.

It is impossible not to compare China’s Belt and Road Initiative to its archetype – the Silk Road under the Han Dynasty. While the latter resulted in a long-lasting economic and cultural legacy, we are yet to find out whether its modern-day equivalent will deliver sustainable collaboration and translate into something more than a commercial exchange. Original source: EMIS - DealWatch