Has COVID-19 Disrupted the Future of the Belt and Road Initiative?

Published on 23 Jul, 2020

While China is gradually reopening its economy after successfully containing the spread of COVID-19, it is facing multiple challenges on the economic and political fronts. The lockdowns disrupted China’s manufacturing industry, adversely impacting its economy; at the same time, its standing in the global community has been weakened due to its alleged mismanagement of the virus outbreak. The country has been criticized for originating the pandemic, delaying the response, and not disseminating timely accurate information to the World Health Organization. China worsened the situation by engaging in a violent conflict with Indian troops along its shared border region and exhibiting aggressive behavior in the South China Sea. These developments are expected to impede the progress of China’s golden project – The Belt and Road Initiative (BRI).

Impact of COVID-19 on BRI:
The BRI, a brainchild of President Xi Jinping, has run into challenges due to the outbreak of the COVID-19 pandemic. Launched by President Jinping in 2013, the BRI aims to enhance trade routes by linking China with countries in Southeast Asia, Central Asia, Africa, the Gulf region, and Europe through a network of infrastructure, including roads, railways, and pipelines.

Unfortunately, the pandemic has halted almost all activities related to trade, industry, infrastructure projects, and connectivity – the key aspects of the BRI. COVID-19 has impacted almost all countries globally, including those having close economic relations with China or are part of the BRI. The Chinese economy contracted to a negative 6.8% Y-o-Y in Q1 2020. According to the Department of International Economic Affairs of the Foreign Ministry, the pandemic has significantly impacted around 40% of BRI projects and partially impacted further 30−40%. It has disrupted several other projects funded by China, including the China-Pakistan Economic Corridor (CPEC) and Sihanoukville Special Economic Zone in Cambodia. A USD1.5 billion rail project in Nigeria has been delayed, as Chinese workers who left to celebrate the Lunar New Year have been unable to return.

These challenges could hamper the prospects of the BRI, as most of its projects are to be undertaken in developing countries where economic recovery after COVID-19 is likely to be slow. Moreover, several tourism-dependent economies, mostly in South Asia, will be adversely affected in the short to medium term. The pandemic-led recession is expected to intensify the debt situation in these countries, which would pressurize China to freeze or delay loan repayments, and in certain cases, write-off amounts.

Surging anti-China sentiments fueled by COVID-19 outbreak
With the entire world reeling under the health and economic impacts of the virus, many nations are holding China responsible for the spread of the pandemic. Allegations have been hurled − right from charges of the virus’ intentional leak at the Wuhan Institute of Virology to attributing its origin to the eating habits of a few natives. China has also been blamed for its inability to identify the new strain of virus and subsequent failure to control and contain the outbreak. President Xi Jinping has been held responsible for misleading the World Health Organization on the severity of the pandemic. Critics of the Chinese government, such as the US and Australia, have requested for an independent investigation to ascertain the origin of the pandemic.

The criticism has also been significantly influenced by other geo-political factors. The ongoing trade war between the US and China, allegations that Chinese technology companies pose a threat to the national security of partner countries, diplomatic spat between the US, Canada, and China over the arrest of a Huawei executive and the subsequent apprehension of two Canadians in China, and tensions over the new security law being imposed on Hong Kong − all these issues seem to have instigated the backlash against China. Long-standing concerns over China’s hegemonic ambitions, its aggressive behavior in the South China Sea, and the recent skirmish along the disputed Indo-China border have further unified its neighbors.

Was the Indo-China border skirmish aimed at securing the BRI?
In mid-June 2020, following the orders of a senior Chinese General (as per the assessment conducted by the US intelligence), Chinese troops attacked Indian troops in the Galwan Valley at the India-China border. Several theories speculate why China violated border agreements and jeopardized relations with India, particularly when both nations are battling the pandemic. One of the reasons involves the security of its key project in Aksai Chin (a disputed area between India and China under China’s administration), which is part of the BRI.

According to sources, the incident was triggered by the Indian Army’s newly constructed bridge over the Galwan nallah, which is around 7km from the Line of Actual Control (LAC) and connects with the Shyok-Daulat Beg Oldi road. China sees the bridge and road infrastructure as an opportunity for India to rapidly deploy its military force in the region, posing a threat to China’s control of Aksai Chin, which is considered integral to the One-China principle. China National Highway 219 passes through Aksai Chin and connects China’s autonomous regions of Tibet and Xinjiang. This is an extension of the CPEC under the BRI umbrella, connecting Xinjiang through Gilgit-Baltistan in Pakistan-occupied Kashmir to Gwadar Port in Pakistan. China therefore vehemently opposes any move by India that may strengthen its presence in these regions. The purpose of the recent encounter initiated by Chinese troops could have been to secure its position in Aksai Chin and ensure the safety of the CPEC project.

Global leaders have been quite vocal in the condemnation of the Chinese aggression, which belies the country’s stated objectives of peaceful growth.

Reinforcement of stakeholder confidence
China’s Foreign Minister Wang Yi admitted that COVID-19 had severely hampered the progress of BRI projects. However, he believes that the impact is temporary. The country is working on policies to uplift the economy and is focusing on the “Health Silk Road” (HSR), a lesser known component of the BRI. The COVID-19 outbreak has provided China an opportunity to relaunch the HSR and emerge as a global health leader while maintaining the BRI’s relevance to the world. For instance, trimming BRI projects and related funding and aiding partner countries that need to invest significantly in healthcare through the HSR would help China earn goodwill, while the countries would benefit from the much-needed healthcare support.

President Jinping promised to deliver medical supplies to Italy at the peak of the outbreak and initiated talks to build the HSR. Additionally, in June 2020, he announced plans to write off all interest-free loans advanced to African countries. China also claimed to have delayed loan repayment for around 77 low-income countries. However, critics believe that loans from Exim Bank of China and the China Development Bank (the banks that underwrite BRI-related loans) cannot be easily written off, and the loan restructuring exercise will extend the total repayment duration for the host country.

Regardless of the initiatives taken by China, most analysts believe that the BRI will be hampered significantly by the economic slowdown, disruptions in supply chains, as well as the growing distrust in China as a strategic and reliable partner.