Hidden Risks of the Belt & Road: Financiers Beware!

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Divya Narain is a doctoral student at the University of Queensland, studying the risks and safeguards of China’s world-changing Belt & Road Initiative.  Formerly trained at the University of Oxford, she returns from a recent conference in Beijing with many concerns.

The Belt & Road Initiative, China’s multi-trillion-dollar infrastructure push, is a defining force of the twenty-first century—right up there with climate change and right-wing populism.

The scale of the BRI is astonishing, presently slated to span 130 nations across the planet.  This incudes extensive roads and railways, flanked by thousands of power and industrial projects.  Many of these are being built along six massive economic corridors that alone will cut across 70 countries on several continents.

The BRI is poised to transform transport and trade in the developing world.  It will also have extraordinary impacts on the environment, as its corridors and other projects crisscross some of the most pristine and vulnerable ecosystems in the world.

A BRIDGE TOO FAR?

During the 2000s, buoyed by swelling foreign-exchange reserves and high domestic savings, Chinese banks were flush with money.  This is the fiscal backdrop against which the BRI, the signature program of Chinese President Xi Jinpeng, was launched in 2013. 

The BRI has already garnered nearly $600 billion in investments, according to the World Bank.  Some BRI projects are being heralded as a success, but many reports of projects hitting roadblocks are emerging (for example, see here, here, and here). 

According to one estimate, as many as 14 percent of BRI projects worth about a third of its total investment have already run into trouble.  This trend is variously attributed to cost overruns, laborious land acquisition, and local pushback. 

ENVIRONMENTAL RISKS ARE FINANCIAL RISKS

Environmental impacts of the BRI are also playing a major role in complicating projects.  As ALERT has long asserted, mega-infrastructure projects bring with them a slew of environmental problems that can translate into material risks for project proponents—including, notably, project financiers.

These risks take the form of compensation liabilities, litigation, and negative publicity—something that is already playing out in the BRI. 

A Kenyan court, for example, blocked a China-backed coal plant and port project on the island of Lamu, a UNESCO World Heritage site, after the financier, the Industrial and Commercial Bank of China, failed to heed three years of petitioning from local land defenders. 

Colombia’s first mega-dam, Ituango, is another BRI project facing liabilities and lawsuits after a tunnel collapse forced the evacuation of more than 100,000 residents downstream.

Most controversial of all is a dam project in Indonesia that threatens the only habitat of the critically endangered Tapanuli orangutan, the world’s rarest great ape.  Unrelenting opposition from scientists and environmentalists led the Bank of China, in a rare move, to announce re-evaluation of funding for the dam. 

FLOOD OF MONEY

The current scale of Chinese lending is unprecedented.  

In recent years, China’s two state-owned development banks, the China Development Bank and The Export-Import Bank of China, have lent as much globally as the top six multilateral banks, such as the World Bank and Asian Development Bank. 

Along with these ‘big two’ state-owned development banks are another ‘big four’ state-owned commercial banks.  Collectively, these six Chinese state-owned banks have provided more than 90 percent of BRI’s financing to date. 

So, China is flooding the world with new investments, many of which are perceived as high-risk by financial, political, and environmental experts.  In fact, investment from Chinese private banks has remained low, evidently because of such concerns.

As the BRI blasts across some of the most ecologically-sensitive geographies, Chinese banks have become a powerful planetary force.  But with such power comes great responsibility—and great risk.

Clearly, given China’s rapidly increasing debt and many high-risk overseas investments, it would be in the best interest of China and its citizens to steer clear of environmentally risky projects.  At the moment, they are not doing so.