How will China’s Belt and Road Initiative fare when partners Russia, Ukraine are at war?

• China’s ambitious plan to grow global trade has resulted in collaborations with 147 countries and 32 international organisations, but an uncertain outlook has cast a pall on development
• Chinese authorities recently acknowledged that geopolitical risks facing the belt and road project are mounting, though Beijing is attempting to maintain ‘normal’ ties

Like the rest of the world, China is watching closely as Russia’s invasion of Ukraine unfolds, while also bracing for the impact of escalating Western sanctions against Russia.

As the largest trading partner of both Russia and Ukraine, China has a lot at stake, especially as the warring nations are both participants in the Belt and Road Initiative – China’s ambitious plan to grow global trade with billions of dollars worth of investment and infrastructure projects.

Physical dangers; communication and transport cutoffs; and dire financial uncertainties are already straining China’s investment plans in the region.

The war is bound to drastically affect the global economic order. Moving forward, China must assess the headwinds it is facing, while rethinking how to proceed with its expansive infrastructure plan in warring countries and the rest of the world.

What is the Belt and Road Initiative?

President Xi Jinping announced the Belt and Road Initiative in 2013. The land route of the globe-spanning infrastructure project traverses through landlocked Central Asia, in an area known as the Silk Road Economic Belt. And the sea route entails Southeast Asia, South Asia, the Middle East and Africa, known as the Maritime Silk Road.

As of January, China had formed collaborations through its belt and road project with 147 countries and 32 international organisations.

The initiative has invested in infrastructure projects, including roads, ports, airports, railways and power stations in mostly developing countries, and has sparked controversies and criticisms in the nine years since its inception.

Accusations have been levied against China for allegedly entrapping developing countries with debt to secure strategic assets in host countries.

Some projects have also been accused of threatening biodiversity and the welfare of the environment with its construction sites and exploitation of natural resources.

In 2020, despite the economic impact and disruptions caused by the global pandemic, China’s investments in belt and road countries showed resilience with an 18.3 per cent uptick compared with 2019, according to Minster of Commerce data.

But the pandemic has also hindered China’s belt and road progress, while Beijing has also placed increasing importance on the quality and benefits of its investments in overseas infrastructure projects.

What did the Belt and Road Initiative do in 2021?

In 2021, trade between China and belt and road countries accounted for 29.7 per cent of China’s total foreign trade, reaching 11.6 trillion yuan (US$1.83 trillion), marking a 23.6 per cent increase from a year earlier and reaching the highest value in eight years, according to Minister of Commerce data.

China’s total investments in overseas belt and road projects also grew by 15.3 per cent to reach US$21.46 billion last year, accounting for 14.8 per cent of China’s overseas investments.

These investment projects span Singapore, Indonesia, Malaysia, Vietnam, the United Arab Emirates, Laos, Thailand and other countries.

Last year, Chinese companies signed 6,256 new project contracts in 60 belt and road countries, at a value of 864.78 billion yuan, accounting for more than half of Chinese companies’ newly contracted projects abroad.

China also absorbed US$11.25 billion in foreign capital from countries along the route.

What is in store for the Belt and Road Initiative in 2022?

China is prioritising risk control and prevention for its belt and road push this year, according to a report outlining priorities for this year, released in early March by the National Development and Reform Commission.

Xinjiang in the far west region and Fujian province in the east, as well as the China-Europe Railway Express, were singled out as areas of importance in the belt and road push.

China also said it will push forward the green and low-carbon transformation of its overseas coal-fuelled projects.

What competition does China’s Belt and Road Initiative face?

Other countries have launched similar infrastructure-development schemes to match and counter the growing influence of China’s ambitious Belt and Road Initiative.

In 2017, Japan and India jointly launched the Asia-Africa Growth Corridor project, an economic cooperation deal, while Australia and Japan joined the United States in a push to invest in infrastructure projects in the Indo-Pacific region with their Trilateral Partnership, or the Blue Dot Network, in 2018.

The Group of 7 (G7) leaders, led by the United States, launched the Build Back Better World (B3W) plan in June.

The B3W initiative aims to grow an infrastructure partnership to help narrow the US$40 trillion needed by low- and middle-income countries from Latin America and the Caribbean to Africa to the Indo-Pacific by 2035.

Through B3W, the G7 and other partners will coordinate in mobilising private-sector capital in climate; health and health security; digital technology; and gender equity and equality, the White House said.

The European Union also entered the game with the Global Gateway strategy, announced in December, which aims to mobilise up to €300 billion (US$332 billion) in investments between 2021 and 2027 in infrastructure development around the world to underpin a lasting global recovery.

How will the Ukraine crisis affect the Belt and Road Initiative？

The conflict between Russia and Ukraine brings greater uncertainty to global economic development, as well as jeopardise China’s years of patiently expanding its economic footprint in Ukraine and its ambitious China-Europe rail network.

China is the largest trading partner with Ukraine, which was also one of the first participants of the belt and road project.

The geopolitical risks facing the belt and road project are mounting, warned China’s assistant commerce minister, Sheng Qiuping, during a press conference on March 1, without mentioning the Ukraine crisis.

In 2021, the value of trade between China and Ukraine topped US$19.3 billion, up by 29.7 per cent from the year before, while the value of exports to Ukraine reached US$9.4 billion, up by 36.8 per cent, according to customs data.

Some Chinese traders and manufacturers have already seen pullbacks of orders and delayed payments among their Ukrainian customers.

China also has sizeable investment and infrastructure projects in Ukraine in communication, energy and agriculture, among other fields.

In 2020, Ukrainian firm WindFarm and China’s PowerChina signed a contract to build a wind farm worth US$1 billion in eastern Ukraine – the biggest investment made by Chinese companies in the country.

China Railway International Group and Pacific Construction Group also have a joint investment in Kyiv to build an underground railway line.

In the first 11 months of last year, Chinese companies signed contracts with total projects worth US$6.64 billion.

Even Pay, an analyst with Trivium, said the situation has led to grave uncertainties in trade and it is expected to contribute to “interruptions, delays, and cost increases in global shipping by all modes”.

“China has extensive investments and business interests in areas of Ukraine that are currently active conflict zones,” Pay said. “That includes big investments by China’s state-owned shipping and commodities trading companies at ports along the Black Sea that have been directly impacted by fighting.

“China’s banks are also wrestling with how to navigate Western financial sanctions as well as an extremely high degree of foreign-exchange risk in financing businesses’ commodity transactions with Russia. That will continue to pose a pretty significant challenge to trade in the short term.”

Author: Luna Sun, SCMP