166 Comments

I don't disagree that the Belt and Road Initiative is really a way to make Chinese GDP figures look better and receive goodwill from developing countries. While some Chinese projects may be supbar, it's a complex situation. I think it's a two sided coin. Many "Global South" leaders want quick wins without real reform to their economies and that's what China offers. It's easy for Westerners to sit back and say attack Chinese lending & projects. But African countries will continue to deal with China (as long as China is willing to lend) for three key reasons:

1) No economic conditions (like the IMF wanting devaluation, removal of fuel subsidies, or privatization of government owned firms)

2) China's non-interference policy (like the IMF or West asking for multiparty democracy or allowing elections to be fairer in conditions for loans) -- The West pushed Ivory Coast, Mozambique, Ghana, Mobutu's Congo, and other African nations to allow multiparty elections as conditions for aid in the 90s

3) Speed to build infrastructure

I'll give some examples in Africa.

1) Ethiopia: Ethiopia, as you know, has been incredibly fast growing and it's one of the few African countries that doesn't have a billion dollar mining sector or oil (Ethiopia mainly sells coffee). Ethiopia is also the 2nd largest debtor to China in Africa. China built railways that Addis Ababa needed to connect landlocked Ethiopia to Djibouti's coast line in roughly 4 years. When Ethiopia started to service its Chinese loan in 2016, Ethiopia struggled to repay so China extended loan maturities from 10 to 30 years.

https://www.africanews.com/2018/09/07/china-extends-repayment-of-ethiopia-railway-loan-to-30-years-pm//

2) Angola: https://yawboadu.substack.com/p/angola

Angola is the largest debtor to China in Africa. China provided infrastructure and loans that were collateralized with Angola's oil. Angola was obliterated by the 27 year civil war where America(and China!) backed the anti-communists while Soviet Union and the Organization of African Unity backed the communists. China wanted to win Angola's good graces so it was willing to spend in Angola to enhance good will and get cheap oil. Angola was utterly desolate in 2002 after the civil war. Angola, despite being mismanaged and horrifically corrupt, it is now a (lower) middle income country.

3) Guinea: https://yawboadu.substack.com/p/the-economics-and-geopolitics-of

Guinea recently graduated from low-income to (lower) middle income, because the previous coup leader, Alpha Conde worked with China, so China can extract more bauxite at a reduced cost. Guinea now exports more Bauxite than Australia. Now Guinea is getting new ports, highways, and roads at a fast speed (although I have heard reports from my Guinean friends that China displaces and removes peoples homes so China can build). If it were the West, there would be environmental impact assessment tests and human rights assessments, which would delay the speed of the project.

I am not saying this to refute what you are saying. In fact I agree largely, with it. I am just pointing out that none of this will stop most of Africa from borrowing from China (as long as China is willing to lend) because most African countries want the infrastructure built quickly and most of them don't like interference in their economies.

Expand full comment

"Even Indonesia’s high-speed rail line in Jakarta, sometimes touted as the most successful Belt and Road project, had massive cost overruns and fell years behind schedule. (It also is only 88 miles long.)"

California High Speed Train: "Hold My Beer"

But seriously - very good article. I am now more informed, which is why I became a paid subscriber. I was going to pull the plug if all you are going to post is DNC campaign advertisements.

IDK when you normally post your articles, but I am in Spain, and this showed up around 11 am local time, which is 2 am in California.

Expand full comment

I think there’s a wrinkle to your straightforward narrative.

Countries won’t necessarily blame China for their BRI debt predicament.

Take Kenya’s Nairobi to Mombassa rail as an example. One would have thought blame for that white elephant would fall at China’s feet.

But the Kenyan opposition party sees domestic political advantage in blaming the government for stuffing that project up.

Furthermore, it not in the opposition’s interest to traduce China, because they want to dip into that well themselves when in government.

So Kenya is burdened with debt and China gets of scott-free.

Expand full comment

Love the analogy of food truck!

Expand full comment

Doesn’t the food truck example sound a lot like our Federal student loan system. You induce teenagers to borrow huge sums of money, which goes to support bloated universities and the educational indoctrination complex, and then when the kids graduate with almost no practical skills, they still owe the loans and the government is very unforgiving on collection (until recently, when Biden decided the game would be up

Expand full comment

Very good article. However, it's more complicated than it appears.

There is a stronger case to be made that China didn't pursue the Belt and Road initiative for the global south but rather for itself: it was a clever way to export China's investment driven development model across the world and it allowed the Chinese to inflate their foreign reserves as they often lent in renminbi but would demand payment in dollars. I suspect a good chunk of China's massive foreign reserves is illiquid debt tied up in third world infrastructure projects.

There was also the additional advantage of selling China as an economic saviour in contrast to the West which by now mostly donates humanitarian aid.

It was, of course, mistaken. The Chinese were repeating the same mistakes the West had made in the 1960s and 1970s when ambitious international projects in Latin America and Africa were funded with western capital( Ghana's infamous and till today undeveloped steel complex comes to mind).

It failed. And it failed because economic development is not simply about capital. It is not a lack of money problem. It is more often a cultural and institutional problem.

The second Sri Lankan port in Hambantota failed because that was not an import replacing city and consequently had no need for a port in the first place, let alone of that size.

Billions of dollars doled out to East Africa and West Africa is irrelevant when these countries lack the skills and institutions to maintain what has been built.

Indeed, what the Belt and Road initiative reminds one of is Saudi Arabia's ambitious NEOM project that is estimated to run at over five hundred billion dollars. There are modest differences but the illusion underpinning the two are the same: development cannot be bought. It can only be earned and that, only gradually, with numerous political and cultural changes in tow.

However, the BRI will not be abandoned. The commitments involved on both sides are too steep now. What it will proceed to morph into is a new scramble for resources as China abandons every veneer of selflessness and nakedly pursues raw resources for its burgeoning industries.

Frankly, I consider that a better situation. Debtor countries have always eagerly borrowed funds on the assumption that the money would keep rolling in and then painted their creditors in an unflattering light when the deals go south. Creditor countries have always assumed debtor countries will pay back their loans with the same zeal that they solicit them.

Now that they realize they are both mistaken, necessary concessions can begin.

Expand full comment
Oct 2, 2023·edited Oct 2, 2023

It's interesting that on paper there is nothing wrong with China serving as lender and builder, developing countries needing infrastructure, the possibility of a win-win business relationship. What's bad is that in each specific instance the construction was shoddy, the infrastructure poorly picked, and China lends last but wants to be paid first.

I am not sure I buy that this has even been a short-term success for China. We see how nervous they are about getting paid back and the pieces of infrastructure they are getting are not worth what they cost to make. Xi wanted this to generate goodwill and it's doing the opposite. It seems like China's corruption problem is preventing them from fulfilling their ambitions even if their geopolitical heft is insulating them from most of the consequences.

Expand full comment

I once read an odd book called Confessions of an Economic Hit Man, and it sounds like that's the model China was going for... https://en.m.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man

Expand full comment

Hasn’t this article - very eloquently- simply summarised the business model of the IMF and US over the last 100 years? It’s ok if we do it but not China? The WHOLE SYSTEM needs to change!!!!

Expand full comment

I am surprised at the incomplete descriptions in this article, which have one-sided comments. I trust the author and commentators want a more open discussion and I offer these comments. Selecting failures of a few projects, which are a small percentage of the total projects. and are much less in projects of this type is unacceptable. Bridges, dams, and nuclear plants, have consistently had problems throughout the world and in all centuries.

Most troubling is the resurrection of the entirely false description of Sri Lanka’s debt problem, in which China rescued Sri Lanka from default to the IMF and is posed as a financial predator.

From The Atlantic at: https://www.theatlantic.com/international/archive/2021/02/china-debt-trap-diplomacy/617953/

"Steep payments on international sovereign bonds, which comprised nearly 40 percent of the country’s external debt, put Sirisena’s government in dire fiscal straits almost immediately. When Sirisena took office, Sri Lanka owed more to Japan, the World Bank, and the Asian Development Bank than to China. Of the $4.5 billion in debt service Sri Lanka would pay in 2017, only 5 percent was because of Hambantota. The Central Bank governors under both Rajapaksa and Sirisena do not agree on much, but they both told us that Hambantota, and Chinese finance in general, was not the source of the country’s financial distress.

Colombo arranged a bailout from the International Monetary Fund, and decided to raise much-needed dollars by leasing out the underperforming Hambantota Port to an experienced company—just as the Canadians had recommended. There was not an open tender, and the only two bids came from China Merchants and China Harbor; Sri Lanka chose China Merchants, making it the majority shareholder with a 99-year lease, and used the $1.12 billion cash infusion to bolster its foreign reserves, not to pay off China Eximbank."

Others present facts that the BRI has been successful. From The Boston University Global Development Policy (GDP) Center at https://www.bu.edu/gdp/2022/09/06/ten-years-of-the-belt-and-road-reflections-and-recent-trends/#:~:text=The%20BRI's%20main%20accomplishment%20was,economic%20problems%20have%20been%20varied.

"However, data indicates the BRI strategy has been largely successful. For example, as of 2021, China has signed Memorandums-of-Understanding (MOUs) with 140 countries and 32 international organizations, among which 46 are in Africa, 37 in Asia, 27 in Europe, 11 in North America, 11 in the Pacific and eight in Latin America. Additionally, in 2012, China’s outbound foreign direct investment (FDI) was $82 billion, but in 2020, it was $154 billion, ranked as the world’s number one overseas investor. The increase in Chinese investment in BRI countries has also been impressive."

The World Bank presents the BRI as a positive move and not as the article’s author describes.

WASHINGTON, June 18, 2019—China’s Belt and Road Initiative (BRI) could speed up economic development and reduce poverty for dozens of developing countries—but it must be accompanied by deep policy reforms that increase transparency, improve debt sustainability, and mitigate environmental, social, and corruption risks, a new World Bank Group study on the BRI transportation corridors has found.

By, the way, The World Bank and IMF have been severely criticized for their loan efforts and project management.

“The World Bank is wrong. The data show that most long-term recipients of World Bank money are no better off today than they were when they received their first loan. Many are actually worse off. Go to: https://www.heritage.org/trade/report/the-world-bank-and-economic-growth-50-years-failure

“Of 763 programmes between 1980 and 2015, 512 were interrupted, of which 291 did not resume – as our data from the IMF Monitor Database shows. This is a very high failure rate given that the IMF enters into every agreement on the basis that it wants to see it completed.” Go to: https://theconversation.com/lots-of-imf-programmes-are-never-completed-because-theyre-unworkable-161905

Expand full comment

China is under the magnifying glass in notable ways the US was not 100 years ago when we started doing the same sorts of things. That's not a double standard, though- it's just a function of the world becoming slightly more transparent and vastly more connected, and more and more people are able to understand what's happening.

Expand full comment

I'm an American. I lived and worked in Peru, specifically Iquitos, during the 2010's for 10 years. I saw first-hand the whole Belt & Road BS at the end of my street everyday for far too long. The Chinese came in and provided funding for a wastewater treatment plant for the whole of Iquitos--located in the middle of the Amazon rainforest. A processing plant was built and for months and months, the streets were torn open, drains lines and pumps were installed, then eventually it was all put back together after months and months of daily disruption and chaos. All the surveyors and project managers were clearly Chinese, while the back-breaking work was done by poor, local Peruvians. (Like Peru isn't advanced enough to have its own qualified civil engineers?) Before the whole thing went online, the power plant was inundated during the "high water" season, burning out all the pumps. This was not some rate torrential storm, but a regular, seasonally, well-understood and predictable shift between high and low water levels on the Amazon River. The pumps were never repaired or replaced and to this day, almost 10 years later, all that work, all those resources and all the disruption to our daily lives lead to NOTHING. Wastewater from sinks and toilets continue to run raw and directly into the Amazon River and the tributaries surrounding the major city of Iquitos. And don't get me started on what amount of money from this project went into the pockets of local politicians. I assume Peru is still holding the debt for this boondoggle and it certainly left no goodwill for the Chinese by anyone. What a waste!

Expand full comment

I worked for the World Bank for 27 years. There is a reason that we and other international development banks do pretty rigorous evaluation of the economic feasibility of the projects we finance and are scrupulous in insisting on competitive bidding. And we don't bat 100.

That said, borrowing countries did sign the notes and could have done their own evaluations. They are not wholly innocent victims. AND the consequences of default on a Chinese loan are less than on a loan from an international development bank.

Expand full comment

China's Third World investment strategy sounds a lot like the Soviet Union's with one major difference: the USSR provided its clients with "security assistance" meaning that the KGB would run their internal security services. China doesn't do this, such that they don't get control of the government (except through endless bribery). I see this in the Caribbean where China has lost a lot of money with nothing strategic to show for it.

Expand full comment

China lends money to the US so that its government can run huge deficits and provide handouts to American citizens so they can import Chinese goods.

Sounds a lot like Belt and Road and has been going on a lot longer. And, as in the developing world, China spends quite a bit of money buying politicians (thanks, Joe!)

Note that the CCP will be a massive beneficiary of the IRA- providing the wind turbines, the solar panels the batteries (sometimes just the battery IP and the bulk of the components and raw materials).

Many of the American investments in the IRA will prove to be overpriced white elephants. Would you rather your debt go toward a new port or paying a bunch of rich people to buy luxury cars?

Expand full comment

Excellent piece! I have often argued with peers that there was no way the 'Chinese' infrastructure would be sound, that BRI projects would deteriorate. I gave up the WSJ years ago so missed the January report! Thank you for covering here. I will turn those peers (and friends) your way.

Expand full comment