The Impact of COVID-19 on the Belt and Road Initiative: The need for obligation re-assessments

Author: Sanchit Singh

The multi-billion-dollar Belt and Road Initiative (BRI) is under pressure amid the COVID-19 pandemic and its effects leading to liquidity concerns and skepticism by development banks to release funds for undertaken infrastructure constructions. Since its launch in 2013, the BRI has attracted cooperation from 138 countries with more than 2000 construction projects being flagged. Trade valuation with BRI partners has exceeded more than $7.8 Billion. In May, the Chinese Foreign Minister admitted that the BRI has been affected by the pandemic but clarified that the effect is “temporary and limited.”

The Chinese Government initiative may lose its traction without re-assessment of contractual obligations. Countries involved will be stuck resolving economic situations in their own countries before resuming on launched BRI projects. For at least the remaining part of this year   China and its partner countries need to brainstorm to maintain a balance between the viability of the initiative considering the huge investments and combatting the economic and financial implications of the COVID-19 in their own countries.


With the prompting fears of recession and sovereign debt crisis, many BRI partners might not be in a position to repay its debt. This can put  China in an awkward position, considering the losses that have already been faced through restructured loans, write-offs, and deferments. The BRI is not an aid but an investment with expected returns.  China has rightly put forward its expectation to receive at least the principle of extended loans back. According to the OECD, in the first half of 2018, China’s non-performing assets were valued at $101.8 Billion. Since 2013, Chinese lending in the initiative has been estimated between $450 Billion to $600 Billion, making China the world’s largest creditor.

As a result, in 2019, neither of the four biggest Chinese lending banks have extended infrastructural loans reflecting a diminished appetite for risks. The tightening of capital outflow has led to the cancellation, delay, renegotiation, temporary pause and even cut down of many BRI projects.   


The pandemic is creating new challenges for BRI developmental projects. Accordingly, significant amends in existing loan terms need to bring out in its execution process agreements. This can be done by focusing efforts towards the inclusivity of non-Chinese banks, also financial institutions and making amends to workforce agreements.

The more extended recovery period for countries, the higher will be the burden on Beijing’s ability to sustain the BRI. Inclusivity of non-Chinese banks and other financial institutions will go a long way in reducing the capital burden China has to endure. Globally amid the growing uncertainty of development projects, China will have to play a critical role in creating trust among non-Chinese banks with its BRI partners by acting as a guarantor. Reliance on public banks and state-owned enterprises has created hindrances in China’s attempt to multilateralise the BRI for “common development“. An interesting approach in creating more multilateralism is to develop more interactions among BRI partners keeping aside Chinese involvement. Cooperation among BRI partners can go a long way in creating new trade relationships between countries. China’s faith and dedication in the BRI are worthy of an applaud; however, considering the current scenario and changes in strategic relations, China should lead the movement for more cooperation between BRI partners. This will reduce reliability for Chinese loans and promote shared gains by creating new as well as dynamic trade relations among partner countries and regional cooperation groups.

There is the presence of a trend where Chinese contractors and workers lead the majority of infrastructure projects as part of agreement terms. China should encourage their partners to take majority control of pending projects by involving indigenous contractors and workers. This will help reduce delays and generate more employment for project completion. Through such arrangements, construction completions will rejuvenate the viability of BRI and brush off any credibility concerns. Indigenous workers will be exposed to the Chinese expertise of constructions promoting skill sharing. This cooperation will create self-reliance, which is, the essence of the BRI initiative. Complexities of the pandemic also include uneven travel restrictions and application of lockdown across the countries. Even though China has begun manufacturing, the varied situations in partner countries are going to make it difficult for China to solely monitor.

Over the years, the major concern of the prospective partners is the heavy dependency of the BRI on the Chinese economy. As discussed earlier, fluctuations in the Chinese economy are bound to impact the viability of BRI infrastructural projects making the idea unappealing. China will need to play a proactive role in empowering its partners for investments collaboration of projects with regional cooperation groups. The ability for BRI partners to collaborate without dependency on China for loans and workforce will prove to be a landmark achievement for China’s knowledge sharing objectives. It is only then that the countries like the USA, Japan and India can even begin to gather interest in the initiative.  For the remainder of 2020, China will have to tone down its ambitions and reflect on failing projects along with focused efforts to prove the viability of the initiative, especially amid the pandemic.


China needs to look back for more efficient ways to sustain deals and analyze patterns leading to delays and scale backs.  For instance, in the pre- COVID era, the China-Pakistan Economic Corridor has been scaled back due to debt concerns. Myanmar port deal that was valued at $7 Billion skimmed down to a mere $1.3 Billion. The vast scaling back and increasing debt problems of  Chinese partner countries poses a threat to BRI viability and ambitions,  China needs to play a proactive role in educating partners on debt and recovery mechanisms. The BRI projects have been facing obstacles, especially in the areas of debt undertakings which has put a question mark on its viability in the post-COVID era. The China-led initiative will require significant contract obligation re-assessments, starting with more inclusivity of non-Chinese financial institutions and changing workforce agreements for major control of host countries in infrastructure construction. With little involvement of non-Chinese banks in the past seven years, China will have to garner support for its BRI partner countries in such difficult times.

How China comes out of this with a cleaner balance sheet without overburdening its debt-laden public sector will help dictate its financial health to sustain the BRI.

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