China must multilateralise BRI, for Global South’s sake

A decade since the inception of the Belt and Road Initiative (BRI), Beijing seems to have spent its way to international disrepute. The initiative has accumulated a lot of bad press in recent years, and enthusiasm for the initiative among BRI member countries, and even key stakeholders in China, has diminished greatly. Meanwhile, the OECD countries see China as a rogue donor that threatens the coherence and stability of the global development finance regime and are thwarting China’s attempts to multilateralise the BRI in recent years.

While Western propaganda, boosted by its allies in South Asia, played a significant role in scapegoating the BRI for home-made economic disasters in the region, China is in part to blame too. Beijing’s penchant for shielding its projects from public scrutiny, its apparent inability to anticipate the international community’s reaction to agreements with countries from the Global South while ignoring the procedures of the OECD’s Development Assistance Committee, and utter cluelessness about the countries they operate in have led to China scoring colossal own goals, losing in the court of public opinion.

This article looks at the main stumbling blocks in the BRI, why it needs to multilateralise to achieve its objectives, and what China can do to convince the world that it is serious about collaboration and transparency.

Why the BRI needs to work

Contrary to what its detractors say, both China and South Asia have a lot to gain from the BRI’s success. South Asia’s infrastructure needs are real. According to the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), infrastructure deficits result in GDP losses of 3-4 percent annually and the region will need about five trillion US dollars by 2030 in infrastructure investments. The BRI offers real opportunities for South Asian nations to build infrastructure that they desperately need. There is no one else offering similar amounts of money required to build roads, ports, and airports.

Moreover, the BRI is an important part of China’s ambitions of remaining a major power and being a leader in development finance with its own development strategy. China has also invested heavy political capital in the BRI. For example, in 2017, during the 19^th Party Congress, the BRI was enshrined in the constitution of the Chinese Communist Party, and in 2021, it featured prominently in China’s third white paper on development assistance. If China can address the main concerns people have with regard to the BRI and make it a shared project, involving a large number of bilateral aid and export credit agencies, multilateral development banks and commercial banks around the globe, this will greatly benefit both China and recipients of its development finance.

Where did China go wrong?

When the BRI was unveiled in 2013, China’s leaders thought it would increase the country’s soft power. President Xi Jinping in 2013 argued that his government’s actions “should increase China’s soft power, give a good Chinese narrative, and better communicate China’s message to the world”. However due to several reasons, Beijing made a series of mistakes, and these have forced it to assume its current defensive posture. What transpired in Sri Lanka is a good example of its mistakes and the reputational damage China has incurred.

China started out in Sri Lanka with a number of advantages. Since the 1950s, China-friendly societies and leftist political parties and intellectuals had done a great deal of work to boost China’s image among Sri Lankans. By the time China started making serious investments in Sri Lanka, circa 2009, a significant number of Sri Lankans saw China as a friend, and its loans, which came without strings attached, were viewed favourably. However, after funding several white elephant projects under the Mahinda Rajapaksa administration, which has been accused of corruption, it went to purchase a distressed asset—the Hambantota Port. The leasing of the port is widely seen as a classic example of Chinese “debt trap diplomacy”. Despite its many institutional weaknesses, Sri Lanka does have relatively high levels of media and parliamentary scrutiny and soon questions about opaque loan agreements, collusion, illicit payments between the Rajapaksa regime and Chinese contractors, and artificially-inflated project costs were being asked.

Sri Lanka has relatively free and fair elections and supporting China in 2022 comes with great political risk, especially as China still has not publicly distanced itself from the Rajapaksas.

Instead of being responsive and transparent, China doubled down on catering to the interests of Sri Lanka’s political leaders. This strategy backfired and public sentiment on China changed. Sri Lanka has relatively free and fair elections and supporting China in 2022 comes with great political risk, especially as China still has not publicly distanced itself from the Rajapaksas. These mistakes have fed the Western narrative of a “Chinese debt trap”, although China only holds about 15 to 20 percent of Sri Lanka’s debt stock and the island nation’s economic woes are more a result of its own unsustainable development practices that rely on a number of financing sources not limited to China.

What can China do?

In the beginning, Western donors and lenders encouraged China to multilateralise the BRI. They insisted that China establish a common set of project appraisal standards, procurement guidelines, fiduciary controls, transparency policies, and social/environmental safeguards. These Western donors claimed that by putting these in place, China could persuade other aid agencies and development banks to support the BRI. But Beijing chose to go it alone.

The Chinese project approval process is flexible and faster than that of the OECD Development Assistance Committee. Since most politicians work with electoral cycles in mind, this is one of the reasons why many countries go for Chinese commercial loans.

The manner in which the Chinese government sources project proposals and vets them prior to approval is relatively simple. Usually, a government that needs project funding approaches the Economic and Commercial Counselor’s Office (ECCO) attached to China’s diplomatic mission with a proposal. ECCO determines if the proposal meets a minimum viability standard. If it does, ECCO submits the proposal to the Ministry of Commerce and the Ministry of Foreign Affairs in Beijing. A team of technical experts from the Ministry of Commerce subsequently visits the recipient country to carry out a project and budget feasibility assessment. This is done in consultation with local authorities. After the Ministry of Commerce team returns to Beijing, they prepare a final project proposal for the State Council’s consideration. If the State Council approves the project, the Ministry of Finance transfers the funds to the Ministry of Commerce and the procurement process begins.

There are several vulnerabilities in this process. Unlike institutions such as the World Bank, which usually negotiates projects with technocrats in the line ministries of recipient countries, China works with the Office of the President or the Prime Minister to prepare and submit project proposals. This gives political leaders a lot of leeway. The Chinese themselves have admitted to the flaws in the project approval process, the need to change it, and the importance of multilateralising the BRI.

These developments signal that Beijing is ready to shed its traditional role of status quo challenger and become a champion of international rules and standards.

In September 2018, President Xi Jinping gave a clear warning to would-be borrowers: financing from China was “not to be spent on any vanity projects but in places where they count the most”. In the same year, China financed the establishment of a China-IMF Capacity Development Center to train Chinese government officials on debt sustainability frameworks (DSFs) in low-income countries and other BRI related-projects. In 2019, Beijing declared it would team up with eight multilateral institutions: the World Bank, the Inter-American Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the International Fund for Agricultural Development, Corporación Andina de Fomento, and the Asian Infrastructure Investment Bank, to establish a Multilateral Center for Development Finance. President Xi also stated at the Second Belt and Road Forum for International Cooperation that China would “adopt widely accepted rules and standards and encourage participating companies to follow general international rules and standards in project development, operation, procurement and tendering and bidding”.

These developments signal that Beijing is ready to shed its traditional role of status quo challenger and become a champion of international rules and standards. Unfortunately for China, however, there is almost no indication that the OECD’s Development Assistance Committee or multilateral development banks are ready to jump on the BRI bandwagon. If anything, what is seen is a growing aversion to collaborating with China as more and more BRI recipient countries head for trouble.

While several OECD countries would also be quite happy to see China lose face, the Chinese government, too, needs to change aspects of its behaviour vis-à-vis development financing. China needs to overcome its reluctance to be transparent about its financial and implementation arrangements with host governments. A 2020 study by Johns Hopkins SAIS professor Dan Honig found that projects carried out by aid agencies and development banks which had better access to information (ATI) policies and institutions performed substantially better. China also needs to convince other donors that it is willing to change its tendency to independently finance, design, and implement projects rather than adhere to common standards and rethink its go-it-alone approach to solving sovereign debt management problems.

In its history, the Chinese Communist Party has shown a penchant for making hairpin turns in policy when the occasion demanded it. Hopefully, it will make the necessary painful adjustments to convince its peers that it is ready to negotiate a mutually-agreeable set of international rules and standards on development finance and demonstrate its commitment to multilateralise the BRI.

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The opinions expressed in this article are those of the author. They do not reflect the opinions or views of Debas.

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_{Cover Photo: Hambantota International Port Group}