Without reforms, China's Belt and Road projects could fall short
The World Bank has released a study on China’s Belt and Road Initiative (BRI) that predicts major economic benefits, but only if Beijing makes some even bigger course corrections.
The big picture: While the authors find that infrastructure can increase growth through trade and investment, these gains depend on a host of reforms such as greater transparency and data reporting — especially around debt, open procurement, and social and environmental standards. Essentially, the study advises China that success requires becoming more like the World Bank.
Details: The study focuses on the BRI's transportation projects, forecasting that they could lift 7.6 million people from extreme poverty (earnings below $1.90 a day) if successfully completed.
- The world needs more infrastructure, especially developing countries in Asia, and it stands to benefit from anyone who provides it the right way.
Yes, but: Building infrastructure does not automatically create value, the study warns. Success depends on picking the right projects and delivering them effectively, otherwise they destroy more value than they create.
- While Chinese officials sell the BRI as “win-win,” some partner countries, like Mongolia and Tajikistan, could lose out as the costs of infrastructure exceed the gains. They also face particularly high risks of default from BRI–related financing.
- About half of BRI transportation projects are expected to provide little value, according to another recent World Bank study.
Where it stands: China likes the BRI just the way it is.
- Part of the problem is that its state-owned enterprises are eager to build regardless of economic viability; having poured more concrete between 2011 and 2013 than the United States used during the entire 20th century, they have run out of things to build at home.
- In the absence of transparency and effective oversight, these firms can bribe local officials in recipient countries to greenlight more and bigger projects.
Between the lines: China also faces a massive coordination challenge. Unlike efforts led by multilateral development banks, most of the BRI’s transportation corridors are defined only at the national level and do not name or prioritize individual cities and roadways. Without adequately defined scopes, these projects could squander resources.
The bottom line: The potential benefits the World Bank lays out are not unique to Chinese transportation projects. But China’s current approach to delivering infrastructure makes it less likely those benefits will materialize.
Jonathan Hillman is director of the Reconnecting Asia Project at the Center for Strategic and International Studies.