Conclusions

6 | Conclusions

The BRI is a massive, complicated initiative taking place in many risky investment environments. As a result, the complexity of the BRI necessitates a multi-faceted U.S. response, both to respond to the challenge posed by China and to mitigate the negative impacts of BRI projects on recipient countries.

Many of the problems we saw raise concerns about the long-term viability of the BRI. There is some evidence that the BRI is scaling down – but many of the possible negative impacts of these projects may linger. Large Chinese investment projects are declining both in number and in value. While there were 41 BRI projects of over US$1 billion approved in 2016, there were 28 such projects in 2018 and just 2 through the first six months of 2019. 65 A lack of interest in promoting labor, human rights, and environmental standards, conducting stakeholder analysis, and ensuring that projects are economically viable are likely to have consequences in the long-run. Bad projects may cause China to lose status and prestige while impeding the recovery of loans.

Further, emerging domestic trends in China that were outside of the scope of our field visits may increase the negative impacts of the BRI going forward. China in 2013, when the BRI was officially announced, and in the years preceding, when many projects that subsequently became labeled BRI projects were launched, was growing more rapidly than the China of today and faced comparatively fewer constraints on its ability to write off debt. China’s active response to the 2008 financial crisis, during which it was able to maintain growth rates above 10%, was very credit-driven. From 2008 to 2013, total debt-to-GDP grew from 162% to about 200%. 66 China’s total debt has grown more rapidly since 2013, reaching 300% of GDP in 2019. 67 The BRI internationalized some of the subsequent growth in debt, often to high-risk locations. If China continues to slow, the pressure to stand firm on loan terms and attempt to earn a return on investments rather than write off debt will increase.

These dynamics also complicate a potential U.S. response. We believe our recommendations can help address the fallout from existing and future BRI projects. Rather than respond to the challenge of BRI with a U.S.-led counter-initiative, we believe that the best response is to strengthen the ability of recipient countries to negotiate productive projects and increase standards, while also ensuring that the U.S., both the government and the American private sector, is present at the table.

65 Zhou, “China Slimming down Belt and Road Initiative as New Project Value Plunges in Last 18 Months, Report Shows.” 66 Curran, “China’s Debt Bomb.” 67 Lee, “China Now Accounts for Some 15 Percent of Overall Global Debt.”