Belt and Road

Digging a hole

A warning from the IMF on Belt and Road loans


Shoddy work: the tunnel in Gansu

On April Fools’ Day this year, the Chinese state broadcaster CCTV ran a report which turned out to be sadly not a hoax story.

It detailed the safety violations in the construction of a highway in Gansu province. The road was built in 2011 as part of a Rmb1.6 billion ($250 million) plan to connect two remote townships. Last year a whistleblower revealed that a tunnel on the highway hadn’t been built to a safe standard and that deep fissures had appeared in its walls. Following the tip-off, local authorities ordered Sino Nuclear, the state-owned contractor responsible, to close it for repairs. However, according to state television, the tunnel was never closed and the cracks were simply painted over.

Just 24 hours after the latest revelations Gansu’s provincial government said it would rectify the situation and its website carried an apology promising to “learn from the incident, deeply reflect and improve ourselves, in order to satisfy society in the future”.

The People’s Daily still gave the local authorities a serious dressing-down. “Problems such as complying in public but opposing in private, deceiving superiors and oppressing inferiors, doing discounted and flexible work, and being lazy and careless have appeared more than once in Gansu,” it scolded in an op-ed.

Scandals like these might once have cast unwelcome aspersions on one of Xi Jinping’s favourite foreign policies: the Belt and Road Initiative (BRI), which promises to deliver a vast new network of roads, railways and transport infrastructure between China and Europe.

Projects identified with Belt and Road origin have now spread across 86 countries and racked up $50 billion of outbound investment, the South China Morning Post reports.

In fact, the construction work under the auspices of the plan has largely overcome China’s former reputation as a manufacturer of low-grade or shoddy goods and the country’s firms now take the lead on many of the world’s largest infrastructure projects.

That’s not to say that some of the projects haven’t already experienced delays and cost overruns, as the Nikkei Asian Review reported last month, including a $6 billion railway line in Indonesia that was celebrated as a landmark event for the Chinese in outbidding Japanese rivals (see WiC299).

Because of the delays, the Indonesian government has just admitted that the railway won’t be running in 2019 as planned.

Difficulties like these may be less of a concern in markets where there is little alternative to Belt and Road finance.

But elsewhere in the world, there are words of warning for nations that sign up too enthusiastically for Belt and Road projects.

Christine Lagarde, managing director of the IMF, acknowledged at the Boao Forum this month that the infrastructure initiative was providing much-needed financing, but she urged that it shouldn’t be regarded as “a free lunch” by the nations that accept it.

Some of the ventures could lead to a “problematic” increase in debt levels, she also warned, restricting other spending because of debt servicing obligations.

As an example, Beijing has lent at least $1.4 billion to Djibouti over the last two years – a total that’s more than 75% of the east African country’s annual GDP. There are reasonable grounds for wondering how that is going to be paid back.

The wider suspicion is that the Chinese will want something in return for their largesse. Hence the observation from the former US Secretary of State Rex Tillerson on a trip to Africa shortly before he left office that “China offers the appearance of an attractive path to development, but in reality is trading short-term gains for long-term dependency.”

But Xi Jinping used his keynote address at the Boao Forum in Hainan to deny the notion of ulterior motives behind the infrastructure plan.

“The Belt and Road Initiative is not a Chinese plot, as some people internationally have said,” he told the gathering. “China will not engage in geopolitical games for selfish ends, nor will it create an exclusive club, nor will it force trade deals on others from above.”

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.