Beijing's Bubble Bursts Part 3

March 4, 2024

On October 17, China’s Belt and Road Initiative (BRI) celebrated its tenth anniversary with great fanfare in Beijing. Vladimir Putin and the head of Afghanistan’s Taliban regime attended, along with leaders from 130 countries. There were speeches and banquets to celebrate President Xi Jinping’s flagship initiative. He delivered a grand speech and claimed huge success, but numbers tell a different story. Another gigantic Chinese real estate conglomerate last week filed for bankruptcy in a Hong Kong court. The economy is slowly tanking, sinking under massive real estate and government debts. (See my Beijing’s Bubble Bursts, Part 1 and Part 2.) When Xi launched BRI in 2013, China’s economic growth was double digit and Xi created BRI in order to make China a geopolitical superpower and upend America’s domination. Beijing signed deals with countries and financed the building of massive infrastructure projects. Currently, a trillion dollars’ worth of IOUs are owed by most of the countries whose leaders that were in attendance at the celebration — debts that may never be paid. Recently, Foreign Policy sneered about Xi’s debacle and labelled it the “Belt and Road to Nowhere”.

China and its BRI targets. Wikipedia

China signed agreements in principle with 150 countries in Eurasia, Africa, Latin America, and Western Europe representing 60 per cent of the world’s population. To date, Beijing financial institutions have loaned $1.1 trillion to build projects in 60 of these nation-states, most of which are in default. The ambitious and aggressive scheme has also been riddled with scandals, involving bribery and incompetence. Euronews listed some of its biggest failures under a headline which read: “Cash, corruption, crumbling dams – that’s China’s BRI, 10 years in”.

It added that “as the celebrations for the BRI’s 10^th anniversary kick off, attending countries would do well to ask whether their citizens have anything to gain from ‘win-win’ cooperation with China. Xi claimed at the First BRI Forum that the initiative would establish a `stable and sustainable financial safeguard system that keeps risks under control. Instead, the opposite occurred’.”

Xi’s anniversary party included only two leaders from Europe — Hungarian Prime Minister Viktor Orban and Serbian President Aleksander Vucic — both Putin proteges. The only G7 nation that signed an agreement with Beijing was Italy in 2019, likely due to Putin’s friendship with its former, sleazy President the late Silvio Berlasconi. But that China tie was severed on December 23 when Italy announced it would withdraw from BRI. Interestingly, Russia, technically “European”, never participated directly. Instead, at the 10th anniversary gathering, Putin made a speech inviting countries to participate in his pet development project — the Northern Sea Route, a pie-in-the-sky project aimed at providing a year-round, ice-free shipping channel to link Asia and Europe as an alternative to the Suez Canal. So far, it’s a non-starter for two reasons: The route is ice-fee for only two months a year and, worse, it is Russian controlled.

China’s biggest basket cases as of November 2023

Xi’s big idea was billed as a win-win for poorer countries that needed infrastructure. But instead of liberating most from poverty, the BRI has instead turned customers, unable to pay, into vassal states. Or basket cases. For instance, in May 2022 the first dramatic casualty surfaced when the island-nation of Sri Lanka off India’s coast, with a population of 21 million, defaulted on its debts for the first time in history after years of mismanagement and one-sided deals with China. Its borrowings have become a full-blown political and humanitarian crisis.

Now Ecuador is mired in a national debt-and-corruption scandal involving a BRI hydroelectric project that cost $2.245 billion to build and doesn’t work because of design and construction flaws. In March, the country’s former President, Lenin Moreno, was criminally charged, along with 37 others, with taking $76 million in bribes between 2009 and 2018. They deny allegations and China refuses to either fix the dam or to participate with legal authorities.

Euronews recounted other BRI mishaps and scandalous examples of malfeasance or state theft. “In Sri Lanka, elephants wander through a mostly empty international vanity airport built in the former President’s home district. In Zambia, the massive Mongu-Kalabo highway, linking western Zambia to Angola, sees mostly foot and bicycle traffic. In the Democratic Republic of the Congo (DRC), China didn’t build the bulk of the promised infrastructure at all — constructing less than $1 billion of the agreed $3 billion in infrastructure China offered in exchange for extracting critical minerals that have been valued at between $10 billion and $17 billion. And through it all is Chinese-fuelled corruption. Chinese state-owned businesses paid bribes of $55 million to President Joseph Kabila and his entourage in the DRC. Chinese officials covered up and abetted the embezzlement of as much as $1 billion by Malaysian Prime Minister Najib Razak.”

Chinese financial arrangements were purposely “opaque” to hide corruption. For instance, Laos collapsed economically due to outstanding debts rumored to be equivalent to 123 percent of its GDP, with half owed to China. But no one knows for sure. Other ASEAN nations (Association of Southeast Asian Nations with 10 members) have been damaged, but each obscures the extent of its China debt crisis. “Malaysia signed up to a number of mega-project contracts with China in 2016. These received great fanfare and included a gas pipeline, a luxury real estate development, and various railways. But scandals erupted because kleptocrats profited from these and other initiatives and the biggest were suspended or cancelled, or left to languish, worsening its already unstable political and economic situation.”

Africa is another made-in-China catastrophe. A few years ago, I helped locals stop a coal plant from being built off the coast of Kenya, a country with enormous, unrealized renewable energy potential. Along the way, I discovered that the continent was littered with dozens of dirty coal plants – built by China in return for cheap access to critical minerals and local markets. Critics of this predatory BRI program had appropriately dubbed it “the coalinization of Africa”. The publicity in Kenya resulted in the cancelation of dozens of proposed dirty coal plants on the continent.

Tragically, most of these countries will never dig themselves out of debt because China let them get in too deep and also because it has been unforgiving, unlike the World Bank and IMF which restructure debts in cases of hardship. China plays hardball but, as a result, it is now the biggest “debt collector” in the world. Bad debts have forced Beijing to provide $80-billion-a-year to support its struggling “clientele” to avert defaults and attention to its global construction flop. “There are more Sri Lankas on the way," said the World Bank’s Chief Economist Carmen Reinhart in an interview in 2023 with Reuters. She said others, such as Ghana and Egypt, were also facing significant shocks as a result of Russia’s war in Ukraine and surging food and energy prices. "There are a lot of countries in precarious situations,” she said.

This means that China, billing itself as a “Robin Hood” alternative to America, has become a monstrous “Fagin”, or criminal mastermind, that controls the fate of indebted nations and extracts political or economic favors or payments in kind easily. This includes access to mineral or fossil fuel wealth as well as to the consumer markets which they swamp with Chinese consumer products, stunting their own economic ambitions. There are other quid pro quos designed to hamper Western economic activities and influence, such as the veto on the Security Council.

Still Beijing is, like its debtors, in a very precarious situation at home and abroad. Its exports tumble. And China’s Economic Miracle is no more. Xi’s BRI, with its gigantic, non-performing loan portfolio, will prove to be as foolish and ruinous as has been his alliance with the predatory Putin. Europe and America are thoroughly disenchanted. China has been chastened and will be preoccupied for years digging itself out of the hole it’s dug for itself.