March 26, 2023

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Geopolitics: Why Xi Jinping’s Silk Roads Are Losing Their Luster

The famous Silk Roads were launched by Xi Jinping at the beginning of the first term of the Chinese Communist Party. It was then the main axis of its foreign and trade policy. As he prepares to begin a third term, where is this alternative to US globalization initiated by China?

References to this massive weapon of economic diplomacy are becoming increasingly rare in the official discourse of Chinese leaders. However, the programs in about 150 countries are very real. About 3.5 trillion dollars have been paid since 2017, which is three times the amount of the US giga-project for infrastructure proposed by Joe Biden. Given the size of the network, it is hard to see Beijing withdrawing suddenly. China today requires a return on investment, first asking that it pay back the money it has lent. But times have changed, and the promise of a win-win partnership has withered with the rise of new economic risks and harsh criticism from the countries involved.

Beneficiary countries are on the brink of bankruptcy
It is in Sri Lanka where the default is most dramatic. The people, having lost everything, rebelled against the authorities. Pakistan also has precarious finances, weighed down among other things by debt linked to the Silk Roads. Many more countries have been weakened by the baronial schemes initiated by Beijing. A quarter of the states affected by this mega scheme are in financial distress. Initially, by playing the role of the rising planet’s creditor, China found a heaven-sent outlet to shift its trade surplus with the US and thus limit the rise of the yuan. But the Covid outbreak and accompanying economic problems have put the brakes on the plans. Repayment difficulties are increasing, which poses a major problem for countries in debt, but also for China, which is trying to recover its shares. A second persistent criticism: these infrastructures, meant to accelerate development, do not always deliver on their promises. Sometimes the work never ends. Uganda refuses to finance the last 300 kilometers of the railway line linking Mombasa in Kenya to Beijing. In addition, this new method of transportation is very expensive, so freight is neglected. Sometimes, these infrastructures do not match any real need or fail to create this need. This is the situation where cargo ships bypass the Sri Lankan built international airport or Ambantota port. Debt repayments for jobs that bring nothing represent an unbearable burden, forcing many countries to renegotiate or renege on concluded agreements. We have seen it in Indonesia, Malaysia, Nepal or even Bangladesh.

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Do these frustrations call into question the sustainability of the pathways? Silk?
Xi Jinping has spun his web for domestic economic reasons. Its aim was to facilitate trade, find new outlets and open up the eastern provinces. In this regard, the future looks very uncertain. Global trade is becoming less regionalized. China is also trying to prioritize its domestic demand, after all, it faces a severe slowdown in growth today due to the zero-covid policy and the Russia-led war in Ukraine. Somewhat questioning this “silky” canvas. The plan also has an even more important strategic purpose for Beijing. It is an alternative route for exports to the China Sea. This objective is an absolute priority at a time when relations with Taiwan are dangerously fraying. Therefore, the Silk Roads still have a bright future, even if it is somewhat reshaped.

Jules Capas with the agency / ECO Inspirations