CAMAL’s Managing Director Mr Walter Ruigu wrote the article attached to give a better understanding of the Belt & Road initiative.Introduction:

China’s Belt and Road Initiative has taken the world by storm, becoming an important worldwide infrastructure project that attracts attention from critics and supporters.

• This initiative is intended to connect Asia with Africa and Europe with road infrastructure that aims to increase trade between the countries and promote economic growth.
• With the project going through prospective meetings, many thoughts are residing around this project.

As CAMAL’s Managing Director attends the infamous Belt & Road Initiative meetings in Beijing, he leaves a word of thought, introducing the critics around this initiative:

“I attended the second meeting of the Belt & Road Initiative (BRI) in Beijing a couple of weeks ago. The event was a more subdued affair compared to the previous meeting and similar multilateral forums such as FOCAC. This was partly in response to the ever-growing list of negative narratives that have been lobbed at the initiative that range from references to ‘debt traps,’ new colonialism, and other labels that often leave readers perplexed at what exactly is going on. I would like to point out essential components of the BRI that critics are missing”

1. China is listening (in its own way)

Small but Significant Changes:

The celebration of the Belt and Road Initiative using a newly conducted train

• When BRI was first announced it was known by the English translation of its Mandarin Chinese name Yidai Yilu e. One Belt One Road.
• Critics were quick to point out that this name has a tingling of expansionism. This resulted in a name change to the present Belt and Road Initiative but the Chinese name remains unchanged.
• Whereas the name is not as controversial as ‘Made in China 2025’, the name change is meant to be more encompassing and so far seems to have placated most pundits.

Belt and Road Initiative Meeting between China and the Philippines

Bigger Changes:

• There has been growing criticism of so-called ‘debt trap’ diplomacy which has caused China to re-evaluate projects from Malaysia to Ethiopia to Cameroon. The norm will now be debt restructuring and cancellation and we shall see the debt trap narrative slowly evaporate.
• More emphasis will be placed on project definition – what exactly is a BRI project? Who defines it? What are the hallmarks? Since this has been fluid from the very beginning, expect China to firm up a definition soon to ward off criticism and streamline successful projects. This will be even if projects are retroactively defined as happened with Kenya’s SGR.

Cooperating countries in this initiative

China’s risen standards:

• A more thorough risk analysis reveals that when Kenya failed to secure financing for the final leg of the Standard Gauge Railway (SGR), critics were quick to point out that China had ‘rejected’ Kenya’s request.
• In reality, this section had never been approved pending commercial feasibility studies. As any investor should, China expects the projects along the BRI to deliver returns – this is not a surprising fact. Expect more focus on projects that can demonstrate commercial returns – especially power projects – as opposed to simply water supply projects for instance.

The fact that President Xi’s address at the BRI addressed issues of pollution, corruption, and debt already sends a signal that BRI projects will be held to higher standards.

China and Italy’s ministers cooperation in the Belt and Road Initiative

2. BRI has contributed to raising the profile of countries along the route with different countries and their firms.

China’s assistance:

• The best thing that China ever did for Africa was to elevate the level of competition amongst developed countries vis-à-vis the continent. Far from being the ‘Hopeless Continent’ that the Economist magazine once proclaimed, China has rekindled interest in the ‘Africa Rising’ story.
• America’s recent launch of the USD 60 bn International Development Finance Corporation (IDFC), Japan’s revamped TICAD, and the EU’s ‘continent to continent’ initiative are just a few examples.
• BRI has raised the stakes among global powerhouses – if you are not in Africa now, you are missing out.

China’s Infrastructure Presence in Africa

3. BRI has been an important driver of private investment along the route

• There is an adage I have come to learn in China. Chinese state-owned companies follow their government and the private companies follow the SOEs.
• This is partly due to how Chinese firms perceive risk, as well as  how the local media markets countries that are termed as ‘friends of China.’

China-Kenya Investment Changes:

• A case in point is that of Kenya. Before the launching of the (SGR) or Mengnei Tielv, as it is known in China, the level of knowledge among Chinese companies was generally very low.
• Most Chinese firms are unaware of Kenya, not just business-wise, but also geographically.
• Just over five years later, there is a noticeable uptick in interest not only among SOEs but private companies across various sectors. In fact, at the recent BRI China-Kenya business forum, I was astounded by the multitude of Chinese companies that not only ‘want to go’ to Kenya, but already have set up projects in a plethora of sectors in cities that even locals would be hard pressed to point out on the map.

Kenya’s newly funded and built infrastructure by China

4. BRI remains linked to events in China’s domestic  economy

Changes to China’s Domestic Economy:

• The BRI was launched amidst the background of a slowing economy, to effectively accelerate China’s ‘going out’ policy. This has cut along most sectors, but especially the commanding heights of the economy i.e. steel, cement etc.
• Our work in assisting foreign companies in their sourcing from China has given us an on-ground view of what is happening in China.
• Just last week, the Guangdong government announced state subsidies for private companies. What do we expect will happen to those who don’t receive subsidies? They will either collapse or ‘go out’ for more attractive business prospects.

Chains slowing economic growth

5. BRI has become a renewed driver of China’s ‘going out’ policy

BRI Effect on China’s actions:

• Never since 2005, when China reduced restrictions on the outflow of capital for investment overseas, has a government-led initiative pushed so many firms overseas.
• Every conference in China that has any element of ‘going out’ is now linked with BRI. This means whether you are focusing on manufacturing, IT, tourism, or even FMCGs, BRI remains the overarching theme.
• This is also pushing Chinese firms to hurry and figure out how to ‘go out’ of China and into overseas markets. Of course, a slowing economy has also been a catalyst, but generally speaking, Chinese firms are still bullish on BRI countries (see number 3 above).

China attempts in the “Going out” policy, to expand China companies overseas

6. BRI is also misunderstood domestically in China (for different reasons)

Effect of BRI On China’s Debt:

• It is not uncommon to encounter Chinese companies that are keen to congratulate me on Kenya receiving a ‘free’ railway from China. My reaction is usually to ask them why so many people are complaining about debt if the railway is free.
• The response is typically a long silence while the other side tries to reconcile what they just heard with what they understood to be the case.
• The problem is that domestic outlets often refer to such projects as yuanzhu xiangmu, which essentially are grant projects rather than daikuan xiangmu which are projects financed by debt.
• The frequent usage of the former term has led to a misunderstanding of various BRI projects locally. On the other hand, there is also concern from some quarters that some of the projects may not generate returns, but these analyses typically overlook other ‘soft power’ returns from the projects such as support for China in international institutions, market access, etc.

The meeting for the Belt and Road Initiative taking place in China with flowers on the floor

7. China is still ‘winging’ it

China’s Response to Mistakes:

• Whether it’s called crossing the river by feeling the stones, trial and error or simply winging it, there is no perfect blueprint for how to build a new Silk Road in the 21^st century.
• So rather than wasting time theorizing how to do it, China proactively launched the initiative. Although mistakes have and will be made, adjustments will be the norm when and where they are required.
• When China began project financing in Africa, models such as ‘Angola Mode’ and debt financing backed by sovereign guarantees were common financing options. T
• These methods have resulted in some of the fastest implementations of infrastructure projects ever seen on the continent.
• However, the scalability of these two financing models has reached its climax (or nadir) and now will have to be complemented if not replaced by new options. For one to dismiss the African continent’s progress achieved under these financing methods is simply disingenuous.

China’s changes to infrastructure and mistakes on roads

8. China is changing the world, but the world is also changing China

The Importance of Criticism on the BRI:

• When comparing China’s BRI efforts and the criticism lobbed against it, the irony is that the critics will be an important component of the BRI’s success as they will continue pushing changes to improve the initiative.
• For instance, Indonesia was very clear during the BRI forum that BRI should complement its national development strategy and include the private sector.
• How will this pan out? How should BRI encompass foreign private firms into the initiative? These were only some of the crucial questions that were raised in this year’s BRI forum.

The effects of the BRI worldwide.

Conclusion:

While there have been many critics against the BRI, there have also been new perspectives on how to perceive the criticism of the BRI. These are the important reasons why the BRI is not as bad as critics think.

• As people criticize China and the BRI, calling it a “debt trap” it has greatly improved the GDP and expansion of lesser-known countries like Kenya.
• The BRI has changed how private investment and companies work in China, for the better.
• BRI has brought attention to China and its industry, helping with recognition, manufacturing, IT, and even tourism.
• China is everchanging and responding to all mistakes and critics positively, trying to complete this project with perfection.

China and Kenya’s benefits of cooperation on the Belt and Road Initiative

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