In the decade since Chinese leader Xi Jinping announced the Belt and Road Initiative, Beijing’s huge infrastructure and investment program has become a defining part of its foreign policy. In the BRI’s early years, dozens of emerging economies in Africa, Asia, and Latin America embraced the program, driven in large part by Beijing’s no-questions-asked approach to lending for megaprojects such as container ports, railway networks, and large-scale dams, and its seemingly limitless financial firepower. The lending spree caught Washington and its democratic partners by surprise, prompting wide concern that Beijing was saddling countries with unaffordable debt while financially backstopping authoritarian friends.
But the BRI lending wave has receded surprisingly quickly. China’s overseas infrastructure lending is now a fraction of what it was five years ago, driven down by the country’s domestic economic woes, by Beijing’s drastic (and widely underappreciated) 2016–17 retooling of its regulations for overseas investment, and by a series of high-profile BRI failures in countries from Ecuador to Sri Lanka. Beijing is not giving up on Belt and Road—far from it. But today, the BRI of the popular imagination—a dominant, globe-spanning infrastructure lending project aimed at cementing China’s power—is effectively dead. In its place is a less flashy, less expensive model of engagement, predicated on cultivating ties more organically in fields such as trade, telecommunications, green energy, and academia.
Policymakers in both developed and emerging economies should take note. Leaders across the global South seeking new financing from China should exercise caution, given that Beijing is increasingly unlikely to sign on to fund big infrastructure projects. The United States and its industrialized partners will have to contend with a shifting paradigm of Chinese influence—one that is moving away from infrastructure megaprojects toward more diffuse, more sustainable engagement. And both groups will need to work together to address the legacy of Beijing’s lending spree, which has fueled corruption, encouraged antidemocratic practices, and saddled recipient states with enormous debts.
Faced with China’s morphing influence campaign, the United States and its industrialized partners have a twofold challenge. They must revise their own development strategy to help meet demands for infrastructure and democratic accountability across the developing world, but they must also help partners in the developing world cope with Beijing’s revamped approach. As China is buffeted by growing economic and demographic headwinds, Beijing is confronting its limits and learning from its mistakes. China’s revamped BRI will pose new challenges to policymakers seeking to respond to China’s expansive economic reach—and its power to deepen democratic backsliding across much of the world.
THE RISE AND FALL OF BEIJING’S MEGA-LENDING
When the Belt and Road Initiative was first rolled out, it was hailed by analysts around the world as “transformative” and “potentially game-changing”. The early numbers on Chinese international lending seemed to bear out that view. According to the AidData research lab, during the first five years of the BRI, China’s overseas development spending averaged more than double the equivalent U.S. expenditures, peaking at an incredible $120 billion in 2016. Beijing’s lending program found an immediate audience because it targeted a genuine and pressing problem: numerous developing countries urgently need large-scale transport and energy infrastructure but are held back by price tags that routinely run into multiple trillions of dollars. Moreover, traditional development lenders such as the International Monetary Fund and the World Bank often provide loans to developing countries with conditions that borrowers have described as onerous or even patronizing. By contrast, Beijing’s no-strings-attached loans have been lauded by leaders seeking more flexible forms of financing.
But China’s infrastructure investment nonetheless came at a price. As research by the International Republican Institute (IRI) and others has shown, authoritarian-leaning leaders have used the BRI not only to fund infrastructure projects but also as a financial backstop for their worst antidemocratic impulses, secure in the knowledge that they could pursue authoritarian policies without endangering Beijing’s financial support. In 2016, for instance, China offered Malaysian Prime Minister Najib Razak, then at the center of a swelling corruption scandal, assistance in spying on critics of BRI projects within his own government—an offer allegedly approved by Xi himself.
In fact, the prospect of large-scale financial support from China appears to have emboldened would-be authoritarians around the world—a dynamic that Beijing has encouraged. IRI’s research, for instance, has documented how Beijing routinely dangles the prospect of lending to cement ties with Salvadoran President Nayib Bukele, who has led an assault on El Salvador’s democratic institutions since ascending to the country’s presidency in 2019. A similar dynamic appears to be playing out in the Solomon Islands, where President Manasseh Sogavare recently moved to alter the country’s constitution to extend his rule, backstopped by the prospect of ongoing support.
But although many burgeoning autocrats may still believe that Beijing stands ready to open its coffers for them, its support is no longer guaranteed. Data from a variety of sources indicate that BRI financial commitments have dramatically slowed. According to Boston University’s Global Development Policy Center, China’s sovereign lending commitments dropped by a whopping 94 percent from 2016 to 2019, from $75 billion to only $3.9 billion. Other regional and global datasets generally confirm the direction and magnitude of the drop. Partial information from 2020 and 2021 suggests that the COVID-19 pandemic may have pared down China’s lending even further: another Boston University database that focused on BRI investment in Africa, for example, indicates that in 2020, China’s lending to African governments dropped to its lowest level since 2004.
But this decline in lending, which was underway as early as 2017, cannot be attributed solely to the economic havoc wreaked by COVID-19. Rather, it is the result of a complex mix of mutually reinforcing factors from both inside and outside China. Taken together, they make it extremely unlikely that Beijing will seek to revive BRI infrastructure lending at its previous scale anytime soon.
NOT TOO BIG TO FAIL
The BRI’s large-scale lending program has slumped partly because of growing headwinds, the most obvious of which are the initiative’s own high-profile failures. In many cases, Beijing simply overestimated the ability of its infrastructure-centered development approach to thrive on foreign soil. From 2007 to 2014, for instance, China loaned Sri Lanka $1.5 billion to build a port and airport at Hambantota—both of which continue to sit largely empty nearly a decade later. Sri Lanka’s economy continues to suffer from the debt it racked up during this period, and China looks set to play spoiler in an agreement with the IMF and other international creditors that could give Colombo much-needed relief. Leaders from countries burned by boondoggle BRI megaprojects are understandably cautious about signing up for another round of loans, and enthusiasm for Chinese investment initiatives has declined in the face of these blunders.
Many observers, however, tend to overlook other political and economic factors in China itself, which have played a far bigger role in driving the slowdown in lending. Most important was a 2016–17 top-to-bottom overhaul by China’s economic regulators of the rules that govern and authorize large overseas investment and lending projects, with the express purpose of dramatically reducing the number and size of overseas megaprojects. Regulators took this step in part because the surge of capital outflows at the BRI’s peak was destabilizing China’s broader macroeconomic stability. The BRI had also increasingly become associated in Beijing with illicit capital flight and wasteful, hubristic spending overseas, as China-based companies slapped the BRI label on theme parks in wealthy countries such as France rather than public infrastructure projects in developing countries in Africa and South Asia.
The regulatory overhaul had its intended effect: China has undertaken far fewer large-scale lending projects in the years since. Beijing’s effort to clamp down on gargantuan foreign investments, coupled with China’s deteriorating domestic economic situation, suggests that a return to the status quo ante of almost unlimited overseas lending seems unlikely at best. Xi seemed to indicate the shift in a keynote address to African leaders in late 2021, in which he didn’t use the word “infrastructure” even once.
CHINA’S TIGHTENING BELT
Rather than marking the end of the BRI, however, Beijing’s reorientation away from unbridled lending may push the program toward a more sustainable model. As it moves away from infrastructure megaprojects, Beijing appears to be embracing less capital-intensive, more organic forms of economic collaboration with developing economies. As research by IRI and others has shown, the “Belt and Road” label now extends far beyond infrastructure to encompass less flashy and less expensive initiatives in fields such as academia, telecommunications, green energy, and even tuna fishing.
Beijing is transforming the BRI, and it is doing so discreetly and intentionally; neither China’s overall reduction in lending nor the diffusion of the BRI beyond infrastructure is entirely accidental. Even as BRI lending peaked in 2016 and 2017, policymakers and researchers in China had already begun to call for a BRI that was better tailored to host country needs, more environmentally friendly, and less concentrated in high-profile infrastructure projects.
Beijing has shifted the BRI accordingly. It has increased China’s involvement in the think-tank and academic worlds, working to get first dibs on structuring the field of China studies in countries with emerging Sinology programs—such as South Africa—through academic exchanges, grant programs, and Confucius Institutes. Under the BRI’s auspices, China has also expanded its footprint in the media sector throughout the developing world—most notably in Africa, where the China-based satellite broadcaster StarTimes has won market share from national state broadcasting companies and private competitors alike. China’s efforts to bring its technology to the developing world are likewise growing: although Huawei, for instance, has now been largely shut out of industrialized countries’ telecommunications networks, its 4G and 5G business continues to perform strongly in many countries in Africa and South Asia. Investment by China’s state-owned and private companies in green energy and power grids continues to perform well, and Chinese companies and state institutions are stepping up their cooperation with other countries such as Tanzania, Myanmar, and the Solomon Islands in security, surveillance, and “governance” training.
Beijing has not abandoned its quest for global influence through economic development. It has adjusted its strategy—in some cases out of necessity—in more flexible, targeted, and organic directions. China’s party-state continues to try to win the political and economic allegiance of low-income countries around the world—and it has found a cheaper way to do so. Although Beijing’s decision to move away from large infrastructure projects that tend to foster antidemocratic behavior might seem like a blessing to Washington and its partners, it is at best a mixed bag for everyone involved.
A CHANCE FOR DEMOCRATIC DEVELOPMENT
China’s reoriented approach offers new opportunities for the United States and its G-7 partners, but to take advantage of them, democratic leaders will need to craft a far more proactive and coordinated development strategy. First, China’s step back from infrastructure has given Washington and its allies a chance to step forward. Critical infrastructure gaps remain throughout the world, and given the mixed results of China’s no-strings-attached financing, leaders—and, more important, voters—across the developing world may be more ready to embrace lending that comes with greater accountability and clearer benchmarks.
Moreover, many of the BRI’s ongoing target areas, such as academia, telecommunications, and trade, are fields in which industrialized democracies are well-positioned to compete. The United States and its democratic partners must invest far more in a shared approach to building ties with countries struggling to keep relations with China on a healthy footing—for example, by promoting trade and business, supporting journalism and academic exchanges, and providing scholarships and technical training. Washington and its partners could also invest in creating a new fund for development and democracy, which would demonstrate a shared desire not only to support developing countries’ physical infrastructure but their democratic infrastructure, as well.
The United States and its partners must also expend more effort on building relationships with smaller countries. China’s ongoing reorientation of the BRI will make these countries more, not less, important to Beijing. Although China may be backing away from multibillion-dollar commitments in large developing economies, smaller commitments can still go a long way in places like the Solomon Islands or Serbia. It has become a cliché in foreign policy circles to say the United States and its partners just need to work on simply showing up—but the truth holds that the unglamorous work of maintaining a presence remains the best way to build the trust and relationships that yield crucial opportunities.
Finally, the United States and its partners should stop shying away from promoting democracy alongside development. Indeed, the United States Agency for International Development has already started down this path; alongside the Biden administration’s Summit for Democracy, USAID has reemphasized the importance of healthy democratic institutions to long-term development. But too many of the United States’ industrialized partners are hesitant to openly embrace or emphasize the notion that democratic institutions such as independent courts, strong legislatures, a free press, and well-run elections can enable development. Some analysts have long expressed concern that calls for democratization could recall the United States’ own Cold War–era interventions or could alienate countries where leaders are not democratically inclined. The more that other democracies and major aid donors can add their voices to Washington, the less validity these concerns will have. The United States alone touting the benefits of democracy could easily be dismissed as the product of a Cold War mindset; a coalition of democracies stretching from Canada to Japan doing the same would be much harder to brush off.
The sooner policymakers can acknowledge China’s shifting international strategy and reconfigure their own approach, the better. China’s party-state is quickly learning what the United States discovered after its own emergence as a superpower: that changing other societies is a complicated, messy business, and that trying to do it through large infusions of cash can backfire in damaging ways. How Beijing applies these lessons, and whether it is successful in its pursuit of power, remains one of the most pressing questions for democracy globally. It is up to the United States and its democratic partners to develop answers of their own—and to make them as effective as possible.
Matt Schrader and J. Michael Cole are the Adviser for China and the Senior Adviser for China, respectively, at the International Republican Institute. They are lead researchers on the recent IRI report Coercion, Capture, and Censorship: Case Studies on the CCP’s Quest for Global Influence.