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Economy

The Belt and Road Initiative: The March of White Elephants?

Feb 22 , 2019

For the past six years, the Belt and Road Initiative (BRI), also known as the One Belt, One Road, has been such a popular phrase, which is discussed at every political convention. While much of the discussions are focused on the potential economic benefits of the trillion-dollar initiative, greater attention should also be paid to the risks of creating white elephant projects – ‘never-to-be-recovered’ infrastructure projects that have little value to recipient states. As the existing evidence underlines, infrastructure investments have to be more focused on quality and impact than mere quantity and volume – otherwise, the impacts of such investments will be marginal.

Such a conceptual framing becomes particularly relevant to the BRI, since China’s flagship project rests on a nearly dogmatic assumption that infrastructure investments presuppose economic growth and enhance the quality of life of the peoples involved. It is not surprising that President Xi Jinping keeps stressing that the economic corridors of the BRI will benefit people along those routes and will ultimately lead to the creation of a community of common destiny. Nonetheless, colossal investments in infrastructure do not immediately translate into economic gains and improved well-being. While infrastructure is generally recognized as important for economic success, many issues associated with infrastructure investment are understudied, and the impacts of such investments are unclear. There are stark examples of how China’s multi-million-dollar investments can go to waste.

For example, the $20 billion Hong Kong-Zhuhai-Macau bridge was long envisioned to become the world’s longest sea bridge that would link Hong Kong and Macau to the mainland of China. Yet, ever since its inception, the project was heavily criticized for its hefty price, the burden on Hong Kong’s taxpayers, and its environmental impacts. The greatest criticism is that, from the start, the bridge was doomed to become a white elephant investment project. Not only is the bridge exclusive for private shuttle buses and freight vehicles, the daily permit for private cars is limited to 150 applicants who have to obtain a Hong Kong’s special permit, a Macau license plate, and car insurance. Once the parallel bridge linking Shenzhen and Zhongshan is constructed, the traffic on the Hong Kong-Zhuhai-Macau bridge is expected to be halted by a further 26-30%. A somewhat similar story can be told with the $10.7 billion Guangzhou-Shenzhen-Hong Kong high-speed rail. There are concerns that the express rail link runs the risks of joining the list of white elephant projects. While its supporters argue that the rail provides a faster and more convenient connection to mainland China, it took nearly eight years to complete the rail with the delays because of technical glitches and the consecutive rise of its price tag

The Sri Lanka’s Mattala Rajapaksa International Airport is another example of how theoretical gains from investment infrastructure do not necessarily work out in practice. Dubbed as the world’s emptiest international airport, it cost Sri Lanka nearly $282 million, most of which came from China as a loan. It was long discussed that Sri Lanka needed a second airport due to the traffic congestion in Colombo and the need for more equitable development. However, the selection of small and rural Mattala as the location for the second airport came as a surprise. As a result, the airport with the capacity for one million travelers per year hosted only 2,739 passengers in 2015 and 4,700 passengers in 2016. As airlines are retreating from Mattala, the airport is registering nearly $18 million per year in losses. Not only is Sri Lanka struggling to revive the airport now, but the country is facing a high risk of sovereign debt default. Unable to service a $8 billion loan from China at a 6% interest rate, Sri Lanka has already had to cede its port Hambantota to China for 99 years.

In other words, infrastructure projects are expensive, and the lack of rigorous evaluation and cost benefit analysis jeopardizes the success of such projects. The cases of China’s ‘never-to-be-recovered’ infrastructure investments are well documented, and these alarming signals become particularly critical to those smaller states with low investment rates, financial constraints, and modest per capita incomes, which are anxiously awaiting the influx of Chinese capital as part of BRI promises.

For such states, infrastructure investment may indeed have a cathartic effect for economic growth and poverty alleviation. Yet, these investments have to focus on impact. For instance, Xi Jinping advises that the BRI will be most beneficial to China’s neighbors in Central Asia. As a part of the BRI, Xi Jinping even committed nearly $40 billion to the Silk Road Fund to be invested into Central Asia’s poor infrastructure.

China has emerged as the region’s largest economic partner and its main source of FDI and development finance. However, the quality and impact of some of the Chinese projects in Central Asia is not unequivocal. For example, Chinese investors put forth nearly $490 million into the construction of two oil refineries near Tokmok and Kara-Balta in Kyrgyzstan, which to this day performs below their productive capacity. The construction of a $846 million alternative road linking the north and south of Kyrgyzstan also runs the risk of having a marginal value, repeating the fate of the Hong Kong-Zhuhai-Macau bridge.

A separate issue is the corruption that China-financed projects tend to be accused of. The malfunction of a thermal power plant in Bishkek last year put two former Prime Ministers of Kyrgyzstan under custody, as part of an investigation over alleged corruption. They are accused of advancing the interests of China’s Tebian Electric Apparatus Stock Co. Ltd (TBEA), which secured a $386 million contract to modernize the power plant. The loan for this project came from China’s Eximbank. As the investigation unfolded and details were made public, the case stirred considerable outcry. It became apparent that there was no proper analysis and oversight of the project. For examplepliers were purchased for the steep price of $600 each, while fire extinguishers were purchased for $1,600 each.

Accordingly, since much of BRI-related discussions are focused on how to operationalize the initiative, greater attention should be paid to its impact. Chinese infrastructure investments are not only long-term and expensive, but they have the potential to spearhead economic growth, alleviate poverty, and improve the quality of life in certain localities in Central Asia. Yet, if these investments are mismanaged and not well thought out, they can instead exacerbate existing antagonisms and fault lines.

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