00:00In the last 10 years, China has undertaken one of the most ambitious projects the world
00:04has ever seen. A project so vast that it touches every corner of the world.
00:10In total, $1.3 trillion has been spent in over 140 countries, building everything from high-speed
00:18rail networks to huge hydroelectric dams. This is the Belt and Road Initiative,
00:25China's vision to cement its influence and power across the world through a series of massive
00:31investment projects. But things aren't exactly going to plan. What you are looking at is the
00:37unfinished China-Pakistan Economic Corridor, a project which was introduced with an eye-watering
00:43budget of $60 billion. Similarly, Kazakhstan launched the Korgos Gateway Dryport for over
00:50$9 billion, a project deemed to be almost entirely unnecessary by experts.
00:56These billion-dollar megaprojects pop up all over the world, and they are not limited to
01:01developing nations. Montenegro, Greece, and even Italy have all taken billions of dollars
01:07from China to launch these ambitious projects. And they all have one thing in common. They're
01:13all either unfinished, massively over-budget, or completely abandoned. To make things worse,
01:20many of the countries which happily took the loans are now struggling to pay them back.
01:25Of the initial loans, it is estimated that more than a quarter have failed,
01:29which means that China has had to hand out over $240 billion in bailout fees.
01:35The Belt and Road Initiative was intended to be the centerpiece of Xi Jinping's foreign policy.
01:41But what was once dubbed the Project of the Century has now become the Failure of the Century.
01:47So let's take a look at what the Belt and Road Initiative is, why it went wrong,
01:51and what it now means for China. It's worth noting that not every BRI project has been a
01:58complete failure. While many are way over-budget or simply not feasible, some have been able to bring
02:03about some benefit, creating jobs and investment for the local host country, like the Forest City
02:09residential complexes in Malaysia. But as time has gone on, the bleak realities of many of these
02:14projects has come to light. The Belt and Road Initiative started in 2013, as a grand plan to extend
02:22Chinese influence across the world with two elements, the Belt and the Road. The Belt focused
02:28on connecting China to Central Asia and Europe by land, weaving through countries like Kazakhstan and
02:34Ukraine. And the Road, rather confusingly, is the development of sea routes and infrastructure
02:40to Southeast Asia, Africa and the Middle East. Contrary to popular opinion, many of the Belt and
02:46Road projects were underway or in discussion before the program's official start date. This is as the
02:52term Belt and Road was more of a marketing ploy used to band all these projects together. Despite the term,
02:59the majority of these projects have been within the energy sector. This has come down over subsequent
03:04years, but in 2020, the amount of money invested into energy was still around 40%. The contracts would
03:11usually work something like this. A country would sign up to have a new energy or transport investment,
03:17and along with this, Chinese firms would be handed contracts to design and build the projects,
03:22with Chinese workers coming from China to complete construction before returning back home.
03:27Whilst the term Belt and Road makes it seem like these projects are all part of a carefully selected
03:32strategy for the future, the reality is a series of projects scattered across the globe without a
03:38central vision or plan, which has inevitably caused some problems. To understand why China would
03:44undertake such an ambitious infrastructure project across five continents, you need to first
03:48appreciate the project's ancient predecessor, the Silk Road. For much of recorded history, China was one of,
03:56if not the world's largest and most advanced economy. Early innovations in agriculture and manufacturing
04:02meant that many of China's goods were highly sought after worldwide. This led to the establishment of
04:08the Silk Road, a trade route which connected China with Asia, Africa, the Middle East and Europe for well
04:15over one and a half thousand years. This brought not only vast amounts of wealth into China, but allowed them
04:20to
04:21spread their influence across the globe, long before the days of modern communication and transport methods.
04:28But by the 18th century, many European nations began to industrialize, and more and more influence and
04:34power shifted away from China. Fast forward a couple of hundred years later to 2013, and China's leader,
04:41Xi Jinping, wants to relive this legacy and a great source of pride with the Belt and Road Initiative.
04:47This is perhaps the reason for the BRI which is cited most, to extend China's power and influence
04:53across the globe. As China's economy and seat at the global table has continued to grow,
04:59they've wanted to develop strategic relationships with countries across the world through the use of funds
05:04and loans. Much like the US launched the Marshall Plan across Europe following the Second World War.
05:10This is particularly relevant in the energy sector, as the biggest beneficiaries of Chinese BRI loans have
05:16been Russia, Qatar and Malaysia, all countries with vast amounts of natural resources. And by forming
05:23these connections, China is aiming to ensure its access to these crucial materials going forward.
05:28The second reason is that China needs a use for the trillions of dollars it is amassed from American
05:33companies. A large part of China's global rise and success has been its role as the world's factory,
05:41at some point producing goods or parts for almost every company in the world.
05:45This export-driven growth in its boom period has meant that the Chinese Central Bank has amassed
05:51trillions of dollars in foreign currency reserves, and infrastructure projects abroad were viewed as a
05:57smart way to use its money. The third and less talked about reason is to combat the overcapacity
06:02in China's economy. China's growth has given it an enormous amount of productive capacity,
06:08but a general slowdown in the world economy and a slight shift away from China in recent years
06:13is that many Chinese firms do not have enough demand for their massive workforce or productive
06:18capabilities. This has been an issue particularly in sectors such as steel, cement, aluminium and
06:25construction materials, which helps to explain why it has taken on a number of infrastructure projects
06:30which can provide work for these industries. The idea was that through these set of projects,
06:35China could address all these problems at once. In one fell swoop, China can expand its influence
06:41overseas, use its foreign exchange reserves and utilise its companies, all whilst generating return
06:48on its loans to these countries. But what started as a massive success quickly became a massive problem for
06:54China. Lots of commentators and economists have said that it has been clear for a while
06:59that China has massively overextended itself, stating the eye-watering levels of debt that
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07:51they deposit $50. In the last decade, China has been eager to establish their overseas presence.
07:59And in their haste to form connections, China has been lending to hundreds of countries and now faces a
08:05real risk of not being paid back. So how did it all go so wrong? Given the nature of China's
08:11media
08:11censorship and general closed-off view, it can be hard to find specific details about many of the
08:16projects on the initiative. But what we do know is that they have undertaken thousands of projects in
08:22over 150 countries, seemingly without many checks or balances in place. This presents the first major
08:29issue with the BRI. A lot of the countries which were lent to were classified as developing or emerging
08:35nations, meaning that they were not wealthy and would not ordinarily have the money to take out
08:40vast infrastructure projects like rail and road networks. So China stepped in and provided the money
08:46with relatively few questions asked. You see, when a loan to a developing nation is issued, it's usually by
08:52a body like the IMF and is accompanied by a whole host of conditions. Feasibility checks, anti-corruption
08:59measures, environmental regulations, to name a few. For a lot of developing countries, this is a tedious
09:05process and at the end there is still no guarantee that they will get the money. China, however, presented
09:12an alternative, offering large amounts of money without the need for these background checks. All you had to do
09:18was agree to their payment terms. These were usually half the length and double the interest rates of
09:24typical IMF loans. These indiscriminate loan terms meant that very quickly hundreds of countries across
09:30the world signed up for loans and Chinese companies started to set up shop in Africa, Asia, Europe and
09:37South America to begin production. But quite quickly cracks started to appear. This graph here shows the
09:44average credit rating, essentially the risk of default or not being paid back on Chinese loans to
09:50emerging economies. Initially, we can see that it starts off at around the average. But since the
09:56beginning of the Belt and Road in 2013, as time has gone on, this has continued to fall further and
10:01further away from the average and most of China's loans are now nearing junk status, essentially meaning
10:07that they have a very low chance of being paid back. The poor loan selection process becomes abundantly
10:13clear when we look at the list of China's largest lenders as part of the BRI. Just at a glance,
10:20countries like Turkey and Egypt stand out for receiving around 100 billion dollars in loans each.
10:26And both are countries in a poor state economically, with Egypt nearing the brink of financial collapse.
10:33Issues aren't just with China's loans to emerging countries but also to developed ones. This shows the
10:38percentage of total Chinese loans to countries in distress, such as those fighting in a war or asking
10:44for a restructuring. At the BRI's induction, this started at a manageable 5%. Sanctions against Venezuela
10:52in 2014 started to push this up, but only to around 20%, which was deemed to be a reasonable level.
10:59However, in the last five years, this has rapidly increased. The pandemic has meant that many developing
11:05countries had to close down their economies and increase spending on things like furlough schemes,
11:10placing a lot of strain on their economy. This has meant that many countries didn't have enough capital
11:15to make their repayments. And now thanks to the Russian war in Ukraine, the total amount of loans
11:20in distress is around 60%. With the total exposure of the BRI so far around 1.3 trillion dollars, this
11:28means
11:28China now faces the possibility of 780 billion dollars of its loans not being paid back. To put
11:36that into perspective, that's roughly the size of the entire Swiss economy, and it's more than twice the
11:42amount of the most heavily indebted firm in the world, Chinese construction company Evergrande. But the
11:48issues with the BRI aren't simply down to poor timing. Project selection has been woefully poor. This is
11:56perhaps best highlighted with the Hambantota port in Sri Lanka. After the United States and India chose
12:03to turn down the project as it wasn't deemed feasible, China decided to swoop in to provide funding.
12:09This started like many other Belt and Road projects, where millions of dollars and Chinese firms flooded
12:15in to begin construction. However, in 2017, Sri Lanka became unable to continue making its loan repayments,
12:22and the port had to come under the ownership of the Chinese on a 99-year lease. This project was
12:29surrounded by corruption allegations, as Chinese officials became large donors of the then-president's
12:34election campaign. This is just one of the many hastily selected projects that has ended up either
12:41unfinished or surrounded by corruption, bribery or labour violation allegations, and according to the World
12:48Bank, around 35% of all BRI projects have been struck with one of these issues. As the realities of
12:54the
12:54Belt and Road Initiative have started to come to life, China has started to significantly reduce the
13:00amount of lending it's sending to other nations. Here we can see the net flow of money between China and
13:07Belt and Road countries, and see that after 15 years of heavy outflow, China is now starting to demand
13:13repayment on its loans, as well as halting their outflow. After years of sending out loans, we are
13:20entering the period where China should be sitting back and watching the repayments come in. But as we have
13:26seen, much of this money is at risk. So China now faces two options. Pour more money into these projects
13:34in an attempt to get them to a point where they're profitable, or it cuts ties with these countries and
13:39stops the
13:39cash flows. As a consequence, many of these projects will likely become abandoned as they simply cannot
13:45be afforded by their host nations. Whatever China decides on is not in a good state economically,
13:52and its endeavours abroad look likely to end up in a similar way to those happening at home,
13:57with heavily indebted property developments. Of course, with the benefit of hindsight, it's easy to
14:04point fall in the plan, and see how China massively overstretched itself. But at the time, this wasn't
14:10the case. In fact, many western powers were heavily criticised for not taking on similar projects,
14:16essentially allowing China to overtake it as being the go-to power in regions like Africa and Central Asia.
14:23There's no doubt that the BRI has helped to promote China's image as a global power on the world stage.
14:29But if this starts to go wrong, then this reputation could easily be reversed,
14:33and with rising interest rates and a general downturn in the global economy expected,
14:38it doesn't look like it's going to get better any time soon.
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