Belt and Road Program

The belt and road program is a component of China’s strategy to become the most powerful country in the world. The belt and trade program was initiated in 2013 by president Xi Jinping. It is structured into two main parts: the Silk Road economic belt and the 21st century maritime Silk Road (Dallas, 2019). The belt and road program seeks to expand the old Silk Road and develop economic corridors to boost trade across Asia, Europe, and Eastern Africa (Dallas, 2019). The program’s initial geographic coverage involved 65 countries across mainland Eurasia, the Middle East, and Africa, but it has broadened its scope to 100 countries (Hughes et al., 2020). The belt and road program is estimated to affect more than 60% of the world’s population and 30% of the world’s economy (Toktogulov & Zhuang, 2021). According to World Bank, the GDP of countries participating in the program was $28 trillion, with Asia being the highest (Toktogulov & Zhuang, 2021). Although through the program, China has funded various countries and helped improve infrastructures, road, and rail transport, these countries have accumulated enormous amounts of debt loans. This has raised global concerns about the way China manages and finances this infrastructure development in developing countries.

The belt and road program will lead to a reduction in trade costs and an increase in trade. The trade and road program will reshape trade relations within the participating countries as it will allow countries to improve their export and increase competitiveness among countries. Through increased connectivity of countries, they can easily trade and reduce trading times (Konings, 2018). Trade cost is estimated to reduce by 10.2% for countries involved in the trade and road program and 5.9% for other countries (Makiszewska & Mensbrugghe, 2019). Through the program, manufacturing companies can easily transport their products to the targeted market without worrying about delays in shipment. This will help to improve trade which is essential for the economic development of countries. The biggest beneficiaries of the reduction in trade costs will be the Kyrgyz Republic, Ethiopia, and Cambodia (Makiszewska & Mensbrugghe, 2019). The improved infrastructure within the countries will also reduce the trade cost of countries. With reduced trade costs, the prices of goods will also reduce, thus increasing the competitiveness of local productions. In addition, reduction in travel times of different countries involved will allow countries to specialize in products and services as they can conveniently trade with each other. Countries involved in the program do most of their trade activities with other countries (Konings, 2018). This allows them to enjoy the fall in transportation costs of products due to the program’s convenience.

Additionally, the belt and road program offers alternative shipping and reduces the cost of shipping. Marine transport has often been relied on to transport large volumes of goods in long-distance routes; with the adoption of these programs, there will be an alternative source for transporting these goods. The reduction in transportation costs would significantly reduce the price of products, thus creating affordable goods and services for customers. The belt and road program has reduced the shipment cost between 1.5% and 2.8%, which will significantly reduce the trade cost and products (De Soyres et al., 2019). In addition, through offering alternative trade routes, the program would lower trade barriers such as tariffs, quotas, and shipment time which can also significantly increase the trade cost; thus, the program will help to reduce these trade barriers by offering better infrastructure and shipping routes which will reduce trade costs of products and increase the quantity of products that are being traded. By integrating the project, the trade cost of the China and Asia corridor would fall up to 10.2%, which would be a significant boost to reducing the cost of shipping of products (De Soyres et al., 2019).

Even though the belt and road program provides funding to participating countries, the lack of transparency in the funding has raised concerns on the real intention of China. There are growing concerns about the loans given to countries in the belt and road program as the terms and sizes of the loans given are not transparent. $385 billion that has been loaned to member countries has not been included in the official borrowing. This has raised concerns that China is rising indebtedness among countries intending to trap these countries with huge debts (Wernau, 2020). Trillions of dollars are needed to implement the program successfully; thus, countries need to borrow a huge amount of money from China to improve their infrastructure. Chinese has successfully signed 6,055 contracts in 61 countries that are part of the program. The contract’s total value is estimated to be $127.67 billion, which raises concerns about how transparent these figures are (Wernau, 2020). Debt transparency is essential for borrowers to make informed decisions about the loans they take and how these loans will be financed. There are concerns that China is influencing countries to borrow, thus trapping them and gaining more control.

Besides, countries which are being loaned through the program are unable to finance these loans. The belt and road program gives China leverage on countries involved in the program and puts them at a financial risk. The large amounts of debts China is loaning these countries are creating unsustainable debt burdens forcing these countries to default. For instance, after Sir Lanka was unable to pay its part of the debt to China, the government offered China to take over the port as the revenue from the port was not going to service the loan given to construct the port (Shah, 2019). Pakistan is also facing an economic crisis due to the road and belt program, which has led to the stoppage of the program in the country. The $62 billion projects to be integrated in Pakistan have been halted as China required the Pakistan government to guarantee payments for the project to continue (Shah, 2019). In addition, China is not only offering to finance but also offering equipment and labor. In Angola, the number of Chinese workers between 2015 to 2017 was 33,034 (Dollar, 2019). The belt and road programs happen with China controlling these projects, and countries involved have little say on how things happen (Wernau, 2020). The BRI encourages the employment of Chinese labor only, thus putting the China economy at an advantage over the countries’ economies.

Improved infrastructure from the belt and road program could increase the GDP of participating countries by 2.61% and 2.87% for the world. With increased GDP and reduced trade costs, poverty would be alleviated. Over 3.7 million people would be alleviated from poverty (Makiszewska & Mensbrugghe, 2019). People would have an opportunity to participate in trade activities through increased connectivity among the people and would have an opportunity to earn an income. The improved transport infrastructure would create external markets for goods. By creating external markets for local products, countries can easily trade their products at competitive prices as theirs is a market for them to trade them.

At first, countries such as Russia were reluctant to join the belt and road program as they felt that China wanted to expand to Russia and Central Asia and gain control over this territory (Li, 2018). However, this changed, and Russia saw it as an opportunity to develop its economy rather than a threat and decided to join the program. To control China’s dominance in its country, Russia does not welcome too many workers from China into the country. Russia does not have the resources to compete with China; it accepted China helped develop its infrastructure but ensured it controls China’s dominance in the country. It does not want to undermine the countries supported by the Eurasian Economic Union, such as Morocco (Li, 2018).

The program is mainly popular in developing countries such as Africa. Currently, 37 African countries have signed in to the program, including the Africa Union (Dollar, 2019). The China government loans money to these countries to develop its infrastructure. The largest borrowers in Africa are South Africa, Kenya, and Zambia (Dollar, 2019). For instance, Kenya borrowed $2 billion to build railway lines with a repayment plan of 20 years at a fixed interest rate of 2% (Dollar, 2019). The program has been primarily welcomed in these countries as most of the infrastructures face deficiencies due to a lack of resources to build them (Dollar, 2019). Through developing infrastructure in developing countries, China aims to expand trade as they can easily find a market for the excess products produced in their country.

Similarly, countries from Latin America and the Caribbean are also benefiting from the program. Currently, China is the second-largest trade partner in Latin American and Caribbean countries. Initially, Latin America and Caribbean countries were not part of the program, but many countries in these regions joined the program (Li & Zhu, 2019). These countries have welcomed the program as it has aided in improving their infrastructure and transportation networks. Although the belt and road program is very popular in developing countries, it has received various criticism from leaders in developed countries, citing that the program lacks transparency on how much China is lending and the terms of these loans (Li & Zhu, 2019). Leaders from developed countries are accusing China of debt trapping these countries.

The projects will have achieved a classic infrastructure development in rail, water, and road transportation in the next five years. The country provides funds to countries that can develop their infrastructure but lack the necessary resources required for these developments. The project aims to enhance trade between China and European countries by strengthening trade capacity through roads (De Soyres et al., 2019). In sea transportation, China seeks to create a land and sea passage that would give the country greater accessibility to African countries where they could trade their products more efficiently (Li & Zhu, 2019). Developing infrastructure in various countries that are part of the belt and road program would promote trade and ensure more efficient transportation of goods and services from one country to another. China has successfully integrated various countries in the belt and road program where these countries get loans to improve their infrastructures to develop trade (Dollar, 2019). In addition, for the project to succeed, there’s a need for more transparency at all project stages. The cost for implementing the trade and road program is a significant challenge affecting the project and needs urgent attention. If nothing is done to curb the rising cost within the next five years, the project’s cost will drastically increase, thus inhibiting its implementation.

In conclusion, the China belt and road program will facilitate the increased connectivity of people, different countries and improve trade. Through the program, countries can trade more efficiently and improve their economy. The program has reduced the trading times of the countries participating in the program. Reducing the trading times of different countries involved will allow countries to trade more efficiently and more accessible. The belt and road program offers alternative shipping and reduces the cost of shipping. With the reduction in overreliance on marine transportation, there would be faster shipping of goods, reducing the transportation cost. The decrease in transportation costs would significantly reduce the price of products, thus creating affordable goods for customers. The program would help alleviate poverty through increased efficiency in trade. Trade is essential as it boosts the country’s economy and can be executed in different ways to overcome the difficulties faced by people living in poverty. By increasing trade, countries can even specialize in the provision of other products to the target market. Various countries participating in the program have improved their infrastructure as China provides funds to these countries. This has also created employment opportunities for people in these countries.

References

Dollar, D. (2019). Understanding China’s Belt and Road Infrastructure Projects in Africa.

Hughes, A. C., Lechner, A. M., Chitov, A., Horstmann, A., Hinsley, A., Tritto, A., … & Douglas, W. Y. (2020). Horizon scan of the Belt and Road Initiative. Trends in Ecology & Evolution, 35(7), 583-593.