How will China’s Belt and Road Initiative play out when Russian and Ukrainian partners are at war?

Like the rest of the world, China is closely monitoring the progress of the Russian invasion of Ukraine, while preparing for the impact of escalating Western sanctions against Russia.

As Russia and Ukraine’s largest trading partner, China has a lot at stake, especially as the warring nations are both participating in the Belt and Road Initiative – the ambitious plan to China to expand global trade with billions of dollars in investment and infrastructure projects. .

Physical hazards; communication and transportation disruptions; and severe financial uncertainties are already weighing on China’s investment plans in the region.

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War is bound to radically affect the world economic order. Moving forward, China must assess the headwinds it faces, while rethinking how to proceed with its vast infrastructure plan in warring countries and the rest of the world.

President Xi Jinping announced the Belt and Road Initiative in 2013. The land route of the global infrastructure project runs through landlocked Central Asia, in an area known as the economic belt of China. the Silk Road. And the sea route includes Southeast Asia, South Asia, the Middle East and Africa, known as the Maritime Silk Road.

As of January, China has forged collaborations under its Belt and Road Project with 147 countries and 32 international organizations.

The initiative has invested in infrastructure projects, including roads, ports, airports, railways and power stations in most developing countries, and has drawn controversy and criticism over the past nine years following its creation.

Accusations have been leveled against China for allegedly trapping developing countries with debt to secure strategic assets in host countries.

Some projects have also been accused of threatening biodiversity and the well-being of the environment with its construction sites and the exploitation of natural resources.

In 2020, despite the economic impact and disruption caused by the global pandemic, China’s investment in the Belt and Road countries showed resilience with an 18.3% increase from 2019, according to data from the Ministry of Commerce.

But the pandemic has also hampered progress on China’s Belt and Road, while Beijing has also placed increasing importance on the quality and benefits of its investments in overseas infrastructure projects.

In 2021, trade between China and the Belt and Road countries accounted for 29.7 percent of China’s total foreign trade, reaching 11.6 trillion yuan ($1.83 trillion), marking an increase of 23 .6% compared to the previous year and reaching the highest value in eight years. , according to data from the Ministry of Commerce.

China’s total investment in overseas belt and road projects also rose 15.3 percent to $21.46 billion last year, accounting for 14.8 percent of China’s overseas investment. the stranger.

These investment projects cover Singapore, Indonesia, Malaysia, Vietnam, United Arab Emirates, Laos, Thailand and other countries.

Last year, Chinese companies signed 6,256 new project contracts in 60 Belt and Road countries, worth 864.78 billion yuan, accounting for more than half of new projects contracted by Chinese companies. abroad.

China has also absorbed $11.25 billion in foreign capital from countries along the route.

China is prioritizing risk control and prevention for its Belt and Road push this year, according to a report outlining priorities for this year, released in early March by the National Development and Reform Commission.

Xinjiang in the far western region and Fujian Province in the east, as well as the China-Europe Railway Express, have been designated as areas of importance in the Belt and Road push.

China also said it would push forward the green and low-carbon transformation of its overseas coal-fired projects.

Other countries have launched similar infrastructure development programs to match and counter the growing influence of China’s ambitious Belt and Road Initiative.

In 2017, Japan and India jointly launched the Asia-Africa Growth Corridor Project, an economic cooperation agreement, while Australia and Japan joined the United States in investing in infrastructure in the Indo-Pacific region with their trilateral partnership, or the Blue Point Network, in 2018.

Leaders of the Group of 7 (G7), led by the United States, launched the Build Back Better World (B3W) plan in June.

The B3W initiative aims to develop an infrastructure partnership to help reduce the US$40 trillion needed by low- and middle-income countries from Latin America and the Caribbean to Africa and the Indo-Pacific d 2035.

Through B3W, the G7 and other partners will coordinate to mobilize private sector climate capital; health and safety; digital technology; and gender equity and equality, the White House said.

The European Union has also entered the game with the Global Gateway strategy, announced in December, which aims to mobilize up to 300 billion euros ($332 billion) in investment between 2021 and 2027 in infrastructure development. around the world to support a sustainable global recovery.

The conflict between Russia and Ukraine brings greater uncertainty to global economic development, and jeopardizes China’s years of patiently expanding its economic footprint in Ukraine and its ambitious China-Europe rail network.

China is Ukraine’s largest trading partner, which was also an early participant in the Belt and Road project.

The geopolitical risks facing the Belt and Road project are mounting, Chinese Vice Commerce Minister Sheng Qiuping warned at a press conference on March 1, without mentioning the Ukraine crisis.

In 2021, the value of trade between China and Ukraine exceeded $19.3 billion, up 29.7% from the previous year, while the value of exports to Ukraine reached $9.4 billion, up 36.8%, according to customs data.

Some Chinese merchants and manufacturers have already seen order withdrawals and payment delays from their Ukrainian customers.

China also has major investment and infrastructure projects in Ukraine in communications, energy and agriculture, among others.

In 2020, the Ukrainian company WindFarm and the Chinese company PowerChina signed a contract for the construction of a wind farm worth $ 1 billion in eastern Ukraine – the largest investment made by companies Chinese in the country.

China Railway International Group and Pacific Construction Group also have a joint investment in Kyiv to build an underground railway line.

In the first 11 months of last year, Chinese companies signed contracts for projects worth a total of $6.64 billion.

Even Pay, an analyst at Trivium, said the situation has caused serious uncertainties in trade and is expected to contribute to “disruptions, delays and cost increases in global shipping by all modes”.

“China has significant investment and business interests in areas of Ukraine that are currently active conflict zones,” Pay said. “This includes significant investments by Chinese shipping and commodity trading companies in Black Sea ports that have been directly affected by the fighting.

“Chinese banks are also grappling with how to navigate Western financial sanctions as well as an extremely high degree of currency risk in financing corporate commodity transactions with Russia. This will continue to pose a fairly significant challenge for short-term trading. “

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice journal on China and Asia for over a century. For more SCMP stories, please explore the SCMP app or visit the SCMP Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

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