A quick thread on #BRI in the post-Covid world. There’s lot of talk about debt renegotiation, strategic takeovers and project failures and so on. So putting a few thoughts together. Happy to hear other views. (1/n)
BRI is more than the sum of its parts. It’s a mistake to simply limit BRI with infrastructure or construction projects in third countries. This provides a misleading picture of the overall scope of the initiative. (2/n)
BRI is an all encompassing initiative, with 5 priority areas: policy coordination, infrastructure connectivity, trade and investment, financial integration, and people-to-people connectivity. There are also specific areas like tech that don't get captured in the official 5. (3/n)
These are important nodes that must be kept in mind. Some lesser-reported MoUs and agreements or private deals tend to build structural linkages. Think Union Pay expansion, tech ties, education, etc. (4/n)
These will continue to expand in the post-Covid world. Their implications are long-term. But yes, infrastructure project financing and execution will be challenging. But there are also some opportunities for China that the pandemic opens up. (5/n)
On execution, the issues are fairly straight forward. Significant number of BRI projects are in low-income countries, with weak healthcare infrastructure. Work resumption will be slow and staggered. (6/n)
The potential threat of a second wave of infections in China and other parts of the world will further slow things down, making execution very complex. So expect stops and starts in different parts of the world. (7/n)
On financing, Chinese lending was already growing cautious. This IISS study says that structural issues liked to China's economy were already making Chinese leadership lend more selectively. This will continue.
iiss.org/blogs/research… (8/n)
iiss.org/blogs/research… (8/n)
Yet where needed, there’s the massive $3.1 trillion in forex reserves that the Chinese government can tap into in order to support policy banks. BRI is a political project for Xi; all instruments of state will be used to support it. (9/n)
Beijing, however, will end up having to re-examine debt issues in partner countries. This it will prefer to do on a bilateral basis, as opposed to a mega deal. Based on past behaviour, expect a mix of measures being adopted on a case-by-case basis. (10/n)
You could see write-offs of zero-interest loans; restructuring of terms; writing off interest for specified periods; extension of grace periods; new concessions in terms of rights to own, operate or extract resources. (11/n)
One other measure that it could adopt is seek to re-negotiate while seeking co-financing partners. This would be a complex process, but it would spread risk and create more stakeholders. (12/n)
Finally, one key point to keep in mind is what’s made in this Rhodium Group study. Playing saviour is cheap. China can spend less in the post-Covid world, but still have a significant political impact. rhg.com/research/boost… (13/n)
