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China’s Grand Belt and Road Plan Is Being Lashed by Coronavirus

This picture taken on February 8, 2020 shows a part of the first rail line linking China to Laos, a key part of Beijing's 'Belt and Road' project across the Mekong, in Luang Prabang. From an artificial island in Sri Lanka to a bridge in Bangladesh and hydropower projects in Nepal and Indonesia, China's trillion-dollar Belt and Road plan is stuttering under the effects of the deadly coronavirus. (Photo by AIDAN JONES/AFP via Getty Images)

By Iain Marlow, Karlis Salna, Anusha Ondaatjie and Dandan Li

Xi Jinping’s Belt and Road Initiative has long been seen as a way to project China’s influence around the world. Now, the coronavirus is showing how the trade and infrastructure program can help export the country’s troubles.

The deadly outbreak is prompting delays and disruptions to China’s construction and investment plans overseas, risking years of planning and hundreds of billions of dollars in economic diplomacy. Quarantine measures are preventing Chinese workers from making it to foreign building sites, domestic firms supplying overseas projects face acute labor shortages and fears are mounting that workers will inadvertently spread the virus to new locales.

Projects that have been affected since the virus emerged in December include a $5.5 billion high-speed rail line in Indonesia. There’s also a separate railway initiative in neighboring Malaysia, construction projects in Sri Lanka and corporate expansion plans in Pakistan.

The disruption has exposed another pitfall of the region’s growing dependence on China’s backing for major infrastructure projects. Even as the pace of new coronavirus cases slows in China, host countries remain wary of avoiding future outbreaks, with deadly infection surges in places like Iran, Italy and South Korea serving as a warning about how quickly a small cluster can spin out of control.

“While there are risks of delays and cancellation of projects, there are also risks in early resumption,” said Bonnie Glaser, who has advised the U.S. government and directs the China Power Project at the Center for Strategic and International Studies in Washington.

Xi “seems determined to demonstrate that life is returning to normal and he wants to get the economy churning again,” Glaser said. “Resuming BRI projects is probably among his goals, not only for economic reasons, but also because BRI activities are a lever to enhance Chinese political influence.”

Even before the outbreak, Xi had been seeking to rebrand and scale back his Belt and Road ambitions amid an economic slowdown at home and backlash from some partner nations concerned about the costs. The U.S. has led a global campaign against the program, arguing that China’s reliance on loans locked poorer countries in “debt traps” while advancing its own strategic aims.

The virus has thrown up another hurdle, as countries bar or quarantine Chinese visitors. One official involved in BRI planning in Beijing said last week that a failure to stop the virus spreading outside of China would inevitably take a toll on projects.

Still, another Chinese official in Beijing said that the impact to key projects remained limited and that significant disruptions were likely to remain an issue only in the short term. That optimistic assessment was shared by Deng Xijun, China’s ambassador to the Association of Southeast Asian Nations.

“There are challenges to the trade and investment relations between China and relevant countries in the framework of the Belt and Road,” Deng told reporters in Indonesia on Feb. 21. Deng said that China was supporting enterprises and businesses involved in BRI “to resume their work in an ordinary way.”

The same day, however, Indonesian Coordinating Minister for Maritime Affairs and Investment Luhut Pandjaitan acknowledged that the multibillion dollar Jakarta-Bandung high-speed railway -- a flagship BRI project -- was likely to face delays. More than 300 workers remain stuck in China.

In neighboring Malaysia, a dozen of the roughly 200 Chinese workers building the $10.4 billion East Coast Rail Link hail from Wuhan, the city at the center of the outbreak. They’re not allowed back to the Southeast Asian nation, while other workers can return after a 14-day quarantine process.

An elderly man wears a mask near a makeshift barricade wall intended for deliveries that is meant to control entry and exit of outsiders to a residential compound on March 4, 2020 in Wuhan, Hubei, China. (Photo by Getty Images)
An elderly man wears a mask near a makeshift barricade wall intended for deliveries that is meant to control entry and exit of outsiders to a residential compound on March 4, 2020 in Wuhan, Hubei, China. (Photo by Getty Images)

In Pakistan, which hosts numerous BRI projects spanning power and construction, two companies -- Engro Polymer & Chemicals Ltd. and Pakistan Oxygen Ltd. -- have said their projects face slowdowns because their Chinese contractors alerted them to delays stemming from hampered mainland facilities.

There has been widespread disruption to efforts in Sri Lanka, where Chinese investment is building the massive Port City Colombo, an expansion of the capital city via land reclamation.

The Ceylon Chamber of Commerce recently reported that about half of 100 firms surveyed said that business was affected by the coronavirus outbreak. Government road and apartment construction projects involving Chinese contractors have slowed down, said Nissanka Wijeratne, secretary general of the Chamber of Construction Industry of Sri Lanka.

Chinese workers returning to Port City Colombo have self-quarantined and there have so far been no major delays at the country’s biggest construction site, said Thulci Aluvihare, head of strategy and business development for the project, which is being built by state-owned China Communications Construction Co.

(Source: Bloomberg)
(Source: Bloomberg)

The virus may prompt a shift in focus by Chinese firms in the future, according to Arv Sreedhar, Singapore-based executive director at investment firm Atlantic Partners Asia. “China is under incredible stress from the current situation and has other priorities for its money, such as coming to an acceptable agreement with the U.S. on the trade war, and fighting both the health and financial aspects of the coronavirus,” he said.

Investment Shrinks

China’s overseas investments were beginning to tail off and consolidate before the virus brought the country’s industry to a standstill.

The American Enterprise Institute and the Heritage Foundation, which have tracked 3,600 major Chinese overseas transactions since 2005, found that outbound investment last year totaled just $68.4 billion. That’s a 41% plunge from 2018 and the lowest in a decade. The figure is far less than the Chinese Ministry of Commerce’s official tally of $124.3 billion in total overseas investment last year.

(Source: Bloomberg)
(Source: Bloomberg)

Going forward, China could concentrate its BRI programs in fewer countries, working to avoid criticism by making its outbound investment less aggressive and one-sided, said Derek Scissors, a resident scholar at the American Enterprise Institute.

Xi could “retrench and advertise more loudly that the BRI is a group effort,” he added. “It’s going to be harder for host governments over the next year to tout their supposedly close relationship with China as contributing to development.”

© 2020 Bloomberg L.P.