The medium-term effect will depend greatly on the flexibility that China is able to build into the BRI. Its attempts to pivot to a “digital silk road” and a “health silk road” are crucial (El Kadu, 2019; Wheeler, 2020; Dutta, 2020). The digital silk road will bring about increasing conflict over the global governance of the internet. In assessing the efficacy of any infrastructure investment, it is essential to note that the benefits to the host economy are indirect. An infrastructure investment pays off when it increases the productivity of the host economy. Most infrastructure projects are debt-financed. User charges (fees, tolls, etc.) do not usually repay the initial investment. A successful infrastructure investment generates sufficient productivity gains in the economy such that a proportion of these gains can be appropriated (usually by the host government) to pay off the debt. Where this does not occur, investment in ports, roads, rails, energy, water and other infrastructural projects results in a ‘debt trap’. If the project is largely foreign government-funded – as is the case of the BRI – then this debt will be repayable in foreign exchange, thus burdening the host economy that has to earn the foreign exchange to repay the debt. This deficit can then lead to perceptions, or the actuality, of a failed infrastructure project.
The BRI is massively dependent on the international transfer of Chinese personnel and managers to its projects. This was a major point of criticism in the pre-virus world. It has limited the direct employment of local personnel and the spill-over gains to the host country. During the peak COVID-19 crisis period, and in the aftermath of the virus, it is untenable. The ability of the BRI to switch to digital versus personal contact in the implementation of its projects will be a major challenge, and construction is notoriously difficult to depersonalize. The opacity of contracts and the associated corruption will be increasingly challenged in the resource-scarce, depressed world economy of the recovery period. There will be a sharper focus on the costs and benefits of the BRI: the investigation of productivity and spillover benefits will be more forensic, as host countries examine the totality of their public expenditure, particularly as against the benefits of spending on public health. Excessive debt is also a possibility for poor host countries with limited capacity to pay back the debt. The type of infrastructure that will be welcomed post-crisis is “soft infrastructure” – institutions that help to maintain the economy that rely on human capital and services, including healthcare, financial systems, education systems, law enforcement and government (both national and local) services delivered direct to the public (planning, licenses, library and other personal services). All these rely on personal contact, all are politically and culturally sensitive, and, largely, China lacks leadership in these areas.
If China perceives the political benefits of continuing support for BRI, then the “fringe benefits” to the host country may be increased (handouts, favors, education grants, donations) in order to increase bargaining power versus the West, but such expenditure must attract increasing scrutiny at home as well as internationally. The debt burden of supporting business may overwhelm future debt-financed foreign expenditure on infrastructure.
The medium-term impact of the virus will be to exacerbate pre-existing trends. The use of foreign projects under BRI utilizes overcapacity, particularly in SOEs, and staves off the need to reform. The lack of transparency in China shows in the opacity of BRI contracts. As competitive bidding is unusual in BRI contracts, their terms are unknown. Chinese domestic problems influence the strategy of the BRI, including the need to connect lagging regions (e.g. Xinjiang), the difficulties in reforming the domestic finance and banking system, and the extent of debt at all levels of government. Pre-virus, there was domestic pressure to spend at home, not abroad. The domestic political tasks facing the Communist party were already huge; now, they are critical.