China’s Belt & Road Initiative – Blog #15

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This is the fifteenth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (51 pg, 259 endnotes) researched and written for RAAD360 LLC ( The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #15 – Strategy Becomes Action – With Consequences



China envisions “Belt and Road” evolving from a concentration in its early years on infrastructure–particularly transportation, communications, and power infrastructure—to a focus on “softer sectors such as e-commerce, healthcare, education, and financial services.”[1]

China already has jumped to this second phase in a number of Western European countries, typically through the acquisition of existing enterprises.  However, China is quite willing to create new facilities for Chinese companies seeking to enter established markets to challenge local businesses; for example, the AliExpress venture in Poland, certainly will compete with the existing Polish competitor, Allegra.

China’s investments in the Netherlands have been more typical of its “Belt and Road” activity in Europe.  These have been mainly in advanced technology and established global networks.[2]  With the breakup and spin-off of major parts of Royal Philips, China seized the opportunity to snap up pieces that produce semiconductors, chips for cell phone towers, mobile phones, computer monitors, and flat-screen TVs.[3]

China also has a planned path of progress for building upon its network of ports, set forth in what it calls its “Ports-Parks-City” development model.[4]  This involves supporting Chinese companies to “build out  from a port to create transportation channels, an industrial park, a logistics park, and free-trade and manufacturing zones.[5]  These facilities would assist the development of land-side supply chains and provide investment opportunities for Chinese businesses.  They could also jump-start economic growth around the ports in the host countries.

There is one other type of port development that appears in Chinese plans and pronouncements that may not be so benign.   An article from a journal published under the aegis of China’s University of International Relations (a feeder school for China’s intelligence agencies) describes a concept “first civilian, then military” that is corroborated in Chinese military policy and actions, especially by the People’s Liberation Army-Navy (PLAN).  The journal article describes it as follows:

Use main ports as investment points, use local resources, establish an economic development zone, complete steel industry, shipbuilding industry, mineral processing industry [and] make these ports gradually possess the capability for offering logistical support to Chinese vessels and become China’s strategic support points in Southeast Asia to create an advantageous external environment for China’s rise.”[6]

Chinese-controlled ports in Sri Lanka, Pakistan and Djibouti are examples of dual commercial-military ports.  Non-Chinese vessels using such ports should be aware that military considerations may take priority over commercial operations.



It is becoming clear the cost of the “Belt and Road” vision is overwhelming China’s ability to fund it alone.  Chinese banks, who have been the primary lenders so far, have overstretched their balance sheets.[7]

China and its financial institutions are now in a push to bring in non-Chinese funding to keep the initiative alive.  China’s central bank chief has said that “China is keen to work with international organizations, commercial lenders, and financial centres like Hong Kong and London to diversify funding sources for the plan.”[8]  Drawing new investors may become more difficult, as concern for China’s exposure on its large portfolio of high-risk loans associated with the “Belt and Road Initiative” intensifies.  Because of a severe capital outflow in 2017, China instituted restrictive foreign investment and currency controls and increased caution in its own finances.  These actions do not help generate investor confidence in China’s ability to expand risky infrastructure loans indefinitely.

China is increasingly discovering that many of its “Belt and Road’ projects were driven more by politically or militarily strategic reasons than sound economic purposes—Gwadar and Hambantota for example—have large and long-term costs.  When it is clear that the client country cannot meet loan payments, Chinese banks and investors are left with the failures.  Taking over the infrastructure collateral—the ports in the cases of Gwadar and Hambantota—doesn’t automatically restart loan re-payments.



The financial burdens of the vast “Belt and Road Initiative” are taking a toll on several of the partner countries as well as posing serious risks to the Chinese banks and foreign investors making the infrastructure loans.

Major infrastructure projects are, by their nature, long-term propositions exposed to many risks, including under-financing, political pressures and interference, unexpected supply-chain problems, poorly-conceived planning, and significant time lags between initiation of projects and receipt of the anticipated economic benefits, that would help borrowers pay back the loans.

“Belt and Road” projects in developing countries are especially vulnerable to these risks.  In “Harbored Ambitions,” Mikkal Herberg succinctly describes how “the coercive capacity of Chinese capital, infrastructure loans can lead the recipient country into a debt trap that severely limits policy options.

This is particularly the case if the projects are backed by sovereign guarantees—whereby the recipient country backs the loan to mitigate risk to the investors.  Should a project fail to generate revenue, the government must fulfill the debt obligations of the guarantee; failure to repay this foreign-held public debt has led to sovereign defaults in the past.  Sovereign guarantees are relatively commonplace in infrastructure development.  However, when applied to large-scale projects in recipient countries with high preexisting foreign-held debt-to-GDP ratios, these guarantees can sabotage a country’s economic development and endow its creditor with outsized leverage.”[9]

A recent report by the Center for Global Development identified eight countries at major sovereign debt risk: Pakistan, Djibouti, Maldives, Laos, Mongolia, Montenegro, Tajikistan, and Kyrgyzstan, due in no small measure to overcommitment to “Belt and Road” projects.  The debt situation of these countries is aggravated by the fact that “China’s track record managing debt distress has been problematic, and unlike the world’s other leading government creditors, China has not signed on to a binding set of rules of the road when it comes to avoiding unsustainable lending and addressing debt problems when they arise.”[10]

In April 2018, the Managing Director of the IMF, Christine Lagarde, echoed the report’s warnings and warned against saddling these struggling countries with crushing debt levels.[11]  One “Belt and Road” energy project in Pakistan guaranteed its Chinese investors a 34% annual return, in U.S. dollars for 30 years, a completely unrealistic situation.[12]  Typical “Belt and Road” loan conditions require contracts to be given to Chinese firms and at least 50% of materials, equipment, technology and services be Chinese-sourced.  An example:   the Chinese Exim Bank (an SOE) requires recipients to use its funds to purchase Chinese products and services and to use Chinese labor and raw materials.[13]

The hard lesson that these eight countries have learned is that China’s funding comes with significant costs.  It is not an aid program; it is a Chinese government-directed business program.  Several projects have become Chinese-owned when the host country could not make loan repayments.  Other projects were stalled in various stages of completion with no guarantee of being finished but creditors will still have to be paid.

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?


BRI Blog next Monday will be:

How China Benefits – Transit Times and Supply Chain Alternatives


There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] Wijeratne, David, et al. Op. cit.

[2] Van der Putten, Frans-Paul.  “Chinese Investment in the Netherlands:  A Key Role for Acquisitions in the High-Tech Sector.”  ETNC.  Chinese Investment in Europe:  A Country-Level Approach.  December 2017.

[3] Ibid.

[4]Thorne, Devin and Ben Spevak.  Harbored Ambitions. How China’s Port Investments Are Strategically Reshaping the Indo-Pacific. C4ADS.  2017.                              

[5] Ibid.

[6] Zhang Jie.   “SLOC Security and the construction of China’s strategic support points,” International Security Studies, 2, 100-118, 2015.  Cited in Thorne, Devin and Ben Spevack.  C4ADS “Harbored Ambitions.  How China’s Port Investments Are Strategically  Reshaping the Indo-Pacific,” 2017.  P. 24, footnote 80,

[7] Garcia-Herrero, Alicia.  Blog post.  “China cannot finance the Belt and Road alone.”  The Bruegel Newsletter.  26 March 2018.

[8] He, Huifeng.  “Is China’s belt and road infrastructure development plan about to run out of money?” South China Morning Post.  14 April 2018

[9] Herberg, Mikkal E.   “Introduction.”  Harbored Ambitions.  How China’s Port Investments Are Strategically Reshaping the Indo-Pacific. C4ADS.  2017, p. 21.

[10]Center for Global Development.  Press release.  “China’s Belt and Road Initiative Heightens Debt Risks in Eight Countries, Points to Need for Better Lending Practices.”  4 March 2018.

[11] Deutsche Welle (DW).  “IMF’s Lagarde warns China on Silk Road debt.”  12 April 2018.    http://www.dw.c om/en/imfs-lagarde-warns-china-on-silk-road-debt/a-43354360

[12] The Wall Street Journal.  “Another ‘Belt and Road’ Hostage.” 21 August 2018.

[13] Eva, Joanna, Qi Lin, and James Tunningley.  Op. cit.


© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.