The purpose of this study is to determine the sources of funding for the BRI and to assess its economic effects on the borrowing countries. The research design focused on discovering the economic impact of BRI funding. First, a general overview of BRI will be presented to review the scope of BRI funding and funding needs as a whole.
MDBs and Chinese banks Funding of the BRI
The China Development Bank (CDB) and the Export-Import (Exim) Bank of China are reported to have outstanding cooperation indicators in project financing. Since the financial statements of Exim Bank, Bank of China, ICBC, Agricultural Bank of China and China Construction Bank were presented in Chinese national currency, the exchange rate used was 6.91 RMB/USD (which is the average exchange rate for 2019).
BRI contracting terms
Another important aspect of BRI contracts and BRI initiative in general is the promotion of Chinese technical standards and energy solutions. Not surprisingly, China is using the projects realized under the BRI initiative as a source to facilitate the development of its high professional services and technology sectors of the economy. Chinese investors often make legal requirements to involve the Chinese engineering companies in the project maintenance.
The large involvement of Chinese experts in BRI projects naturally leads to a preference for technical standards and solutions developed in China.
BRI Financing in Kazakhstan
Given China's economic expansion into Europe, Central Asian routes are gaining additional importance as a means of transportation. Since most of Central Asia is geographically landlocked, two main land-based economic corridors are proposed under the BRI: the New Eurasian Land Bridge and the China-Central Asia-West Asia Economic Corridor. The latter resembles the ancient original Silk Road, as it starts from China's Xinjiang and then heads to the Persian Gulf, the Mediterranean and the Arabian Peninsula, apparently crossing Central Asia.
Regarding Central Asian participation (and Kazakhstan's one) in the financing, the so-called Silk Road Fund was established in 2014 and covers over 30 projects in Central Asia, South Asia, West Asia and North Africa, part of Europe and Africa with the total investment fund. Unlike the WE-WC, the BRI's initiatives in Central Asia are mostly financed by China rather than by several international investors (Taisarinova, Loprencipe, Junussova, 2020). For example, part of the road in Kazakhstan on the way to Western Europe was financed by the World Bank, the Asian Development Bank and the Government of Kazakhstan (Griffiths 2019).
According to Taisarinova, Loprencipe and Junussova (2019), financing is exercised by Chinese policy banks, namely CDO and Exim Banks in most cases. There is also Chinese funding for the development of other infrastructural facilities such as the expansion of the Aktau port, the construction of the Kuryk port and logistics centers in Shymkent and Aktobe.
COVID-19 implications on the BRI
Some of the local contractors involved in the construction of BRI projects will go bankrupt during the pandemic, which will cause further logistical problems and delays. The delays due to disruptions in the international supply chain and national economic problems will also make BRI projects more expensive. Mourtiz reckons that whether nations will be able to default depends on the returns they will get from the completed BRI projects.
He further elaborates that the BRI may become even more important to China's plans to support long-term growth, because due to the severe blow that global economies received from the pandemic, China may be the only country able to invest in the economies developing in the medium term. BRI is massively dependent on the international transfer of Chinese staff and managers on its projects. It has limited the direct employment of local personnel and benefits spread to the host country.
During the peak period of the COVID-19 crisis, and as a consequence of the virus, it is unstable. BRI to switch to digital contact versus personal contact in the implementation of its projects will be a big challenge and construction is extremely difficult to depersonalize.
BRI and politics
Freytag and Paldam provide a definition for the myopic and selfish ruler who may allocate the investment and the gain from the project economically unwisely for his/her personal interests. In contrast to the myopic and selfish ruler, the farsighted and benevolent ruler will distribute the money generated for economic growth (Freytag and Paldam, 2012). It includes four stages of the country's economic progress, first is borrowing from abroad, the second is associated with capital inflow as a result of the distribution of borrowed money for profitable activities, the next stage can be described with the expansion of financial budget constraint and at the last stage, the country increases the amount of exports and repays the debt (Kindleberger, 1963).
Literature Review Conclusion
Finally, BRI's focus on developing countries raises skepticism about the future success of BRI projects, as the typical borrowing countries that receive BRI financing are already in financial distress. Moreover, there is skepticism about the ability of developing countries to manage the borrowed money in an economically smart way.
Research Methodology
Research Design
To assess the effect of involvement in BRI projects on the contracting country's economy, the variables Import, Trade Balance, Inflation, Currency, Unemployment Rate, FDI and country GDP growth were regressed against the country's GDP and the projects included. A regression of import against the country's GDP and the projects involved resulted in multiple R-squared and adjusted R-squared, which indicates strong statistical significance of the model. A multiple logistic regression of the trade balance against the country's GDP and the projects involved has revealed fairly reliable results with multiple R-squared and adjusted R-squared.
A regression of inflation against the GDP of the country and the projects involved resulted in multiple R-squared and adjusted R-squared, indicating low statistical significance of the model. A multiple logistic regression of the currency against the GDP of the country and the projects involved resulted in the multiple R-squared and the adjusted R-squared from which implies the strong statistical significance of the model. A multiple logistic regression of unemployment on the country's GDP and the projects involved resulted in multiple R-squared and adjusted R-squared, which indicates strong statistical significance of the model.
A multiple logistic regression of FDI against countries' GDP and projects involved resulted in Multiple R squared by and adjusted R squared, indicating the model's low statistical significance. The results indicate that the independent variables Country GDP and involved projects are not sufficient to describe the changes in FDI. A multiple logistic regression of the country's GDP growth against the GDP of the countries involved and projects resulted in multiple R squared and adjusted R squared, indicating the model's low statistical significance.
As shown above, a coefficient for involved projects variable against dependent variable Countries GDP growth is negative and statistically strong.
Research Findings and Summary
It can be seen from the table above that there is clear evidence of the increase in the volume of imports from China and of the weakening of the local currency as a result of the active involvement in BRI projects. Although it is easier to trace such an example to the political or economic measures taken against the BRI participant, it requires another study with a detailed quantitative and qualitative examination of the relationship between the borrower and Chinese rivals in the post-BRI joining time frame. With the rise of Chinese economic power and political weight on the global scale, China has faced increasing Sinophobia in both regions that have had a long history of antagonism with China (India, Taiwan, etc.), but also in other parts of the world.
The scandals over the rights of the Muslim population in China are fueling additional opposition among the general public, especially in Central and South Asia, which are heavily populated by Muslims. However, because the authorities of these countries rarely rely on the opinions of the general public and local lower authorities. However, it depends a lot on the region and the current political situation there, as well as on the general image of Chinese workers and Chinese foreign policy in this country.
For example, Kazakhstan has a history of clashes between local and Chinese employees, increasing opposition to the BRI. In terms of costs versus benefits, it is still difficult to assess the company's final outcome, as the real impact will not be known until large parts of the BRI are completed.
Conclusion
A quantitative analysis of the economies of the borrowing countries under BRI financing leads to the conclusion that the country's high involvement in the BRI initiative will ultimately strengthen its dependence on China by weakening the local currency and increasing the volume of imports from China. Moreover, a quantitative analysis shows that high reliance on BRI financing can reduce the economic growth of the borrowing country. It is still difficult to assess the future of BRI financing because the recent pandemic has seriously shaken the Chinese economy.
Therefore, it is difficult to predict whether China will continue to finance the BRI with debt and what kind of financial institutions will participate.
Bibliography
Abgerufen von https://www2.deloitte.com/us/en/insights/economy/asia-pacific/china-belt-and-road-initiative.html. 31, Fortbildungsforschungsgruppe „Konstitutionelle Grundlagen globalisierter Finanzmärkte – Stabilität und Wandel“, Jena und Halle (Saale), abgerufen von https://nbn-resolving.de/urn:nbn:de:gbv. Die Belt-and-Road-Initiative: Die Beweggründe, Finanzierung, Expansion und Herausforderungen von Xis ständig wachsender Strategie.
Understanding and Assessing the Potential Macroeconomic Impact of the Belt and Road Initiative on Asian Economies". Financing the Belt and Road Initiative: MDBs, SWFs, SOEs and the Long Wait for Private Investors.
