US-China trade war may be the end for Belt and Road funding

Analyst says as trade surplus with US set to decrease, financing for BRI project uncertain

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(AP photo)

TAIPEI (Taiwan News) – China’s massive infrastructure project for the Eastern Hemisphere, the Belt and Road Initiative (BRI), may be moving slowly towards a dead-end according to some recent reports on the project’s financing.

A researcher at the Center for a New American Security (CNSA), David Kilman, suggests that the trade war between the United States has begun a process of slowly depleting China’s funding for the trillion dollar BRI project.

According to David Kilman, as reported by Voice of America, China has long relied on the trade surplus with the United States to finance deals and construction projects with partners of the BRI.

If negotiations with the Trump administration result in drastically decreasing China’s massive surplus with the U.S., then Beijing will lose its primary source of funding for the BRI project, according to Kilman.

Recently, after a meeting between Xi Jinping and Donald Trump at the G20 Summit in Osaka, the White House agreed to suspend implementation of any new tariffs in exchange for China’s purchase of large amounts of U.S. agricultural products.

However, 25 percent tariffs on US$250 billion worth of Chinese products remain in place, and Beijing has demanded that they be removed if negotiations are to proceed. For the time being Trump has refused to remove the tariffs, bringing the trade war to an apparent standstill.

The uncertainty about BRI’s potential future has reportedly led many lenders to reconsider funding for certain projects.

A Reuters report on Monday (July 8) quotes a senior Beijing-based banker as saying that many BRI related projects are likely to be denied funding due to Beijing's potential lack of funding moving forward. Many investors see far more lucrative gains to be made in other economies, especially those of Southeast Asia.

Further, given the scope and number of projects to which China has already committed, if funding sources do dry up, then Beijing risks the possibility that projects currently underway may remain unfinished, or yield a poor quality of results, thereby become bad investments.

If China is not careful about how it allocates its funds, it may develop a reputation as a bad business partner, further risking Beijing's long-term goals of the BRI and China's economic status.