The Law and the SDGs  |  India Kearsley

China’s Belt & Road Initiative: Infrastructure Investment for Sustainable Development

The ancient Silk Road was a network of trading routes crossing Eurasia, linking Eastern China with Western Europe until the 1400s. Today, this idea is being revitalised by China. The ‘Belt and Road Initiative’ (BRI) or ‘One Belt One Road’ is a global, multi-billion-dollar infrastructure, investment and development project, launched by Xi Jinping in 2013. The BRI comprises a Silk Road Economic Belt and a 21st Century Maritime Silk Road, connecting China with South East Asia, Central Asia, Africa, the Middle East and Europe. Examining the challenges and opportunities presented by the BRI, this piece explains the role that lawyers can play in ensuring the BRI fulfils its potential to impact on the achievement of the Sustainable Development Goals (SDGs).

The BRI’s official aims are to achieve policy coordination, infrastructure connectivity, unimpeded trade, financial integration and connections between people. On the face of it, these appear to be favourable outcomes, but the international response to China’s large-scale project has been varied. Some international observers have described it as ‘an indicator of the scale of China’s global ambitions’, whilst others have raised concerns that the project is a smokescreen for ‘China-led regional development, military expansion and Beijing-controlled institutions’. Despite these mixed reactions, the potential for the BRI to become a success is huge, especially in terms of its impact on achieving the SDGs.

The BRI and sustainable development

As an infrastructure, investment and development project, the BRI will primarily impact on SDG 9 (industry, innovation and infrastructure), specifically targets 9.1 and 9.4, which concern the building and upgrading of infrastructure. There is currently a global shortfall of infrastructure investment funds standing at around US $1 trillion. If you also consider the cost of infrastructure investment needed to realise the SDGs, this figure increases by a third. As a mobiliser of funding for infrastructure projects, the BRI represents a significant opportunity to plug this shortfall and contribute towards the achievement of SDG 9. Alongside this, the BRI can contribute towards achieving several other SDGs, such as Goal 7 (affordable and clean energy) and Goal 17 (partnerships for the Goals). Progression towards Goal 8 (decent work) can be made through employment creation and protecting and honouring labour rights. China Daily reports that BRI projects in the China-Pakistan Economic Corridor have created around 70,000 jobs in Pakistan.

However, Chinese infrastructure finance has its risks. According to Foreign Affairs, China tends to overestimate the economic benefits of infrastructure projects and underestimate their harmful environmental and social impacts. Furthermore, the economic benefits of Chinese development finance tend to be shorter-lived than those from Western sources. But one advantage of Chinese financing is the sheer scale of finance available; BRI financing has been shown to significantly outspend traditional project-by-project development finance from international institutions such as the World Bank. As such, there is a lack of competitive sources of funding, which ultimately reinforces China’s monopoly in infrastructure project financing. Given China’s dominance, there is a need for increased transparency and due diligence in Chinese-financed infrastructure projects, including those encompassed by the BRI.

Some recipient countries are more susceptible than others to the risks associated with Chinese infrastructure finance due to the relatively small size of their economies. Research by the Centre for Global Development has identified eight countries at high-risk of debt distress due to BRI-related financing. These are Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan and Tajikistan. This reiterates the need for greater transparency, but also for ensuring that finance is sustainable for individual host countries. Some BRI projects that have caused debt distress and infringed on sovereignty have been described as ‘wake-up calls’ to the dangers of opaque and unsustainable financing. The Hambantota Port Development Project in Sri Lanka was financed under the BRI, but the Sri Lankan government failed to make the debt repayments. Instead of easing the terms of the finance, China offered a different solution – that Sri Lanka hand over the port on a 99-year lease. The port’s location, close to China’s long-term competitor India, led to accusations of ‘debt-trap diplomacy’. This represents an example of unsustainable infrastructure financing, which negatively impacts on the BRI’s contribution to the SDGs.

The role for lawyers

Lawyers working with lending institutions, private companies and host governments can help to ensure the BRI is sustainable. There are various standards which can be applied to project financing under the BRI. One example is the Equator Principles (EPs). The EPs are a risk management framework for ‘determining, assessing and managing environmental and social risk in development projects, establishing a minimum standard for due diligence and monitoring to support responsible risk decision-making’. Their voluntary nature has received some criticism; a UN Environment Programme report found that the EPs were mainly adopted due to perceived reputational benefits and do not significantly change project financing. The report called for the EPs to clarify and define sustainability thresholds and to adopt an enforcement mechanism to improve compliance.

Nevertheless, the EPs are an important first step towards embedding sustainability considerations into project finance. Lawyers should be aware of these standards, and others, as well as their criticisms. To best address sustainability issues in project financing, lawyers should seek to situate such standards in the context of the projects they are working on. By doing so, they can avoid simply participating in a box-ticking exercise and instead understand the broader implications of project financing and address any unsustainable impacts. By applying the EPs to BRI infrastructure investments, lawyers can help to ensure that China’s projects truly are contributing to SDG 9.

Alongside infrastructure investment comes employment creation. The BRI therefore has the potential to impact on the achievement of SDG 8 (decent work). The World Bank states that ‘labour laws are key to the success of infrastructure projects’, and that failure to recognise their importance can prevent the success of such projects. There are many different approaches to managing labour issues in infrastructure investing. By integrating labour standards into infrastructure projects and investment agreements under the BRI, lawyers can ensure that not only will projects have a greater chance at success, but that they can contribute towards the achievement of SDG 8.

By intervening in the lending and labour laws surrounding BRI projects, lawyers can prevent the BRI from being labelled a failed opportunity for sustainable development, and at the same time, drive the BRI towards fulfilling its potential impact on the achievement of the SDGs.

India Kearsley