China In Eurasia

New investment in Russia through China’s Belt and Road Initiative (BRI) fell to zero in the first half of 2022, while Chinese outlays in Pakistan dropped by 56 percent during the same period.

These are the findings of a new report from the Green Finance and Development Center at Fudan University in Shanghai, which point to growing headwinds facing Chinese President Xi Jinping’s signature foreign policy venture that he once dubbed “the project of the century.”

Both Russia and Pakistan have been among the top beneficiaries of Chinese development spending through the BRI. Moscow signed deals worth about $2 billion in 2021 alone and Islamabad hosts a $62 billion collection of infrastructure and energy projects known as the China-Pakistan Economic Corridor (CPEC).

The Fudan University report highlights the changing nature of the BRI as it adapts to a combination of a strained global economy, China’s shifting position in the world, and many countries who inked deals and took out loans through the initiative now grappling with a growing debt crisis.

BRI spending has been declining for several years as Beijing becomes more risk averse. The report shows a total of $28.4 billion in Chinese investment across 147 BRI countries over the first half of 2022, down from $29.6 billion over the same period last year.

The BRI’s rapid expansion since 2013 has helped China become the world’s largest source of development credit, and how Beijing navigates the program’s future will have global consequences.

To find out more, RFE/RL spoke with Christoph Nedopil Wang, the director of the Green Finance and Development Center at Fudan University who helped write the report.

RFE/RL: One of the leading takeaways from your report is that China is increasingly investing in oil and gas, making up about 80 percent of Chinese overseas energy investments for the first half of 2022 and 66 percent of Chinese construction contracts. Saudi Arabia has become a major recipient of Chinese investment along with other nations in the Middle East. What does this tell us about the current state of the BRI and also where it is heading?

Christoph Nedopil Wang: We saw last year in the 2021 report that one of the major recipients of Chinese engagement was Iraq and it was similarly through fossil fuel-backed projects. I think one of the interpretations that we are exploring is that resource-backed investments are increasing because they are a way to reduce risks.

China has been trying to manage financial risks for a number of different reasons, including that the overall [Chinese] economy after [the] COVID-19 [pandemic] -- as well as in a lot of the BRI countries -- has not been performing as well as expected. Therefore, [Chinese] government sponsored projects or sovereign guarantees from these [BRI] countries are much harder to get for a variety of other projects.

Whereas, if you have resource backed projects like oil and gas it is relatively clear how you're going to get your money back. Therefore, these projects tend to be a lot lower risk and quite lucrative, particularly in today's markets of high fossil fuel prices.

RFE/RL: Another finding of the report is that some countries that were leading partners of the BRI received no Chinese engagement so far this year, including Russia. Is this drop-off in investment in Russia largely due to Beijing wanting to avoid secondary U.S. sanctions over Moscow’s war in Ukraine or are there other factors that help explain this?

Nedopil Wang: It's the first time that in any of the recorded periods that we looked at [where] we couldn't identify any large deal between China and Russia. It's an event that hasn't happened before, [but] of course, all of the questions and potential reasons about why this happened are speculation for the moment.

China has never confirmed that it's trying to avoid the sanctions with Russia, and it is [still] trading very regularly, particularly in fossil fuels, with Russia. So, it's not that there is no engagement between China and Russia. It's that there's no construction and investment recorded in the first half of 2022. It might be that Beijing is playing it safe and reducing the risk of any secondary sanctions, but it might also have other factors behind it.

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That applies for other countries that have seen a drop in Chinese engagement such as Egypt. I think it’s not possible to say there is a trend yet and that [this drop] is because Egypt has fallen out of favor with Beijing. China is actually constructing quite a bit of the new capital in Egypt and it’s therefore a bit tricky to make big conclusions from a half-year window. Some larger deals might be announced later in the year and so it’s still somewhat difficult to decipher the long-term trend.

RFE/RL: But are these drop-offs surprising to you? It seems like a noteworthy shift, especially for Russia, given where things stood in previous years.

Nedopil Wang: It was definitely a surprising finding. It's the first time that we did not see any engagement in Russia for any period of time.

But again, we can only speculate on the exact reasons right now and there will not be an official announcement by China about why this has happened.

RFE/RL: China’s engagement in Pakistan through the CPEC has been one of the flagship projects of the BRI. But your findings show that investment dropped by about 56 percent. What would you say is the main reason for this and what does it say about the future of the project overall?

Nedopil Wang: Pakistan has, since the establishment of the BRI through CPEC, been one of the most prominent corridors and China and Pakistan have exchanged a number of really impressive contracts to build infrastructure for energy, road, and rail transportation over the years.

Pakistan went through some big political changes last year and this year and there has been some reevaluation of the political risks from the Chinese side, as well as some reevaluation about the current economic situation in the country, which is not as strong as it was when a lot of this investment started.

With that in mind, perhaps it’s not too surprising. It might also be healthy for CPEC to have a breather and reevaluate what kind of projects are actually driving it forward and what is working, what is not, and what might be needed.

RFE/RL: We’re entering an interesting period as the BRI approaches its 10-year anniversary. The venture has shifted and adapted in many ways already. Currently, there is discussion of a potential overseas debt crisis mounting with BRI. Do you think that these problems are prompting a rethink in Beijing about the economic risks from the type of big infrastructure lending we’ve traditionally seen?

Nedopil Wang: I would be very surprised if not all of the involved players in China, from the ministries to the financial institutions and also the developers, are having to rethink their engagement in a number of different ways.

The number one reason is that the overall economic situation in a lot of the BRI countries is different now. A lot of the deals were done back when everybody was still in kumbaya mode believing that they could develop and finance anything. That has changed. There have been some sovereign debt crises and defaults in some BRI countries, and they have been trying to renegotiate their debt with China.

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There’s a clear recognition now of the risks involved and also a reduced appetite for further financial engagement. You also have other impediments right now, such as China having very strict travel controls due to COVID restrictions.

It's very hard right now for Chinese managers or Chinese developers to travel from China to any of the BRI countries to make deals or to actually do due diligence and plan a large-scale project. That’s a major detriment to making new deals. It doesn’t mean that there aren’t any new deals, because Chinese companies and financial institutions have staff on the ground, but things are just more cumbersome now.

China is also domestically in a different situation than it was in 2015-2017 when a lot of these BRI deals were being signed. Chinese financial institutions are focusing a lot of their effort to support the domestic economy and are potentially less interested in adding on more loans to foreign projects. So, there's also a reevaluation happening from the financial institutions.

Overall, there's a host of reasons why we're seeing a shift from these larger-scale projects to potentially smaller ones.

Going back to your first question, there is a growing focus on resource deals. In a way, those are perfect projects for any developer because the risk is very low. Essentially, you get your financing and there is a more straightforward way for you to get your money back, which is not the case with other big infrastructure projects that have much longer payback periods with much higher uncertainty.

This interview has been edited and condensed for clarity.

Ever since Hungarian Prime Minister Viktor Orban returned to power in 2010, Budapest has built a closer relationship with Beijing and opened the door for increased Chinese investment and influence inside the Central European country.

Despite several scandals and controversies during that span, a new poll shows that support for China is growing, with a majority of Hungarian voters saying they approve of rising Chinese influence in the country.

The survey by the Budapest-based Central and Eastern European Center for Asian Studies (CEECAS) found that China generally has a positive image among the Hungarian public and that most voters in the country share views on important political issues that are “favorable to Chinese standpoints.”

But the researchers also highlighted a strong polarization when it came to foreign policy issues, with voters from the ruling Fidesz party sharing overwhelmingly positive views of China and opposition voters expressing pessimism and concern.

The poll -- which was conducted in April during elections in Hungary that saw Orban and his Fidesz party further consolidate their hold on power -- was released this month.

Domestic topics dominated the campaign, but issues related to Chinese investment and debt -- including loans about a railway line connecting to Serbia and plans to set up a campus for a Chinese university in Budapest -- also cast a shadow over the vote, with several analysts and opposition lawmakers warning that the projects could become a Trojan horse for Beijing’s interests and influence within the European Union.

Gauging A Rising China

The poll found that 51 percent of Hungarian voters felt optimistic about China’s expanding footprint in the country.

China's growing footprint in Hungary expanded in 2010 when Orban launched his Eastern Opening policy, which was meant to cultivate close ties with Beijing and Moscow in order to attract investment and new economic opportunities for Hungary following the global financial crisis.

Since then, Orban has cultivated a strong relationship with Beijing and Budapest has blocked several of the EU’s efforts to censure Beijing over human rights concerns in Hong Kong and China's Western Xinjiang Province.

According to the survey, a majority of voters see the current level of Chinese influence in Hungary as “high” or “very high.”

This perception may be due to the growing number of areas where Budapest and Beijing are cooperating. In addition to investment and growing diplomatic support, China also sent ventilators, masks, and vaccines during the coronavirus pandemic, with Hungary being one of a handful of European countries to approve China's Sinopharm vaccine.

While the exact scale of Chinese aid pales in comparison to that provided by Brussels, the survey concludes that “China’s perceived assistance and role in Hungary’s pandemic management seems to have had a significant positive impact on public perceptions.”

Fidesz And Fudan

Perhaps the most controversial project linked to Chinese influence in Hungary is a plan to build a Budapest campus for Shanghai's prestigious Fudan University, which triggered large protests in the capital in June 2021 after leaked documents showed the government would take out a $1.5 billion loan from a Chinese bank to cover most of the costs.

The deal would make Fudan the first Chinese university in the EU and the first foreign outpost for the Shanghai-based school, which the Hungarian government has argued will raise higher-education standards in the country.

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Polls have shown -- including the CEECAS one -- that this topic has divided voters.

Like many hot-button issues in the recent survey, views tend to skew heavily along political-party affiliation, with a large majority of those who said they voted for Orban’s ruling Fidesz party backing a greater role for China in Hungarian higher education.

Unsurprisingly, support for Chinese influence in the country is also high among Fidesz voters, a view that increasingly leaves them out of step with their peers in the EU.

While more than three-quarters of Fidesz supporters are in favor of a greater Chinese presence, a 2021 study by the German Marshall Fund found that 62 percent of Europeans polled had negative attitudes toward China and its growing global influence.

Putin, Xi, And Ukraine

Since Moscow’s February invasion of Ukraine, the war has been a leading topic in Hungary and the poll also asked voters how they view close ties between China and Russia.

Chinese President Xi Jinping and Russian counterpart Vladimir Putin heralded a new era and declared a “no limits” partnership during a joint meeting in Beijing on February 4.

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Throughout the war, China has walked an awkward diplomatic line where it has sought to avoid explicitly backing Moscow’s war but has muted its criticism of the invasion. Beijing has also avoided any violation of Western sanctions against Moscow while becoming the top buyer of discounted Russian crude, providing the Kremlin with a crucial financial lifeline.

The poll found that some 48 percent of voters had an unfavorable view of the partnership and its impact on international politics.

“This was the only question in which a majority did not [hold] a positive perception [toward] China’s role,” the survey said.

RFE/RL’s Graphics And Data Editor Carlos Coelho and visual journalist Giovana Faria contributed to this article.