The Chinese government’s ambitions to increase infrastructure connections and cross-border trade throughout northern China, especially in Inner Mongolia and the provinces of Heilongjiang, Jilin, and Liaoning, are in line with the opening of Xinjiang as a free trade zone.

The strategy suggests granting Xinjiang officials more latitude to implement measures aimed at luring foreign investors from neighbouring nations, all but Afghanistan being part of China’s grandiose endeavour to resurrect the historic Silk Road.

The plan said that the establishment of the ‘Xinjiang Pilot Free Trade Zone’ would be the responsibility of local government officials in the area as well as the ‘Xinjiang Production and Construction Corps’.

The European Union, Canada, and the United States all imposed sanctions on the ‘Xinjiang Production and Construction Corps’ in 2020 for allegedly violating human rights.

The Uyghur Forced Labour Prevention Act was also passed by the United States in December 2021. It forbids the importation of goods made in Xinjiang or by businesses that are on the Uyghur Forced Labour Prevention Act Entity List into the United States unless the importer can demonstrate that the goods were not made using forced labour.

At a May 2023 shareholder meeting, Volkswagen’s investors urged that the automaker ask its joint venture partner for assistance in conducting an independent examination of working conditions at a location in Xinjiang.

“It is necessary to firmly establish the overall national security concept…and effectively strengthen the construction of risk prevention and control systems,” the cabinet’s proposal read.

Making Xinjiang a free trade zone is expected to support China’s goals of seeing more nations settle payments in Chinese yuan instead of US dollars, especially when buying commodities.

Challenges Galore For The Project

As the Belt and Road Initiative entered its second decade, a report from the researchers of AidData, the World Bank, the Harvard Kennedy School and Kiel Institute for the World Economy has now identified a major rise in emergency loans to stakeholder countries, as these nations reportedly face difficulty repaying debt taken on as part of Belt and Road projects.

“Analysis of a new dataset demonstrates that, by the end of 2021, China had undertaken 128 rescue loan operations across 22 debtor countries worth USD 240 billion. These operations include many so-called ‘rollovers,’ in which the same short-term loans are extended again and again to refinance maturing debts,” the study noted further.

“Less than 5% of Beijing’s overseas lending portfolio supported borrower countries in distress in 2010, but that figure soared to 60% by 2022. China has responded to the rising tide of debt distress by pivoting away from infrastructure project lending and ramping up liquidity support operations. Nearly 80% of its emergency rescue lending was issued between 2016 and 2021,” the study continued.

Also, the Philippines has now announced the termination of big-ticket infrastructure projects with China in favour of Japanese and Western rivals, as the relationship between the countries has taken a dramatic downturn.

“For the Philippines, China has largely engaged in ‘pledge trap’ diplomacy during the Duterte administration, a cynical ploy that entailed forward-deployed concessions in the South China Sea in exchange for largely illusory investment pledges. China pledged as much as USD 24 billion in infrastructure projects under Rodrigo Duterte, nearly none of which have been delivered,” commented a report from Asia Times.

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China Everbright is a Hong Kong-based financial services firm specialised in asset management investment and merchant banks. The Everbright Belt & Road Green Fund is established with a focus environment-friendly development and protection, media reports said.

It will invest in companies associated with green energy, green manufacturing, green living, and other forms of environmental development. Wang Tianyi, CEO of Everbright International, told the media, “The company will provide feasible advice and full support to Everbright Green Investment Fund, and contribute to the improvement of ecological environmental management proficiency in the ‘Belt and Road’ countries and regions. Everbright International will consider its participation in Everbright Green Investment Fund an opportunity to further diversify its financing channels, enrich the market expansion methods and boost its market position, in an effort to strongly support the company’s implementation of its long-term development strategy.”

It is reported that the Everbright Belt & Road Green Fund is a result of the Second Belt & Road Forum for International Cooperation. The pandemic is anticipated to affect China’s Belt and Road initiative as the project might remain incomplete or be fully abandoned if uncertainties around Covid-19 continue. This initiative aims to establish a link between China and the rest of Asia, Europe, and beyond. The idea is to promote trade between these countries through a network of rail, road, and ports.

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To date, the Mombasa-Nairobi SGR is the biggest infrastructure project in the country since independence. The localisation of SGR operations has reached nearly 80 percent. The significant  rise of Kenyans working in SGR increased through technical skills transfer in 123 railway specialties.

It is reported that 1,072 Kenyans had undergone training to perform duties independently and 252 Kenyans were upgraded for leadership positions. 

Recently Africa Star Railway Operation launched a report on 1,000 days of SGR operations at Syokimau, Kenya. According to the report, SGR has marked 1,000 days for smooth operations on the basis of safety, efficiency and responsiveness to customer needs.

The number of Kenyans in leadership roles in SGR is expected to increase as the percentage of localisation goes up. Now 252 Kenyans are in leadership positions in SGR across the Mombasa-Nairobi-Naivasha route.

The company’s general manager Li Jiuping told the media, “Kenya’s SGR passenger trains have transported 4.17 million passengers, while the freight trains ferried 771,000 TEUs of bulk cargo. We firmly believe safety is the bottom line in railway operation. This is achieved by enhancing the safety management system, establishing a safety and supervision team to constantly oversee safety matters, and promoting public security capacity.”

The Mombasa-Nairobi SGR is vital to China’s Belt and Road Initiative (BRI). The main contractor for SGR development was the China Road and Bridge Corporation (CRBC).

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The zone will open up new opportunities for both businesses and occupiers to establish and expand their operations in the Kingdom. That said, it will also increase investor appetite, especially for those seeking to build their portfolios. 

The logistics zone will comprise primary and secondary manufacturing facilities along with storage and cooling facilities. Dr. Nabeel bin Mohamed Al-Amudi, the Saudi Arabian Minister of Transport announced at the 3rd Saudi Logistics Conference that, “The Government of the Kingdom of Saudi Arabia has been keen on promoting the various sectors of business and production in the Kingdom to enhance our national economy and promote development. It will drive comprehensive major steps forward for the prosperity of our people, and the well-being of our homeland.” 

The zone will encourage Middle East investors to step out of their comfort zone and invest in other assets as well. Research Director MENA at JLL Dana Salbak emphasised that the logistics sector is becoming popular on the global front, especially with investors willing to invest in assets away from traditional real estate. 

Overseas investments by industrial and logistics entities in the Middle East reached $315 million during the first half of 2019. However, retail mall investments during that period amounted to $155 million. 

The Middle East logistics is expected to flourish in ecommerce and omnichannel retailing on a regional and global scale.

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The company’s decision to set-up an oil unit comes as it seeks to supply fuel to ships passing a prominent maritime route, the media reports said. Sinopec is China’s latest investment in Sri Lanka and is considered important to its Belt and Road Initiative’s infrastructure plan.

Sinopec has strategically identified Hambantota on the Indian Ocean along a major maritime route between the Suez Canal and the Malacca Strait. The route is used by two-thirds of global oil shipments and hence there is ‘huge’ potential to supply fuel to ships. 

China considers relations with Sri Lanka important and has shown support to Colombo’s efforts to safeguard national unity and strengthen economic development. In 2017, China had offered to work with Sri Lanka to advance the construction of Colombo Port City, Hambantota Port and logistics parks. 

This year, India’s Accord Group and Oman’s Ministry of Oil and Gas signed a $3.85 billion deal to construct an oil refinery in Sri Lanka. The deal is seen as the biggest foreign direct investment pact in the country. 

The refinery will be built on 585 acres near the Hambantota Port with a capacity to produce 200,000 barrels per day. The refinery is expected to produce 9 million metric tonnes of refined oil each year for export from the port. 

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The reason behind Indonesia’s request is to be able to better coordinate Chinese loans that are associated with BRI projects. During the Belt and Road Forum in April Indonesia offered China roughly 30 BRI projects worth $91 billion.

Indonesia’s request to China highlights a growing desire among the BRI participants to reshape the financing mechanisms and loan structures in their favour. President Joko Widodo met China’s President Xi Jinping on the sidelines of the G20 summit in Japan where the request was made.

Indonesia’s Finance Minister Sri Mulyani Indrawati has been handed the responsibility of coming up with a proposal to China on the size of the fund, its structure and also the criteria for loans. “I am currently doing a study about its form, its mechanism, the size of it and of course the consequences of its costs,” Sri Mulyani Indrawati told Reuters.

In recent years, China’s President Xi Jinping has pushed for the trillion-dollar effort to create a modern-day Silk Road. Indonesia, however, despite its strategic location has not been among the biggest beneficiaries. Indonesia’s biggest BRI project is the $6 billion railway project which links Jakarta to Bandung but the construction has faced problems related to land procurement.

Another project, a $1.5 billion hydropower plant funded by Chinese banks came under scrutiny as it is located in the heart of the Batang Toru rainforest on the island of Sumatra, home to the endangered Tapanuli orangutans. China proposed the Belt and Road Initiative in 2013 to improve regional integration, increase trade, and stimulate economic growth.

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The announcement was made by President Xi Jinping during his meeting with the Ethiopian Prime Minister Abiy Ahmed in Beijing. During the meeting, the two leaders also discussed the rising concerns facing China’s Belt and Road Initiative.

Last year, China had agreed to revise some of the loans it provided to Ethiopia. Since 2000, Ethiopia has borrowed loans worth more than $1.2 billion from China, which included loans for the funding the Addis Ababa-Djibouti railway line that connects the country to its main port in Djibouti.

President Xi stressed on the fact that the Chinese government is eager to work on the Beautifying Sheger project in Addis Ababa which is worth more than $1.1 billion. The country is investing a lot of effort to complete the project.

Both leaders have agreed to strengthen cooperation between the two countries. In 2017, Ethiopia and China formed an agreement to build a comprehensive, strategic partnership across various fields.

China’s write off of Ethiopian loan interest payment is not the first time it has excused debt payments for debtors in Africa. In January 2019, China wrote off off nearly $78 million from Cameroon’s debt in an effort to ease the economic conditions in the central African nation.

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