[Analytics] China’s Belt and Road plan hits roadblock as virus pinches supply of materials and workers

In Indonesia, the pandemic is throwing up new obstacles to a US$6 billion high-speed rail line link. Photo: AP. Sketched by the Pan Pacific Agency.

Despite tentative signs of economic recovery at home, projects under the Belt and Road Initiative remain cut off from vital Chinese materials and specialist labour. Supply chain disruptions are pushing out existing project timelines, including in Indonesia, Pakistan and Bangladesh, and adding uncertainty to new plans. Harry Pearl specially for the South China Morning Post.

China’s Belt and Road Initiative is struggling to shrug off the impact of supply chain ruptures, travel restrictions and stringent border controls caused by the coronavirus pandemic, as the spectre of project delays and cost overruns raises questions about the viability of future projects.

China’s economy has shown tentative signs of recovery after being battered by the coronavirus early in the year. Draconian containment restrictions are being lifted. Factories are beginning to hum again and electricity use is creeping up.

But flagship projects along China’s modern-day Silk Road, which seeks to link Asia, Europe and Africa with a network of ports, motorways and railways, are running into a host of problems.

In Indonesia, the pandemic is throwing up new obstacles to a US$6 billion high-speed rail line linking the capital Jakarta with the mountain-fringed city of Bandung, some 150km (90 miles) away, according to Kereta Cepat Indonesia-China (KCIC), the consortium of Chinese and Indonesian firms behind the project.

“The Covid-19 pandemic has caused delays in the delivery of imported material from China,” said Chandra Dwiputra, president director of KCIC. “Other than that, expert workers from China have not yet returned because the conditions aren’t yet favourable.”

Chinese workers made up about a fifth of the workforce, but government restrictions to contain the virus had prevented many of them from returning, he said.

Reports have estimated about 300 workers are stuck in China, though work on the rail line is continuing in the meantime.

Elsewhere in the archipelago, a controversial Chinese-backed dam being built in the Batang Toru rainforest on the island of Sumatra – the only known habitat of the endangered Tapanuli orangutan – is also seeing delays due to travel bans on Chinese workers, local media have reported.

China’s State-owned Asset Supervision and Administration Commission said last week that the pandemic had created greater external risks for belt and road projects.

“Various countries across the world that are affected by the coronavirus are tightening containment measures, leading to impacts of varying degrees on the global industrial and supply chains,” said Xia Qingfeng, head of the commission’s publicity department.

“Central state-owned enterprises have also experienced delays in contracts at hand, a decline of new orders, and risks to raw material supply,” he said.

As the coronavirus has spread around the globe, government controls have crippled international connectivity, making it hard for some belt and road projects to access vital Chinese equipment, components and specialist labour, even as the world’s second-largest economy restarts its manufacturing engines.

In the first two months of the year, China’s foreign labour service sent 39,000 workers abroad, a decrease of 29,000 compared with the same period of 2019, according to China’s commerce ministry.

At the end of February, the number of labourers overseas stood at 778,000, a decline of 188,000 year from a year earlier.

While a breakdown for belt and road countries was not immediately available, it is clear visa restrictions are complicating an already cloudy short-term outlook for various projects spanning energy to real estate in Asia.

Quarantine requirements for Chinese working on projects in the US$62 billion China-Pakistan Economic Corridor have been frozen for up to eight weeks, while Bangladesh has announced delays to belt and road projects, including roads, bridges and power plants.

One of Sri Lanka’s biggest belt and road developments, Port City Colombo, a mega city development built on land reclaimed from the Indian Ocean, has also been affected by the pandemic.

Kassapa Senarath, head of public relations for the development, said government import restrictions and quarantine measures for foreign workers had had a slight impact on the US$1.4 billion project, located outside Colombo, but work was continuing.

A bigger blow was the delay of its global sales launch this year, he said.

“Considering the present global situation, we had to delay, so our revenue will be delayed as well.”

The Sri Lankan government has implemented a complete ban on the import of so-called non-essential goods to stem the slide of the rupee and preserve foreign exchange reserves, cutting off imports of Chinese construction equipment and machinery, a Sri Lankan economist and former government official said.

“The central bank has instructed banks not to open bank facilities for such imports. The rule is for three months, and applicable for imports from all countries. It is unclear at this point whether all or parts of it will be relaxed sooner,” the person said, asking not to be identified.

Sri Lanka is host to numerous belt and road projects, including the Hambantota deep water port development, which has stirred accusations of Chinese debt trap diplomacy.

Despite assurances from Beijing that delays to projects are limited and temporary, some analysts are less sanguine. The Economist Intelligence Unit (EIU) said in a report last week the pandemic would derail belt and road cooperation in 2020.

The global outbreak had highlighted the spectre of debt defaults across emerging economies in Asia, Africa and Latin America, as project delays and cost overruns worsened financing demands or delayed debt-servicing for ongoing or finished projects, it said.

Since January, China has signed deals for a number of new belt and road projects, including in Myanmar, Nigeria and Turkey. But the EIU warned they faced an “uncertain future”.

Marie Lam-Frendo, chief executive of the G20’s Global Infrastructure Hub, said the pandemic’s impact on the belt and road plan would be felt most keenly in greenfield projects, where there would be greater scrutiny of early-stage proposals.

“Viability will be key. From a government perspective, depending on how these projects are financed, they might also be reluctant to put this on their balance sheet depending on their level of indebtedness,” she said.

There were indications that belt and road projects closer to China, especially in Southeast Asia, were being hampered by the irregular flow of Chinese workers and construction supply, Lam-Frendo said.

But the virus was unlikely to fundamentally change the Chinese initiative, and infrastructure development would play a part in any post-virus global economic stimulus, she said.

“If we look at a kind of midterm perspective, if the crisis remains fairly short, we should see some damages, but not irreparable damages.”

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