Silk Road risks: China needs to think a bit smaller

China, surely, has more than enough money to spend and the country is read to splash it on the trillion-dollar Belt and Road (also known as Silk Road) projects, the centrepiece of a soft-power push championed by President Xi Jinping.China has invested more than $50bn in Silk Road countries since 2013 and Xi has pledged another $124bn for his plan. Credit Suisse estimates China could pour more than $500bn into 62 countries over five years. Armed with more than $3tn in international reserves – more than a quarter of the world’s total – China has more resources than developed economies struggling to hit budget targets.At a two-day summit on the project in Beijing on Monday, 30 nations agreed to promote a rules-based, non-discriminatory trading system with the World Trade Organisation at its core. And that stands in stark contrast to US President Donald Trump’s “America First” trade policy.China stands to gain; not just by putting to work its underused industrial capacity and excess production of steel and other materials, but also by pushing its goal of deepening the global reach of its currency, which entered the International Monetary Fund’s big league of global currencies – the Special Drawing Rights basket – last year. Make no mistake, if everything about the Silk Road project is big; so is the risk. China’s slowing economic growth has left fewer resources to spend overseas. Its international reserves have fallen about 6% over the past year.Some Western diplomats also see the initiative as an attempt to promote Chinese influence globally amid rising concerns about transparency and access for foreign companies. And India has reflected its displeasure with China for developing a $57bn trade corridor through Pakistan that also crosses the disputed territory of Kashmir.Partner nations of the project should be weighing economic benefits against risks, including political instability or poor governance. Some are already evident: a deal for a rail project in Thailand fell through because local officials refused to grant China’s request for commercial property rights; the Kyrgyz prime minister was forced to resign in 2016 over a contract award to a Chinese company; white elephants like an international airport in southern Sri Lanka that hosts only a couple of flights a day. China’s increasingly assertive military, particularly in Asian waters amid the so-called “string of pearls” doctrine, is also a concern for some neighbours. China emphasises the Silk Road’s role in boosting industrialisation in the developing nations on the ancient trade routes connecting China with Central Asia, the Middle East, Africa and Europe. Economists agree, too, that the initiative has the potential to stimulate Asian and global economic growth. But instead of the “cheap-funds-heavy-debt-growing-risk” approach China would be wise to think a bit smaller. Projects should be scrutinised not only for their headline numbers but their long-term viability. Lenders need to be transparent about financing terms and considerate of borrowers’ ability to repay. As a simple investment rule, China needs to treat its Belt and Road ambition with a clear perception of risk.