By end of Q1-2020, the world was grappling with economic disruption not seen since WWII. While the US-China trade war had dragged global growth in 2019 to its lowest levels since the Global Financial Crisis, the COVID-19 pandemic had brought the world economy to a complete standstill.
In our Q2-2020 Global Economic Outlook, we predicted 2020 global GDP growth at -0.6 per cent. This was based on the assumption that the COVID-19-related disruptions to economic activity mostly fall in Q2. However, that outlook is likely to be more pessimistic if country-wide lockdowns persist. For emerging markets, where a larger proportion of workers operate in the shadow economy, prospects appear bleaker.1 2 For Belt and Road, whose route comprises largely of developing markets, these recessionary pressures are likely to fuel concerns around commitment to ongoing and new BRI projects.
At time of writing, China appeared to be in a stronger position than most, with some signs of economic recovery. In our Q2 outlook, we predicted GDP growth there to recover to 4 per cent in the second quarter, reaching 5.5 per cent in the last quarter of 2020. Yet the sustainability of the country’s current economic and financial steadiness is far from assured, not least because there is no guarantee that China won’t see a resurgence of COVID-19 cases. And even if China recovers well in Q2, its medium-term economic growth is likely to be impacted by the looming global economic depression – creating fresh concerns around its global trade connectivity.3
While a global economic recovery may take time, among other things, the COVID-19 disruption has amplified the need for resilient infrastructure development4. The underlying infrastructure development aims of Belt and Road remain unchanged.
Infrastructure gaps still exist across the more-than 100 countries now officially part of the Belt and Road. Moreover, the positive support that Belt and Road has provided to date (in particular via job creation and local industry stimulation) is still critical to economic development. This is even more important now; developing countries will suffer economically following the COVID-19 outbreak, even if they are fortunate enough to escape the brunt of the health crisis, according to the Organisation for Economic Co-operation and Development (OECD)5.
“China has made significant commitments to and investments in Belt and Road countries over the past seven years,” says Simon Cooper, CEO of Standard Chartered’s Corporate, Commercial and Institutional Banking division. “COVID-19 and uncertainties surrounding trade are unlikely to alter significantly the course of this massive global effort in the long run, because the fundamentals of the Belt and Road Initiative, and the need to plug funding gaps, are still there.”
The road ahead
Of course, with China as Belt and Road’s ideator and to-date majority funder, trade disputes and the evolving pandemic have near-term implications for BRI construction and investment, but BRI remains an important priority for China.
Stronger ties with BRI countries helped China offset the impact of trade-war tariffs. Total exports edged up 0.5 per cent on-year in 2019 despite an 11 per cent decline in exports to the US. However, concerns that tariffs could affect BRI energy6, transportation and infrastructure projects led some foreign lenders to reconsider financing them.
Meanwhile, COVID-19 quarantine measures prevented scores of Chinese workers from traveling to worksites across Asia. The shutdown of Chinese factories that supply raw materials and machinery also presented challenges. Malaysia and Indonesia have already reported virus-related delays on multiple BRI rail projects, while several construction projects in Cambodia, Sri Lanka and Pakistan have also come to a stop7. And with the virus still spreading across many of the B&R corridors, the impact could worsen still.
Here for good
Clearly, an equilibrium needs to be reached between the near-term shocks and the long-term need for Belt and Road to keep driving economic development.
China has already taken steps to reaffirm its commitment. Officials in Beijing suggested in March that the impact on B&R would be limited to the short term. Among them, Vice Chinese foreign minister Ma Zhaoxu said he is confident in working with other countries to continue the high-quality construction projects under the initiative. Ma noted that many BRI partners have provided assistance to China since the outbreak began and expressed their willingness to continuing strengthening ties8.
It is still too soon to fully understand the impact this new age of disruption will have on China and the global economy. Whichever scenario plays out, large institutions and financiers need, more than ever, to support initiatives like the Belt and Road. Standard Chartered, for example, is working with its clients during this time to ensure minimum disruption to their operations across Belt and Road markets and projects.
In one example, the Bank supported a Chinese client to secure a BRI deal just as the COVID-19 outbreak was throwing Mainland China into disarray. “Our client won a deal to support the development of a Standard Gauge Railway (SGR) project in the UAE to the value of USD600 million just before the outbreak took a turn for the worse,” said Carmen Ling, Global Head of RMB Internationalisation and Belt and Road at Standard Chartered. “Because of our network in the Middle East and strength as a BRI bank, we were able to help the client issue the guarantees needed to secure the deal under a tight schedule, during a period when most of the country were out of the office.”
There is no doubt that the Belt and Road initiative will need to adapt to the challenges COVID-19 is posing. But what is needed is unwavering commitment from the financiers that see the long-term view – and the positive impact Belt and Road will have on societies in developing economies across the BRI routes. By helping to build sustainable economies and societies along the Belt and Road, they can enable them to withstand and recover from disruptions in the future.
Produced by Bloomberg Media in partnership with Standard Chartered.
1 Standard Chartered’s Global Economic Outlook Q2-2020: https://www.sc.com/en/feature/economic-outlook-q2-2020-the-global-storm/
2 Standard Chartered’s Asean Q2 2020 Economic Outlook https://av.sc.com/corp-en/content/docs/ASEAN-Q2.2020-outlook-Multi-decade-low.pdf
3 Standard Chartered’s China Q2 2020 Economic Outlook: : https://av.sc.com/corp-en/content/docs/China-Q2.2020-outlook-Recovery-in-sight.pdf
4 World Economic Forum: How sustainable infrastructure can aid the post-COVID recovery https://www.weforum.org/agenda/2020/04/coronavirus-covid-19-sustainable-infrastructure-investments-aid-recovery/