China's Belt and Road Initiative in the 'Small and Beautiful' Era
Over a decade since its founding, the BRI continues to evolve. With the 'small and beautiful' doctrine now shaping China's international development strategy, what does the future hold?
In his speech to the Belt and Road Symposium in 2021, President Xi Jinping first used the term ‘Xiao Er Mei’ (小而美), which translates to ‘small and beautiful’, to lay out his vision of the future of the Belt and Road Initiative (BRI), eight years after the strategy was first announced in September 2013. This novel rhetoric from Beijing has been accompanied by palpable changes in the selection, design and regulation of BRI projects in recent years, with the focus moving away from expansive mega-projects to narrower, more precise initiatives in an effort to address some of the issues China encountered in the BRI’s early years. At the heart of these reforms, which are still ongoing, there is an effort to ensure that current and prospective BRI projects are financially feasible, less prone to corruption, and more aligned with Beijing’s environmental, strategic and economic ambitions.
Recognising this shift is not only crucial in understanding China’s international approach going forward, but also the future of global aid and development programmes more generally at a time when the US and UK are drastically cutting their overseas assistance budgets.
The Early Days of the BRI: Impactful, yet Troublesome
With over US$1.175 trillion spent in more than 140 countries, including around US$704 billion in construction contracts and US$470 billion in non-financial investments according to the Green Finance and Development Center (GFDC), the BRI has unquestionably had a monumental impact on connectivity and infrastructure projects across the globe.
The initiative has had clear benefits for Beijing, dramatically increasing trade, primarily in raw materials, between China and the Global South. Since 2013, over US$19.1 trillion worth of goods and services have been exchanged between the PRC and BRI countries alone. However, despite the obvious economic and strategic dividends that China has reaped as a result of the BRI, including enabling Beijing to begin to pivot away from its dependency on U.S. foodstuffs through its deepening trading relationships with Europe and South America, The BRI has not entirely been the win-win success story that the CCP presents it as.
In the decade since the first BRI projects were constructed, there has been significant controversy surrounding the economic sustainability and governmental impact of Chinese-financed initiatives under the umbrella of the BRI and the national security risks they allegedly pose. Most infamously, Beijing holds a significant proportion of the sovereign debt of countries in the Global South.
Indeed, China continues to be Africa’s biggest bilateral lender, holding around 12% of the continent’s total public and private external debt (close to US$87 billion) in 2022, a dynamic that, in theory at least, seems beneficial for the PRC with annual debt repayments from Africa alone increasing fivefold over the last decade. In reality, however, numerous African countries have faced significant difficulty repaying these loans. Many states have been forced to negotiate substantial debt restructuring agreements with Beijing, whilst China is estimated to have spent at least US$240 billion as of 2023 to prevent countries like Zambia and Angola from defaulting on their loans. Other borrowers, such as Nigeria, have also had to undertake unconventional financial measures, such as the issuing of ‘panda bonds’ in recent years, to raise sufficient capital to continue to afford repayments on their Chinese loans. This lack of focus on financial sustainability and allegations of corruption are not limited to Chinese projects and loans in Africa.
China has been forced to write off billions of dollars of debt across the Global South, which countries could simply not afford to pay back, such as in Venezuela, where Beijing lost US$20 billion of a US$62.2 billion loan to the country. Indeed, as a 2023 AidData study found, China continues to be owed around US$1 trillion in loans payments with 80% of the debt possessed by states which are characterised as in ‘financial distress’ whilst 35% of BRI infrastructure projects have reportedly faced “major implementation problems such as corruption scandals, labor violations, environmental hazards, and public protests”.
The failure by Chinese SOEs, provincial governments and other quasi-state actors to conduct extensive risk assessments throughout early BRI projects not only had adverse economic consequences but also unintended negative geopolitical implications for Beijing, which, as a result, has long been accused of engaging in ‘debt trap diplomacy’. This negative backlash can be seen in Southeast Asia, where energy and resource extraction projects linked to the China-Myanmar Economic Corridor, one of the six economic corridors of the BRI, caused a diplomatic row between the two countries. In this case, the construction of a Chinese-financed pipeline through territory controlled by ethnic armed groups, accompanied by mining and logging operations (which violated Beijing’s own economic sanctions), led to a public outcry in Myanmar with the Burmese government closing down a major Chinese power station in the country in retaliation.
This lackluster regulatory oversight, which was not uncommon during the early years of the BRI, can also be seen on the Malay Peninsula. In this instance, two different Chinese provincial governments signed separate multi-billion-dollar deals to develop port infrastructure in Malaysia despite the fact that the construction of two different harbours so close to each other made little strategic or economic sense. Incidents such as these, as well as criticism of the quality of Chinese infrastructure construction in general, have led to increasing international skepticism of BRI projects, with Malaysia and Tanzania among the countries to cancel Chinese deals in recent years.
In addition to evolving attitudes abroad, domestic economic concerns at home, linked to China’s underwhelming post-pandemic economic recovery, also began to have a significant impact on Beijing’s overseas development strategy. As the true extent of the real estate crisis, eye-watering levels of local government debt and the impact of Western trade and investment restrictions started to become clear, BRI funding levels started to drop substantially; with BRI investment in Africa, for example, falling to only $7.5 billion in the year 2022. Facing these internal and external headwinds, Xi Jinping was increasingly forced to consider a remodeling of his signature foreign policy initiative.
The Shift to ‘Small and Beautiful’
In light of these challenges, China’s leadership began to take action in the years preceding the first articulation of the ‘small and beautiful’ doctrine in 2021. This could be seen as early as 2018 when a new state agency was established to scrutinise BRI programmes and curtail funding for what Xi described as “vanity projects”. Going further, Xi also announced at the Belt and Road Symposium in 2019 that the BRI must transition from an initiative that “paints with broad strokes” to one that uses “a fine brush approach” and prioritises high-quality sustainable development projects as well as ESG (environment, sustainability and governance) programmes. Building on this, the Chinese government set out eight ‘guiding principles’ for a reformed BRI at the 2023 Belt and Road Forum, which aimed to combat the corruption, environmental, and debt issues that had previously tainted the BRI’s reputation and effectiveness.
This rhetoric signaled an effort to shift Chinese BRI funding away from ‘high profile’ and ‘hard connectivity’ mega-projects with extremely ambitious infrastructure and connectivity objectives, such as the repeatedly delayed US$10.4 billion Nigerian Lagos-Kano railroad, to less expensive, greener, lower risk and higher-yield ‘soft connectivity’ initiatives with shorter construction timelines. Examples of such projects highlighted by Chinese state media outlets include the funding of local artisan embroidery initiatives in Liberia, biogas development schemes in Tonga and Samoa, as well as a “mushroom-growing technology in Fiji, Papua New Guinea and Rwanda”, which are a far cry from the expansive mega-projects Beijing had championed previously.
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Chinese officials have also been keen to give center stage to green and technological initiatives in their rhetoric about the new ‘small and beautiful’ BRI doctrine, with particular emphasis on the ‘Digital Silk Road’ and ‘Green Silk Road’. Indeed, in the wake of criticism of the substantial negative environmental impacts of a number of BRI mega-projects, the PRC has plowed significant capital into green BRI initiatives in recent years. According to the IISS, green-energy investments under the umbrella of the BRI amounted to US$9.5 billion in 2023 alone - with a focus on critical minerals, solar cells and electric vehicles (EVs), sectors in which China already holds a ‘near-monopoly’ position in global supply chains.
This new doctrine of investment in green energy projects is in line with the principles laid out by Xi Jinping in 2021 as part of China’s Global Development Initiative, which emphasises the pursuit of ‘Stronger, Greener and Healthier Global Development’. The extent of this shift is staggering, with analysis by Boston University’s Global Development Policy Center noting that in 2022, Chinese development finance institutions (DFIs) did not finance a single new fossil fuel initiative, in stark contrast to Beijing's previous extensive investment in oil and gas projects under the BRI.
Much of the recent capital invested in green BRI projects has been targeted at Southeast Asia, with roughly US$3 billion of BRI funding invested in renewable energy initiatives in the region between 2019 and 2023. These projects range from hydropower projects along the Mekong River to EV lithium-ion-battery initiatives in Indonesia and the Philippines. Africa, too, has been a location for Chinese green-energy financing deals with the Export-Import Bank of China allocating around US$502 million for three low-carbon energy initiatives on the continent in 2023. Moreover, Beijing also announced plans for thirty new renewable energy programmes during last year’s Forum on China-Africa Cooperation (FOCAC) as part of a wider US$50 billion funding commitment.
These programmes, in addition to their economic and climate drivers, have an underlying geopolitical component too, with Beijing seeking to secure its critical minerals supply chains as well as consumer markets for Chinese green technology, such as EVs, following the US and EU continuing efforts to de-risk from China.
Another noticeable impact of the ‘small and beautiful’ doctrine is the changing scope and nature of Chinese development financing. The new doctrine, in concert with other factors such as the Covid-19 pandemic, has led Chinese lenders to become much more risk averse both in terms of overall loan volumes but also concerning the risk they take on through facilitating such borrowing. Indeed, as the IISS notes, the average deal size of BRI construction projects in 2023 was the second-lowest year in the Initiative’s history (down nearly 50% from 2018 according to the GFDC) whilst Beijing has also limited the amount Chinese banks are allowed to lend overseas.
This is a significant departure from the previous practice of BRI financing in which Chinese firms were entirely responsible for each initiative’s funding, investment and construction. In the early years of the BRI, one or more Chinese institutions would provide the totality of the capital for a project, one Chinese firm would be the sole equity investor of the project, and a single Chinese contractor would be responsible for the programme’s implementation. In recent years, however, to avoid Chinese parties bearing all the risk of a project, Beijing has encouraged Chinese SOEs to expand the practice of undertaking smaller percentage participation in investment and loan deals whilst simultaneously seeking to attract other state-owned and private creditors to invest in BRI programmes. The practical implications of this change of funding model and focus on smaller, yuan-denominated investments can be seen in recent Chinese loans structuring in Africa, where Beijing is increasingly opting to transfer capital through “financial intermediaries such as regional African banks” rather than providing the funding directly to African governments.
This effort to mitigate fiscal risks by minimising Chinese exposure to African states is echoed in the PRC’s FOCAC 2024 Beijing Action Plan which, as the Global Development Policy Center notes, calls for infrastructure development in Africa to be financed by “adapting capital structuring… a clear departure from the debt-funded large infrastructure projects that were so prevalent during the early years of the BRI”. As well as diversifying the financial structure of BRI deals by encouraging the growth of equity models and public-private partnerships over conventional loan models, Beijing has also sought to increase engagement, particularly on green-energy and technology development, with middle-income countries, such as those in the Gulf, in addition to low-income states in the Global South.
The transition to ‘small and beautiful’ projects has not been seamless, however. Chinese SOEs, banks and government agencies have had to face the perennial issue that, beyond the Politburo’s broad pronouncements, it remains unclear precisely how Xiao Er Mei translates into project frameworks. Despite difficulties, though, in practice, BRI funding has begun to rise again in the last couple of years. According to the Chinese Loans to Africa (CLA) database, “in 2023 Chinese lenders issued 13 new commitments with a value of US$4.61 billion to eight countries and two regional financial institutions”. This rise marks the first time since 2016 that the total value of Chinese annual loans to Africa has increased. It is simultaneously the largest volume of lending since the COVID-19 pandemic, despite remaining well below the more than US$10 billion annual rate seen during the BRI’s early years. This increase has not been confined to Africa either, with the China Belt and Road Initiative Investment Report highlighting that overall 2023 was the highest year for BRI-related investment since 2018, with close to US$50 billion allocated in that year alone.
Looking to the Future in an Uncertain World
Chinese reforms to the BRI’s development financing model, driven by the new ‘small and beautiful’ doctrine, have not occurred in a vacuum. In and of itself, the international development landscape has undergone a fundamental shift in recent months. At a time when the US and the UK are both substantially reducing their international aid spending - with the White House dismantling billions of dollars’ worth of USAID programmes and Downing Street seeking to free up funding for greater defence spending - concern has grown that Beijing could take advantage of this Western retrenchment. Indeed, beyond the gutting of USAID’s humanitarian programmes, uncertainty hangs over Biden-era US led development and green finance initiatives such as the Partnership for Global Infrastructure and Investment (PGII), PREPARE, and the Indo-Pacific Framework for Prosperity (IPEF) with the Trump administration withdrawing from the Just Energy Transition Partnership (JETP) last month.
Amidst this reshaping of the international aid landscape, China is championing an alternative path. While much of the coverage of the 2025 Munich Security Conference focused on the American Vice-President’s speech and Washington’s signaling that it can no longer be relied on as a guarantor of European security, Chinese foreign minister Wang Yi also gave remarks, which despite their potential significance, went largely under the radar. In his speech Wang Yi made an overture to Europe, stating that Beijing was “willing to synergize high-quality Belt and Road cooperation with the European Union’s Global Gateway strategy, so as to empower each other and empower the entire world”. Although serious discussions of a future ‘synergy’ between the BRI and the EU’s Global Gateway (Europe’s international infrastructure strategy) remain extremely distant, Wang Yi’s comments reflect the reality that China and the EU (alongside Japan) may soon be the only big international development aid players in town.
In light of recent apprehension that China will now step in to fill the void left by the US and UK, it is important to understand that Chinese development financing, particularly in the ‘small and beautiful’ era, is fundamentally different to Western aid practices. Beijing is unlikely to simply replace Western funding dollar for dollar. Whilst China recently raised an extra US$4 million together with South Korea to fill a critical funding gap that the Africa Centres for Disease Control faced following American disengagement, it is highly improbable that this practice will be replicated on a large scale. This is because, unlike USAID and the British FCDO (Foreign, Commonwealth and Development Office)'s substantive focus on healthcare and humanitarian aid, Chinese loans and grants are primarily allocated for trade, infrastructure and security initiatives.
Grasping the complexities of China’s approach to development financing, particularly the BRI’s shift to ‘small and beautiful’ projects in recent years, is imperative to understanding the changes confronting the development assistance landscape in the years to come. With the future remaining uncertain as the international aid landscape shifts beneath our feet, Beijing’s rhetoric and, more importantly, actions are worth watching in the long months and years to come.
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