Domestic slowdown pre-empts shift in BRI investment and foreign influence strategy

Like every ascendent economic, political and strategic power, China has used its nearly three-decade period of rapid industrialisation and economic expansion to begin establishing and entrenching its position within the upper echelons of global power and the broader international community.

Fuelled in large part by the long memory of a “century of humiliation” at the hands of Western imperialism, finally ending with the successful Communist Revolution in 1949, China and its political leaders have dedicated the nation to ushering in a new era of global Chinese primacy.

As China’s position within the global order has evolved and its ambitions towards the Indo-Pacific in particular have become increasingly apparent, the Chinese government, driven by an extremely ambitious leader, President Xi Jinping, has identified a number of factors of both “internal” and “external” concern for the rising superpower’s status.

These “concerns” extend to China’s traditional sphere of influence across central Asia, Taiwan and of increasing concern for many nations through Southeast Asia, the Indian Ocean and into the South Pacific, raising red flags on many nations, Australia included.

Further compounding these issues is the seemingly bipolar nature of America’s role in regional and global affairs as it vacillates between internationalism and semi-isolationism, or as its “pacing competitor” China describes, an “intensified competition among major countries, significantly increased its defence expenditure, pushed for additional capacity in nuclear, outer space, cyber and missile defence, and undermined global strategic stability”.

At the core of Beijing’s soft power push into the Indo-Pacific is the Belt and Road Initiative (BRI), designed to provide developing nations with access to infrastructure, investment and development opportunities, linking them to the promise of economic opportunity courtesy of the voracious appetite of China’s domestic demand.

While there have been many concerns raised about the BRI and the rise of “debt trap diplomacy” as a mechanism for Beijing to build a web of infrastructure and resource holdings across the developing world by many nations, Australia included, China’s mounting domestic challenges in the aftermath of the COVID-19 pandemic, in particular, have raised additional concerns.

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Raising the alarm is a recent report by the Congressional Research Service (CRS), titled China’s “One Belt, One Road” Initiative: Economic Issues, which details a number of concerns stemming from Beijing’s Belt and Road Initiative.

A new focus on ‘high-quality development’

While much of the Western analysis and criticism of the Belt and Road Initiative has focused on the resulting “debt trap diplomacy” efforts of Beijing, increasingly domestic criticism from recipient countries has centred around the quality of the infrastructure and physical investments under the BRI and the use of imported, Chinese labour force effectively segregating the local workers out of the opportunities.

In response, Chinese President Xi Jinping announced in 2023 a shift in the way China would engage in the BRI with an emphasis on “high-quality development” and “small and smart” development projects, a marked shift from the large-scale mega-projects that the rising superpower has typically prioritised in the past (think large-scale infrastructure projects, like the Karokoram Highway linking the Chinese-built port to Gwadar, Pakistan).

This shift comes as a direct result of Beijing’s domestic economic slowdown, which, as the CRS stated, “China’s outward FDI flows peaked in 2016, while cross-border contracts have been stable in agriculture, energy, minerals, finance, infrastructure, technology, and shipping. The overall value and size of PRC projects has declined with China’s economic slowdown and debt restructuring requests (e.g., Ecuador, Sri Lanka, and Zambia).

“The average commitment from China Export Import Bank (CHEXIM) and China Development Bank (CDB) in 2016 was US$580 million (AU$874.8 million) per project, compared with US$461 million (AU$695.3 million) in 2021. China may be at an inflection point in implementing existing projects and face a delay in activity after the pandemic. China’s domestic slowdown, as it did in 2009, could fuel PRC expansion overseas in key sectors,” the CRS explained.

Where things get even more hazy and indisputably more risky for recipients is the often complicated and convoluted terms of the loan agreements provided by Beijing and it’s state-owned or state-affiliated financial organs, which the CRS described, “Projects are neither assistance – PRC loans are typically not interest-free and tend to be issued at, or near, market terms – nor truly commercial, because repayments are often backed by collateral commitments (e.g., lease rights, minerals, or commodities) made to the PRC government, which in turn absorbs much of the commercial risk for PRC firms. Recipients of collateral may include state firms not party to the original transaction that are designated by the PRC government.”

For Australia and the US, this shift in China’s investment strategy does little to ease concerns about the pervasiveness of the Belt and Road Initiative, particularly across the Indo-Pacific, with the CRS stating, “The US government has promoted a G-7 Partnership for Global Infrastructure and Investment, and a Blue Dot Network prototype for quality infrastructure financing with Australia, Japan, and the Organisation for Economic Co-operation and Development. In 2020, the US government sanctioned some PRC state firms that build One Belt, One Road military infrastructure in the South China Sea.”

Despite this pushback, it is clear more needs to be done by Australia and its partners to push back against the increasing Chinese investment as domestic challenges present further economic, political and strategic incentives for the People’s Republic of China and challenges for Australia and our partners’ security across the Indo-Pacific region.

Final thoughts and questions for Australia

Importantly, in this era of renewed competition between autarchy and democracy, this is a conversation that needs to be had in the open with the Australian people, as ultimately, they will be called upon to help implement it, to consent to the direction, and to defend it should diplomacy fail.

Equally, despite Australia’s enduring commitment to the Australia–US alliance, serious questions remain for Australia in the new world order, as a number of allies have come to realise that American power is finite, particularly when distracted by multiple competing challenges presented by peer and near-peer competitors.

Accordingly, enhancing Australia’s capacity to act as an independent power, incorporating great power-style strategic economic, diplomatic and military capability serves as a powerful symbol of Australia’s sovereignty and will maximise the evolving responsibilities in supporting and enhancing the security and prosperity of Indo-Pacific Asia.

Shifting the public discussion away from the default Australian position of “it is all a little too difficult, so let’s not bother” will provide unprecedented economic, diplomatic, political and strategic opportunities for the nation.

However, as events continue to unfold throughout the region and China continues to throw its economic, political and strategic weight around, can Australia afford to remain a secondary power or does it need to embrace a larger, more independent role in an era of increasing great power competition? Further to this, without adding a degree of cynicism to the debate, what is China’s end goal for this focus on Australia’s backyard?

Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific region and what you would like to see from Australia’s political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch at This email address is being protected from spambots. You need JavaScript enabled to view it. or at This email address is being protected from spambots. You need JavaScript enabled to view it..