When Xi Jinping declared his ambitious Belt and Road Initiative (BRI) in 2013, the world did not comprehend China’s economic prowess. Beijing had already established its footprints in Africa, challenging the United States and other European economies to bag lucrative infrastructure and mining projects. However, through the BRI, Xi declared China’s intent to challenge the post-World War II economic dominance of the West.

The US did not take long to recalibrate its focus, abandoning conflicts in Afghanistan and the Middle East. Washington, along with its Development Assistance Committee allies, scrambled to mobilise resources for a cogent strategy to contain China. The US entered a trade war with Beijing to slow the roaring dragon, putting barriers to their domestic market. However, China had already diversified to the expanding markets of Europe and Asia.

Less than a year after declaring BRI (then One Belt One Road), Xi was walking on the European red carpet, hosted by powerful economies like France and Germany. As early as 2012, China laid grounds for cooperation with countries in Central and Eastern Europe (CEE) through its 16+1 framework. Closer to home, resource-strapped Asian countries with huge infrastructure deficit did not require much convincing. Even the all-season rival India warmed up to Beijing’s promises, with newly elected Prime Minister Narendra Modi committing to bilateral economic partnership. These are important events to recall when discussing the sobering reality of today.

Bumpy belt and road

Beijing’s global image has since taken a hard hit; its economic prospects in Europe or another “tea diplomacy” round with Modi look unlikely anytime soon. Two global disruptions have contributed to China’s misfortunes. First, the hastily planned and poorly governed projects across various continents undermined BRI’s global credibility. The economic distress of developing countries in Asia and Africa cannot be attributed solely to Chinese loans, as domestic political and international economic factors are also at play. But many of China’s borrowers are burdened by foreign debt, forcing Beijing to offer these countries a bailout. Countries like Sri Lanka have also resorted to other means, such as offering a long-term lease on the infrastructures that do not offer immediate financial returns for debt servicing. China’s other major borrower in the region, Pakistan, has secured a debt reschedule but may soon be forced to offer concessions to repay Beijing.

The European Union enforced a framework for screening Foreign Direct Investments (FDI) in 2022, ensuring member states do not compromise their sovereign decision-making power under economic distress. This was prompted by the EU’s concern over the inability of some European countries to support the UN resolution against China’s poor human rights record.

The second and more serious interruption came from the Covid-19 pandemic, which unfortunately spread out of China’s Wuhan province. Millions died, and countries worldwide were forced to shut down and divert resources to fight the pandemic. This not only affected the ability of developing countries to repay their debt but also continued to constrain them from making significant infrastructure investments. With limited business overseas and low loan recuperation, China has been under extreme pressure to rethink its BRI model.

Beijing’s burden

The Chinese government also faces a mountain of challenges domestically, besides an unfavourable external environment. Last year’s historic slump of 3 percent growth crippled the Chinese economy, shattering private sector confidence. While the pandemic played a big role, Xi’s policies also contributed to an economic downturn. The draconian nature of China’s “Zero-Covid” policy did little to reassure people, prompting widespread protests nationwide. While China has reverted the policy, the protests indicate Xi’s dipping popularity among Chinese citizens.

Xi’s obsession with tightening party control over the private sector and imposing stricter property market regulations has put the communist party at loggerheads with its business elite. The regulatory controls over large tech companies emerged from the Chinese Communist Party’s (CCP) concern over data security and ‘‘monopolistic growth’’. While China is now reproaching the private sector to boost their confidence, the regulatory laws enacted over the past two years have made investors suspicious of the CCP’s intentions. Xi’s election to an unprecedented third term as president earlier this year may have done little to assuage that feeling.

China’s economic misfortunes have also prompted increased international speculation about Xi’s control over the party and supposed opposition from within the CCP ranks. The scene from the 20th Party Congress meeting in which former president Hu Jintao was being ‘‘forcibly led out’’ made international headlines. But with his subsequent re-election signals, neither Xi nor the CCP are under any political duress.

China’s restrained international engagements over the past year may not be due to its lack of confidence or clout. But the blow-back on BRI’s initial misadventures and domestic economic constraints means a return to the global centre stage would not be straightforward. Xi must score on both fronts: Getting his house in order by jump-starting the economy and rebuilding China’s global image as a reliable development partner. It is an unenviable task, and many will doubt whether Xi is up for it.

This is the first of a two-part series on China, delving into Beijing’s recent economic downturn, its domestic political implications, and the challenge for President Xi Jinping as he embarks on his unprecedented third term.

The second part will be published next Thursday.