Flashpoints | Security | East Asia

Rising Security Risks Are Changing China’s Belt and Road Strategy

Beijing is becoming more selective about where and what it builds overseas. That transition was already underway but it has been hastened by the Iran-U.S. war.

For much of the past decade, the Belt and Road Initiative (BRI)’s biggest vulnerability appeared to be debt. The present conflict in the Middle East is forcing Beijing to confront a different problem: physical risks to infrastructure. 

Even before the outbreak of conflict between Israel, the U.S., and Iran, security was a growing problem for the BRI. Militant attacks on Chinese personnel along the China-Pakistan Economic Corridor, persistent insecurity around Chinese-backed projects in parts of Africa, and the disruption of land trade routes following the Russia-Ukraine war had already forced Beijing to deal with security problems it was poorly equipped to handle.

China’s direct investment in the Middle East reached roughly $89 billion between 2019 and 2024. Energy terminals, seaports, and logistics corridors in Qatar, the UAE, and Oman are now sitting inside or near active conflict zones. That means Chinese capital is now concentrated in a region where military strikes, not borrower default, are the primary threat to project viability.

A preliminary analysis by AidData suggested at least 18 projects financed by China across six countries in the region are either affected or at serious risk, with loans behind them totaling over $6.5 billion. Three sites were struck directly, including the Dubai International Airport, Qatar’s Ras Laffan gas facility, and Oman’s Duqm Port.

China had already been adjusting before the current conflict. The BRI’s debt cases pointed to what could go wrong. Sri Lanka conceded a major port to a Chinese firm after loan repayments became unmanageable, but that wasn’t enough to prevent the country from defaulting on its debts in 2022. Zambia also defaulted on its sovereign debt and spent years negotiating with Beijing over repayment schedules. Pakistan’s massive debts in the Chinese-financed power sector have dragged on for years. 

In each case the core problem was the same: infrastructure loans that could not generate enough returns to cover repayment. As projects became liabilities, debt had to be renegotiated. China’s standing as a development lender took damage that it has spent years trying to repair.

Between 2016 and 2021, China’s annual lending commitments fell sharply, from more than $75 billion at the 2016 peak to around $10.5 billion in 2021, partly as defaults mounted and partly because Beijing tightened its screening of partner countries. Transport infrastructure – including road, rail, and bridge financing – replaced oil and gas lending as the dominant sector in China’s overseas loan portfolio. In energy, the shift moved toward renewables and smaller grid projects, what is often labeled as a “small is beautiful” turn in Chinese overseas finance. It was driven by pressures over coal financing and by the debt difficulties of several energy-sector borrowers. 

A review of over 20,000 projects found that China was steadily restructuring its overseas portfolio: distressed loans were renegotiated, high-risk borrowers were dropped, and governance standards were tightened. The BRI was not collapsing, it was becoming more selective.

Unlike fiscal risk, which can be........

© The Diplomat