New investment in Russia under China’s Belt and Road Initiative (BRI) fell to zero in the first half of 2022, while Chinese spending in Pakistan fell 56% over the same period.

These are the conclusions of a new report from the Green Finance and Development Center at Fudan University in Shanghai, which indicate growing headwinds against Chinese President Xi Jinping’s foreign policy venture, which he once dubbed “the project of the century.”

Russia and Pakistan have been among the main beneficiaries of Chinese development spending through the BRI. Moscow has signed deals worth around $2 billion in 2021 alone and Islamabad hosts a $62 billion package of infrastructure and energy projects known as the China-Pakistan Economic Corridor (CPEC).

The Fudan University report highlights the changing nature of the BRI as it adapts to a combination of a strained global economy, China’s changing position in the world, and many countries that have signed agreements and took out loans through the initiative struggling with a growing debt crisis.

BRI spending has been falling for several years as Beijing becomes more risk averse. The report shows a total of $28.4 billion in Chinese investment in 147 BRI countries in the first half of 2022, up from $29.6 billion in the same period last year.

The BRI’s rapid expansion since 2013 has helped China become the world’s largest source of development credit, and how Beijing handles the program’s future will have global consequences.

To find out more, RFE/RL spoke to Christoph Nedopil Wang, the director of Fudan University’s Green Finance and Development Center who helped compile the report.

RFE/RL: One of the main takeaways from your report is that China is increasingly investing in oil and gas, accounting for around 80% of Chinese energy investments abroad for the first half of 2022 and 66% of Chinese construction contracts. Saudi Arabia has become one of the main recipients of Chinese investment along with other countries in the Middle East. What does this tell us about the current state of the BRI and its direction?

Christoph Nedopil Wang: We saw last year in the 2021 report that one of the main beneficiaries of Chinese engagement was Iraq and that it was similarly through fossil fuel-backed projects. I think one of the interpretations we’re exploring is that resource-backed investments are increasing because they’re a way to reduce risk.

China has tried to manage financial risks for a number of different reasons, including that the [Chinese] economy after [the] COVID-19[feminine] [pandemic] – as well as in many BRI countries – has not performed as well as expected. Therefore, [Chinese] government sponsored projects or sovereign guarantees of these [BRI] countries are much more difficult to obtain for a variety of other projects.

Whereas if you have resource-backed projects like oil and gas, it’s relatively clear how you’re going to get your money back. Therefore, these projects tend to be much less risky and quite lucrative, especially in today’s markets with high fossil fuel prices.

RFE/RL: Another finding of the report is that some countries that were BRI’s main partners have not received any Chinese commitments so far this year, including Russia. Is this drop in investment in Russia largely due to Beijing’s desire to avoid secondary US sanctions over Moscow’s war in Ukraine or are there other factors that help explain it?

Nedopil Wang: This is the first time that in any of the recorded periods we have examined [where] we could not identify any significant agreement between China and Russia. This is an event that has never happened before, [but] of course, any questions and potential reasons why this happened are just speculation at this time.

China has never confirmed that it is trying to avoid sanctions with Russia, and that is [still] very regular exchanges, particularly in fossil fuels, with Russia. So it’s not that there is no engagement between China and Russia. It is that there is no construction and investment recorded in the first half of 2022. Beijing may play it safe and reduce the risk of secondary sanctions, but there could also be other factors behind that.

This applies to other countries that have seen a decline in Chinese engagement such as Egypt. I think it is not yet possible to say that there is a trend and that [this drop] is because Egypt has fallen out of favor with Beijing. China is actually building a good chunk of the new Egyptian capital and so it’s a bit difficult to draw big conclusions about a half-year window. Some larger transactions could be announced later in the year and therefore it is still somewhat difficult to decipher the long-term trend.

RFE/RL: But do these stalls surprise you? This seems like a noticeable change, especially for Russia, given the situation in previous years.

Nedopil Wang: It was definitely a surprising discovery. This is the first time that we have not seen any engagement in Russia for a given period.

But again, we can only speculate on the exact reasons at this time and there will be no official announcement from China as to why this happened.

RFE/RL: China’s engagement in Pakistan through CPEC has been one of the BRI’s flagship projects. But your findings show that the investment has fallen by about 56%. What do you think is the main reason for this and what does it say about the future of the project as a whole?

Nedopil Wang: Since the establishment of the BRI through the CPEC, Pakistan has been one of the most important corridors and China and Pakistan have exchanged a number of truly impressive contracts to build energy, road and rail transport infrastructure over the years.

Pakistan has seen great political changes in the last year and this year and there have been some reassessment of political risks on the Chinese side, as well as some reassessment of the country’s current economic situation, which is not as strong as it was when these investments began.

With that in mind, perhaps it’s not too surprising. It might also be healthy for CPEC to pause and re-evaluate what kind of projects really drive it forward and what works, what doesn’t work, and what might be needed.

RFE/RL: We are entering an interesting period as the BRI approaches its 10th anniversary. The company has already changed and adapted in many ways. Currently, a possible foreign debt crisis is being discussed with the BIS. Do you think these issues are prompting Beijing to rethink the economic risks of the kind of big infrastructure loans we traditionally know?

Nedopil Wang: I would be very surprised if all the actors involved in China, from ministries to financial institutions to promoters, did not have to rethink their engagement in different ways.

The main reason is that the overall economic situation in many BRI countries is different now. Many deals were made when everyone was still in kumbaya mode, believing they could develop and finance anything. This has changed. There were sovereign debt crises and defaults in some BRI countries, and they tried to renegotiate their debt with China.

There is now a clear recognition of the risks involved and also a reduced appetite for additional financial commitment. You also have other hurdles right now, like the fact that China has very strict travel controls due to COVID restrictions.

It is very difficult at present for Chinese managers or developers to travel from China to one of the BRI countries to make deals or to do due diligence and plan a large scale project. This is a major obstacle to the conclusion of new agreements. That doesn’t mean there aren’t new deals, as Chinese companies and financial institutions have staff on the ground, but things are just heavier now.

China is also in a different domestic situation than in 2015-2017, when many of these BRI agreements were signed. Chinese financial institutions focus much of their efforts on supporting the domestical economy and are potentially less interested in adding more foreign project loans. So there is also an ongoing reassessment by financial institutions.

Overall, there are a multitude of reasons why we are seeing a shift from these larger-scale projects to potentially smaller projects.

Going back to your first question, there is growing interest in resource transactions. In a way, these are perfect projects for any developer because the risk is very low. Essentially you get your funding and there is an easier way for you to get your money back which is not the case with other large infrastructure projects which have much longer payback periods with much uncertainty higher.

This interview has been edited and condensed for clarity.