China can make its Belt and Road project more successful if it taps locals, experts say

  • China's Belt and Road Initiative has been clouded by criticisms amid complaints of excessive reliance on Chinese workers over locals.
  • It would help if Beijing were to increase its engagement with local stakeholders, a panel of experts at the Milken Asia Summit in Singapore said on Thursday.
Cranes stand during the sunset at a construction site at the hotel complex construct by Chinese company on October 15, 2015 in Colombo, Sri Lanka.
Buddhika Weerasinghe/Getty Images
Cranes stand during the sunset at a construction site at the hotel complex construct by Chinese company on October 15, 2015 in Colombo, Sri Lanka.

China's flagship investment program — known as the Belt and Road Initiative — is one of the answers to the emerging world's infrastructure needs, but it has been shrouded in criticism amid allegations of debt-trap diplomacy and neo-colonialism.

To improve the image of the multi-billion dollar program, Beijing must do more to embrace local stakeholders, a panel of experts at the Milken Asia Summit in Singapore said on Thursday.

"A common lament of recipient nations is that despite all the investments from huge infrastructure projects, there's a lack of local employment opportunities," said Robin Hu, head of sustainability and stewardship at Singaporean sovereign wealth fund Temasek Holdings.

One of the biggest complaints around the initiative is an excessive reliance on Chinese employees for on-the-ground projects, which deprives participating countries of jobs. That's triggered anti-Beijing sentiments in places such as Laos and Turkmenistan. In instances where locals are employed, complaints about dire working conditions are rampant, with public demonstrations being held from Vietnam to Sri Lanka.

Beijing basically replicated its traditional state-owned enterprises (SOE) model in other developing nations, Hu said. These enterprises "tend to air drop the entire ecosystem, from their engineers to the construction workers to the chefs, into the countries to do the project," he said.

A McKinsey study in 2017 found that among 1,073 Chinese firms across eight African countries, only 44 percent of the managers on average were local.

"We may be missing the bigger point of the BRI, which is that it's simply an avenue for Chinese entrepreneurs to go forth and conquer," said Jonathan Woetzel, director of the McKinsey Global Institute, at Thursday's panel.

But Chinese SOEs are laden with debt liabilities which could impact their overseas operations.

"China has significant leverage to GDP. It's generally connected in local government financing vehicles and SOEs," Mark Machin, president and CEO of the Canada Pension Plan Investment Board told CNBC on the sidelines of the Singapore Summit on Friday.

When asked whether the Belt and Road project presented any opportunities for the Canadian pension fund, one of the world's largest, Machin responded with a "maybe."

Jobs aside, there are other ways that Beijing could improve its relationship with participating countries. These include increasing sourcing from local enterprises, engaging with labor unions and environmentalists as well as developing human capital, according to Hu.

The issue isn't lost on Chinese President Xi Jinping's administration.

With an increasing focus on economic corridors that are premised on development, the Belt and Road is slowly waking up to the fact that infrastructure loses value without economic activity, Woetzel said, adding that local governments were ultimately responsible for spending Chinese funds in an effective way.

The international community may also have a role to play in bolstering positive momentum around the Belt and Road.

Western institutions should ensure debt deals are transparent, warned Paul Gruenwald, chief Asia-Pacific economist at S&P Global Ratings. Transparency is key to winning local hearts and minds, he added.