If the Belt and Road Initiative were thought of strictly in terms of financial returns, it would have been a terrible investment for China and many of the countries participating in it. The hundreds of billions spent by Beijing and host countries have not produced much in the way of returns. Consider that the sovereign debt of 27 of the BRI’s member nations is regarded as “junk” by America’s three rating agencies; an additional 14 of them have no rating at all. That means that for 41 of the 68 nations in the BRI (or 60% of them), obtaining funding from sources for that kind of investment other than from development finance institutions would have been a real problem if the Initiative had not existed. Beijing knew this and rode in like a knight in shining armor. A financial return was not as high on the list for Beijing as geopolitical influence, natural resource extraction, and expanding its soft power and spheres of influence.

The incongruity between the creditworthiness of a country or project and loan size have often led to tainted contract award procedures, significant project delays, and political turmoil. Pakistan, which rates a seven on the OECD’s risk classification scale (its lowest risk rating), was the country that Beijing chose as the destination for its largest single BRI program—the CPEC. In Cambodia, a surge in imports of capital goods to supply BRI construction projects caused Phnom Penh’s trade deficit to widen to 10% of gross domestic product shortly after its megaprojects broke ground. Montenegro had its credit rating cut by Moody after borrowing from China to fund the first phase of an €809 million motorway, equivalent to nearly one-fifth of the country’s GDP. And in Laos, the Chinese-funded $6 billion railway discussed earlier accounted for about 40% of the country’s GDP in 2015, which contributed mightily to a large trade deficit. Such projects were never going to end well.

China’s big state-owned enterprises are run by Communist party politicians who are rewarded for political loyalty and motivated by a desire to support large BRI infrastructure projects. For them, the accumulation of debt is not much of a consideration in making investment decisions. The same is true vis-à-vis “white knight” Chinese investors. For example, Cosco Shipping Holdings (parent company of China Cosco Shipping, which bought a controlling stake in Greece’s largest port in 2016) was six times more leveraged than the Piraeus Port Authority it bought.

Although the Piraeus investment has proven successful by driving new business to the Greek port, the debt mismatch shows that Chinese companies—especially the 98 huge corporations that are owned by the State-owned Assets Supervision and Administration Commission of the State Council, a central government holding company—are playing by a different set of rules than conventional wisdom dictates. Since these companies are owned by the Chinese government, they are able to run up massive debts without fear of bankruptcy. That began to change in 2018 when Beijing ordered companies owned by the Council to bring down their debt-to-asset ratios by 2020, consistent with Beijing’s policy of more closely scrutinizing BRI projects.

There is also a gap between how BRI projects are “supposed” to be selected and how they are actually chosen. The Chinese government has characterized BRI investment in Eurasia as “economic corridors” that directly connect China to markets in other parts of the continent. The objective is to channel capital into areas where the CCP will have the most potential long-term benefit. An analysis by the Center for Strategic and International Studies of 173 BRI projects concluded that with the exception of the China-Pakistan Economic Corridor, there did not appear to be any significant relationship between Corridor participation and project activity.

This suggests that interest groups hijacked the decision-making process, which was not, in fact, directed by China’s state government. Rather, provincial and regional governments had been tasked with developing their own BRI projects and the officials in charge of these projects had no incentive to approve financially sound investments. By the time a given project was completed, the individuals responsible for making the decision to invest would presumably no longer be in their positions, and therefore no longer be accountable for the project’s success. The most important decision-making criteria appears to be simply for a project to have a BRI label attached to it.

That explains why 95% of BRI funding has been derived from large state-owned enterprises. Far from being a paradigm for state-run strategy and implementation, the BRI is evidence of systemic fragmentation and dysfunction. The countries that benefited most from it are those that already had strong geopolitical reasons for aligning themselves, or strengthening their alignment with, China. The BRI gives the rest of the world great insight into how the Chinese state functions. It is perhaps the best example of how the Chinese Communist Party policymaking system has broken down. All this became known too late for most of the BRI member countries to reconsider their commitment to the Initiative and Beijing.