Deficit Trap?: Trade Balances And China’s Belt And Road Initiative – Analysis


By Felix K. Chang*

(FPRI) — “Senseless and baseless.” That was how a top Chinese official described claims that China’s Belt and Road Initiative (BRI), which officially launched in 2013, had caused economic hardship in developing countries. Indeed, much has been written about the potential for such countries, which had borrowed under the auspices of the BRI to construct trade and transportation infrastructure, to fall into so-called “debt traps.” Two commonly cited examples of that peril have been Pakistan and Sri Lanka. Both were caught in a spiral of ever-higher loan interest and principal payments when their newly built infrastructure failed to generate enough revenues to service their debts.

Less appreciated, however, has been the BRI’s potential to create the conditions for another sort of peril: a “trade deficit trap.” In contrast to a debt trap, a trade deficit trap is a situation where a country experiences an ever-widening trade deficit after its newly built infrastructure projects are completed. While many factors may affect the direction of trade balances, including a strong currency or weak productivity, this study focuses on the impact that BRI infrastructure projects might have had on national trade balances, particularly with China. Based on the study, there appears to be some correlation between a country’s participation in the BRI and a deterioration in its trade balance with China. Though economists still debate the exact consequences of a persistent trade deficit, if left unchecked, one could weaken a country’s economy.

Trade Promises Made

For its part, Beijing has done its best to dispel fears of debt traps and trade deficit traps. At the second Belt and Road Forum in 2019, Chinese General Secretary Xi Jinping directly addressed them. He argued that the BRI would lead to “high-quality growth” for all participating countries. Beyond the debt issue, Xi pointed out that “China does not pursue a trade surplus intentionally, and it would like to import more … products and services” from BRI countries. While that is surely a possibility, what he did not touch on was another possibility: that Chinese exports to BRI countries could grow even faster in absolute, if not relative terms.

One thing has always been certain: New infrastructure—whether a highway, railway, seaport, or airport—reduces the barriers (or “friction” in economics parlance) to trade. Better and more trade and transportation infrastructure tend to lower the cost and time needed to move goods. Naturally, that benefits consumers. But it also impacts producers. Depending on how prepared a country’s producers are to face new and possibly intense international competition, a country’s trade balance could deteriorate.

Friction-Less Trade

While economists often disagree about the virtues of unfettered international trade, they all agree that the initial competitive advantages that countries possess matter to the eventual trade balance between them.[1] Fortunately for China, it has built up substantial competitive advantages in all sorts of manufacturing over the last quarter-century, and can now boast hundreds of giant and technologically advanced industrial firms. Few BRI countries, especially those in the developing world, come close. As a result, reducing the trade barriers between China and BRI countries would likely bring their respective firms into not only more direct, but also lopsided competition. And, given the relatively short time it takes to build a new railway or seaport, that means that local manufacturers in BRI countries would either have to find a way to quickly boost their competitiveness or risk falling into a downward spiral of lower earnings and investment that strangles their ability to compete.

Hence, it is easy to see how rapidly lowering trade barriers could undermine local industries in BRI countries and set the stage for a trade deficit trap. Still, those BRI countries could try to avoid the trap by specializing in non-manufacturing sectors, like agriculture or mining. If done at scale, agricultural and mineral exports could help balance their trade flows. However, even if successful, such specialization would make those economies more vulnerable to commodity price swings and, perhaps more importantly, slow or stifle the further development of local industries.[2]

Tipping Trade Balances

This study of seven countries, all of which have accepted large and well-documented BRI loans, has sought to shed light on the impact that their BRI infrastructure projects may have had on their trade balances, particularly with China. The study examined countries in Africa and Asia with large and small economies, and with both trade deficits and trade surpluses with China at the outset of their BRI experiences. And as for the nature of the data used in the study, I only used those reported from China’s perspective to the United Nations’ International Trade Statistics Database.

Bilateral Trade Balances of Selected BRI Countries with China (U.S. dollars in millions)

   2013   2021   
Country ExportsImportsBalance ExportsImportsBalance Change
Angola 31,9733,96428,009 20,9082,49218,417 -34%
Kenya 533,217-3,165 2276,732-6,506 -106%
Kyrgyzstan 625,075-5,013 807,474-7,394 -47%
Malaysia 60,15345,93114,223 98,19378,69819,495 37%
Myanmar 2,8577,339-4,482 8,38110,527-2,146 52%
Pakistan 3,19711,020-7,823 3,58524,241-20,656 -164%
Sri Lanka 1833,437-3,254 6505,252-4,602 -41%

Note: Positive change denotes an improved trade balance with China; negative change denotes a worsened trade balance with China.

Source: United Nations, UN Comtrade: International Trade Statistics Database, retrieved June 1, 2022,

One might look to Kyrgyzstan as a bellwether of the BRI’s impact on trade balances. Its small economy and proximity to China have made it particularly exposed to the effects of BRI-backed infrastructure. After several BRI-funded roads were finished, Kyrgyzstan’s trade with China boomed. But so, too, did its trade deficit. Chinese exports to Kyrgyzstan rose at twice the pace of its imports, leading Kyrgyzstan’s trade deficit with China to widen 47 percent from 2013 to 2021. What is even more remarkable is the sheer asymmetry of the trade deficit in dollar terms. Even according to China, it exported some $7.5 billion worth of goods to Kyrgyzstan but imported only $80 million in return.

Other countries have had comparable experiences after their BRI-financed infrastructure projects were completed. Kenya heavily borrowed under the BRI to build its Standard Gauge Railway, which it envisioned would run from the port of Mombasa to the landlocked countries of Rwanda, South Sudan, and Uganda. Although the railway initially operated at a loss after its $2.3-billion first phase to Nairobi was finished in 2017, its cargo volume climbed by almost 30 percent per year through 2021. Perhaps unsurprisingly, Kenya’s trade deficit with China doubled during the same period. The Kenyan government’s efforts to reverse the trade balance deterioration by boosting agricultural exports have made little headway so far.

Meanwhile, halfway across the Indian Ocean, something similar happened in Sri Lanka, where BRI loans for its Hambantota International Port have contributed to the country’s need for an international bailout in 2022. Yet, as bad as the port’s financial woes had become, the number of ships calling at it has crept up from about three per month in 2013 to more than 60 per month in 2021.[3] Over the same time, Sri Lanka’s trade deficit with China grew by 41 percent.

Angola, a country with a hefty trade surplus with China, did not escape unscathed. As a major producer of oil and natural gas, Angola has been one of energy-hungry China’s biggest suppliers of both commodities. It was also one of the BRI’s earliest and largest borrowers in Africa. Yet, its economy has not grown in dollar terms since 2014, and its trade surplus with China actually fell by 34 percent from 2013 to 2021.

On the other hand, Myanmar’s trade deficit with China, which largely held steady from 2013 to 2017, was more than halved from $4.5 billion to $2.1 billion between 2017 and 2021. Much of that improvement could be traced to the completion of two major BRI-financed oil and natural gas pipeline projects in 2017. Although the pipelines themselves only marginally contributed to Myanmar’s economic development, their financial successes likely encouraged Naypyidaw to pursue more BRI-financed projects. Those future BRI projects, part of the China-Myanmar Economic Corridor, now include the $9-billion Muse-Mandalay Railway, the $1.3-billion Kyaukpyu Deep Sea Port, and two big highway projects.

In other cases, even tenuous conclusions are difficult to draw. Considering China’s $62-billion investment in the China-Pakistan Economic Corridor since 2013, Pakistan should have been another bellwether. But only a handful of its BRI-funded transportation infrastructure projects were ever entirely finished. Hence, even though Pakistan’s trade deficit with China ballooned over 164 percent between 2013 and 2021, it is difficult to attribute that deterioration to the BRI. Similarly, Malaysia’s biggest BRI-backed projects, including two oil and natural gas pipelines and the East Coast Rail Link, were either canceled or are still under construction. Thus, it too is hard to link any of Malaysia’s trade-balance improvements to its BRI infrastructure projects.

Chinese “Win-Wins”

To be sure, many factors contribute to the direction of trade balances. But the possibility that a country’s trade balance could materially worsen after major BRI-financed infrastructure projects are completed ought to give any BRI country pause. At the very least, it should prompt a BRI borrower to more carefully consider policies that manage the speed with which its local businesses are exposed to greater competition from foreign imports.

Xi has often referred to BRI infrastructure projects as “win-wins.” For BRI borrowers, the jury remains out on whether that is the case. Certainly, from China’s standpoint, the BRI has been a “win-win,” especially during its early years. Countries lined up to borrow from Chinese banks at commercial rates to hire Chinese construction firms to build infrastructure that enabled Chinese manufacturers to more easily export their goods to those countries and, in doing so, enabled China to expand its influence. Best yet for China, if that infrastructure turned out to be unprofitable, the borrowing countries would be on the hook to pay off the debts. However, by the 2019 Belt and Road Forum, the BRI had come under enough international criticism that Beijing realized it needed to find ways to spread the BRI’s benefits more equitably, if only rhetorically.

With the global economy slowing, the issuance of new BRI loans has followed suit. If the BRI is to regain its momentum, China should consider doing more to avoid the potential for not only debt traps, but also trade deficit traps from forming. Doing so would reassure countries that Xi’s “win-wins” apply to not only China, its banks, its construction firms, and its exporters, but also BRI borrowers too.

The views expressed in this article are those of the author alone and do not necessarily reflect the position of the Foreign Policy Research Institute, a non-partisan organization that seeks to publish well-argued, policy-oriented articles on American foreign policy and national security priorities.

*About the author: Felix K. Chang is a senior fellow at the Foreign Policy Research Institute. He is also the Chief Operating Officer of DecisionQ, a predictive analytics company, and an assistant professor at the Uniformed Services University of the Health Sciences.

Source: This article was published by FPRI

[1] Robert Gilpin, The Political Economy of International Relations (Princeton: Princeton University Press, 1987), pp. 184-186.

[2] See John Cornwall, Modern Capitalism: Its Growth and Transformation (New York: St. Martin’s Press, 1977).

[3] Author’s observations from monitoring MarineTraffic,

Published by the Foreign Policy Research Institute

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